Working families to get tax credit

The Chancellor announced he was changing the way poor families were helped by the state, and said it would mean that families would always be better off working than being on benefit.

2 A Working Families Tax Credit would replace Family Credit, he said. Families would have the right to choose whether the credit was paid to the man or woman in the family, and whether it is paid directly or through the pay packet.

Brown:"Families are the bedrock of a stable society"

Conservative leader William Hague told Mr Brown that the new tax credit system was "an extremely complex system which you hope none of the commentators will understand".

Help with child caring

Mr Brown announced there would also be a tax credit to help couples pay for childcare. This would cover as much as 70% of the childcare costs up to £100 a week for the first child and £150 for two or more children.

Child Benefit would still be universal, he said, and would still be paid directly to the mother.

Guaranteed income

Under the Working Families Tax Credit, families with someone working would now have a guaranteed income of at least £180 a week, and no income tax would be paid on earnings below £220 a week.

The Government has favoured a tax credit for low paid workers because it believes the psychological effect of increasing wages through the wage packet will encourage people into work.

The idea has been based on the American Earned Income Tax Credit. Mr Brown signalled in his first budget, last July, that he was in favour of the scheme.

Criticism

However, not everyone backs the idea, because of worries that it would mean the money would usually go to the man in a family instead of the woman, the so-called 'purse-to-wallet' issue. By giving families the option, Mr Brown will hope he has avoided this criticism.

One additional benefit for the Government is that, once the tax credit is established, it will be possible in future years to give 'tax cuts' to the poor by simply increasing the amount of the credit.

There was also to be a tax credit for the disabled who work, starting in October 1999.