How Tax Credits ‘Cheat’ Working Families

Gordon Brown’s flagship tax credits programme “brutally discriminates” against two-parent families and actively discourages single parents from forming stable relationships, a damning report says today.

Frank Field, the former Labour minister, has produced findings that show how the Government’s campaign against child poverty has “stalled” by making it more financially attractive for lone parents not to seek partners.

His most telling conclusion is that a single mother working 16 hours a week, after tax credits, gains a total income of £487 a week, while a two-parent family on the minimum wage has to work 116 hours for the same income.

The report is a serious embarrassment for Mr Brown, who has championed the role of means-tested tax credits in tackling poverty and helping low-income working families.

A Revenue and Customs report last month admitted that the tax credit system had been plagued by complexity, overpayments and fraud. It said that £6 billion had been overpaid to claimants – with many families struggling to meet demands for repayment.

The Treasury and single-parent lobby groups rejected Mr Field’s criticism and defended the payments to lone parents.

A spokesman for Mr Brown said tax credits treated couple and lone-parent households equally, “rather than favouring one family arrangement over the other”.

“Levels of financial support are determined by need – based on the number of children in the family and the household’s income. As a result of measures introduced by the Government, since 1997 households with children in the poorest fifth of the population are on average £3,500 better off per year in real terms.”

The Child Poverty Action Group denied that two-parent families were discriminated against. Kate Green, its chief executive, said: “Children in lone-parent families face a 50 per cent risk of being in poverty, compared to a 23 per cent risk for children in two-parent families.

“To disregard the higher risk of poverty faced by one-parent families would be a brutal disregard of children’s well-being. Resources must be targeted to need.”

The Conservatives said the report was a “devastating critique” from a Labour politician who knew more about Mr Brown’s welfare policies than anyone else and who had worked alongside him as first minister for welfare reform.

The report, Welfare isn’t Working; child poverty, published by the Reform think- tank, says that by 2009 the Government will be spending £13 billion a year extra – the equivalent of 4p on the basic rate of income tax.

To reach Tony Blair’s target of halving child poverty by 2011, the Government would need to spend an additional £4 billion a year – which was unlikely to be forthcoming because of a coming squeeze on public spending.

Mr Field said Mr Blair’s announcement in 1999 that his government would be the first to attempt to abolish child poverty was a praiseworthy and “noble objective”.

But 10 years on, the record looked patchy. The Government had missed its 2004-05 target of a reduction of a quarter in child poverty and fell further behind last year.

Mr Field, Labour’s welfare reform minister from 1997-98, said the tax and benefit system had been “skewed” towards lone parents by so heavily discriminating against two-parent households.

But 60 per cent of children in poverty lived in two-parent households while 40 per cent were in lone-parent families.

The present system, he said, was actually discouraging single parents from finding a partner or marrying – one of the key routes out of poverty – because of the way it discriminated against two-parent families. A “radical restructuring” of the Government’s antipoverty strategy was needed – as severe child poverty had been “untouched” and persistent poverty was high.

Mr Field said there should be an increased allowance for couples where both partners worked to ensure they kept more of their benefits.

The new child tax credit system started in 2003, with 5.7 million families receiving £16 billion in credits between them. Couples with a combined income of up to £58,000 are eligible, although people whose income is close to the threshold get only a minimal amount.

The report said the single and immediate step the Government should take would be to ensure that any new money for the tax credit system was used to lessen and then abolish the system’s discrimination against two-parent households.

It said that more than 700,000 children in poor working households were not receiving tax credits.