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Families: extra £25 a year for those who brave 'distress and hardship'
Last Updated: 1:29am BST 13/10/2007
Faith Archer explains the changes to the much-criticised tax credit system
Families receiving tax credits will get an extra £25 a year, under a complex system of means tests criticised by the Parliamentary Ombudsman this week as causing "unnecessary distress and hardship" to low-income families.
The Chancellor announced that the child element of child tax credit will increase by a further £25 a year above indexation from April 2008, on top of the £150 increase already promised in March's Budget, and then by another £25 above indexation from April 2010.
This is expected to take the child element up from £1,845 to £2,020 a year from next April, according to accountants Grant Thornton.
Child tax credit can be claimed by families responsible for a child under 16, or up to the age of 18 but still in full-time education. The payments are not only for people with low incomes, as for example families with children under the age of one could still receive child tax credit with income of up to £65,965 a year.
However, once a family earns more than £30,000 a year they get only the family element of child tax credit, at £545.
Sheena Hay, from accountants Grant Thornton, said: "It is a real shame that the Chancellor has not taken heed of the damning report published by the Parliamentary Ombudsman on the same day as the Pre-Budget speech.
"There is nothing here to save families from the anguish of an unworkable and over-complicated system.
"Some people might get a few pounds more, but what about the agony for those people suffering hardship when paying back overpayments as a result of Revenue errors?"
Tax credits now account for more than a quarter of all complaints to the Parliamentary Ombudsman, according to the report published on Tuesday.
More than nine in 10 complaints concern overpayments, where chaos in the system has seen the Government hand out £5.7bn more than people were due over the past three years. The Government then demands money back from those least able to afford it.
Almost a third of the 6m tax credit awards in 2005/06 were overpaid, with around 500,000 overpaid by more than £1,000, according to the Ombudsman's report. This caused particular hardship as more than 360,000 overpayments were made to households with annual incomes of less than £10,000.
The report criticised the Government's guidance on whether to waive these overpayments.
Ombudsman Ann Abraham said: "The unfair and inconsistent application of the code of practice, and the unduly harsh nature of some of the decisions taken on recovery, caused extreme worry and anxiety to many low income families.
"The outcomes of some of those decisions seemed to fly in the face of the aims of the tax credit policy."
After a previous critical report issued by the Ombudsman two years ago, Ms Abraham acknowledged "some improvements" in complaints handling by HM Revenue & Customs (HMRC), but said the tax man "still has a very long way to go".
Philip Hammond, shadow chief secretary to the Treasury, said: "This is yet another indictment of Gordon Brown's botched handling of the tax credits system."
Single mother Liz Law, from Hale, Cheshire, who has two children – Joey, seven, and five-year-old Lily – has already experienced problems with the £500 a month she receives in tax credits, after her ex-husband failed to return a form.
Ms Law said: "There was hassle because my kids came out of the system, and I received a letter saying I would have to pay a whole year of tax credits back.
"After I made a number of phone calls, it was eventually sorted out."
However, Ms Law is pleased that the Chancellor is doubling the amount of child maintenance allowed without affecting means-tested benefits such as income support, up from £10 to £20 a week, with effect from the end of 2008. In April 2010, this "child maintenance disregard" will be increased further to £40 a week.
Ms Law works part-time, and said: "Doubling the amount of money will really make a considerable difference. As a mother, you can do an awful lot with the extra money."
An HMRC spokesman said: "HMRC is already consulting on changes to the code of practice on recovery of overpayments to improve outcomes for customers."
Families: extra £25 a year for those who brave 'distress and hardship'Last Updated: 1:29am BST 13/10/2007
Faith Archer explains the changes to the much-criticised tax credit system
Families receiving tax credits will get an extra £25 a year, under a complex system of means tests criticised by the Parliamentary Ombudsman this week as causing "unnecessary distress and hardship" to low-income families.
The Chancellor announced that the child element of child tax credit will increase by a further £25 a year above indexation from April 2008, on top of the £150 increase already promised in March's Budget, and then by another £25 above indexation from April 2010.
This is expected to take the child element up from £1,845 to £2,020 a year from next April, according to accountants Grant Thornton.
Child tax credit can be claimed by families responsible for a child under 16, or up to the age of 18 but still in full-time education. The payments are not only for people with low incomes, as for example families with children under the age of one could still receive child tax credit with income of up to £65,965 a year.
However, once a family earns more than £30,000 a year they get only the family element of child tax credit, at £545.
Sheena Hay, from accountants Grant Thornton, said: "It is a real shame that the Chancellor has not taken heed of the damning report published by the Parliamentary Ombudsman on the same day as the Pre-Budget speech.
"There is nothing here to save families from the anguish of an unworkable and over-complicated system.
"Some people might get a few pounds more, but what about the agony for those people suffering hardship when paying back overpayments as a result of Revenue errors?"
Tax credits now account for more than a quarter of all complaints to the Parliamentary Ombudsman, according to the report published on Tuesday.
More than nine in 10 complaints concern overpayments, where chaos in the system has seen the Government hand out £5.7bn more than people were due over the past three years. The Government then demands money back from those least able to afford it.
Almost a third of the 6m tax credit awards in 2005/06 were overpaid, with around 500,000 overpaid by more than £1,000, according to the Ombudsman's report. This caused particular hardship as more than 360,000 overpayments were made to households with annual incomes of less than £10,000.
The report criticised the Government's guidance on whether to waive these overpayments.
Ombudsman Ann Abraham said: "The unfair and inconsistent application of the code of practice, and the unduly harsh nature of some of the decisions taken on recovery, caused extreme worry and anxiety to many low income families.
"The outcomes of some of those decisions seemed to fly in the face of the aims of the tax credit policy."
After a previous critical report issued by the Ombudsman two years ago, Ms Abraham acknowledged "some improvements" in complaints handling by HM Revenue & Customs (HMRC), but said the tax man "still has a very long way to go".
Philip Hammond, shadow chief secretary to the Treasury, said: "This is yet another indictment of Gordon Brown's botched handling of the tax credits system."
Single mother Liz Law, from Hale, Cheshire, who has two children – Joey, seven, and five-year-old Lily – has already experienced problems with the £500 a month she receives in tax credits, after her ex-husband failed to return a form.
Ms Law said: "There was hassle because my kids came out of the system, and I received a letter saying I would have to pay a whole year of tax credits back.
"After I made a number of phone calls, it was eventually sorted out."
However, Ms Law is pleased that the Chancellor is doubling the amount of child maintenance allowed without affecting means-tested benefits such as income support, up from £10 to £20 a week, with effect from the end of 2008. In April 2010, this "child maintenance disregard" will be increased further to £40 a week.
Ms Law works part-time, and said: "Doubling the amount of money will really make a considerable difference. As a mother, you can do an awful lot with the extra money."
An HMRC spokesman said: "HMRC is already consulting on changes to the code of practice on recovery of overpayments to improve outcomes for customers."
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