Spending Review 2010 Tax Credits

Published / Last Updated on 20/10/2010

The June Budget made some sweeping changes to Working Tax Credit (WTC) and Child Tax Credit (CTC), the most notable being the severe reduction in eligibility for the most widely paid credit, the Family Element of CTC. These reforms were set to reduce tax credit spending by £3.2bn by 2014/15. A second stage of reforms/cuts was announced in the CSR, designed to secure a further £1.1bn in savings:

The basic and 30 hour elements of WTC (£1,920 and £790 in 2010/11) will be frozen for three years from 2011/12. This contributes more than half the new overall tax credit savings.
The maximum percentage of childcare costs payable under CTC will be reduced from 80% to 70% from 2011/12. The maximum eligible costs (for two or more children) is £300 a week, so this is a cut of up to £30 a week.
At present WTC can be claimed by a couple with a child where one partner works at least 16 hours a week. From 2012/13, this eligibility requirement will be increased to a joint working time of 24 hours per week, with one partner working at least 16 hours.
The level of the child element of CTC (£2,300 in 2010/11) will be increased in real terms by £180 in 2011/12 and £110 in 2012/13. These are rises of £30 and £50 respectively on top of the above-indexation increases announced in the June Budget. They are a quid pro quo for the freezing of Child Benefit for three years from 2011/12, also announced in June.
By 2014/15 there will be £300m savings from allowing HMRC to use real time PAYE information to adjustment tax credit claim levels.
The £4.3bn total WTC/CTC savings targeted for 2014/15 will bite across the board, with many middle income families losing the Family Element of CTC in the next two years as the income threshold comes down from £50,000 (with 6.67% tapering) to around £30,000 for a two school-age child family (with 41% tapering).

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