Gary Vaux looks at the tax credit mess and its impact on councils’ discretionary payments.

No doubt you have been reading in the papers about the chaotic state of the tax credit system.

The Inland Revenue has been inviting claims for tax credit since last autumn, with a start date of April 2003. However, claims were initially slow to come in. When the volume built up in March 2003, the Inland Revenue found that they were unable to cope. Some claimants have been left without the money they need for child care and other essentials. Emergency payments are possible through local tax offices, these are not always easy to access so social services became the “last resort”, using powers under the Children Act 1989.

This is bad enough but there are other consequences of the introduction of tax credits that are only just coming to light. For example, many local authorities have discretionary schemes that provide help with social and educational services such as nursery or childminding fees and subsidies, adoption and residence order allowances, school uniforms, travel to school costs and so on. The old system of working families tax credit and (to a lesser extent) disabled persons tax credit was often used as a “passport” for automatic access to these discretionary payments.

The new tax credits cannot fulfil the same function because of their relative generosity. With child tax credit being paid to some people earning up to £66,000 a year, this is not surprising. So, local authorities have had to find other means of defining “low income” claimants, without either extending eligibility or excluding people who would previously have qualified for help. This is not easy.

There are options that councils could consider. For example, they could choose to use the same threshold as is used for free school meals (child tax credit, but not entitled to a working tax credit, where annual income does not exceed £13,230).

Alternatively, they could use the slightly more generous cut-off point used for free prescriptions and other health benefits (working tax credit and child tax credit, or working tax credit with a disability addition, or child tax credit but not eligible for working tax credit and income is below £14,200).

Or they could use the method used for eligibility to certain Social Fund payments. For example, a claimant gets a maternity grant if they are receiving working tax credit including either of the disability elements, or if getting child tax credit at any rate above £545 a year (the family element).

The Children Act 1989 itself has been amended along similar lines in fact – local authorities cannot charge families for services if they are in receipt of child tax credit at any rate above £545 a year or any rate of working tax credit.

However, all these options rely on the Inland Revenue first sending out tax credit assessments, and second, getting them right. Some assessment notices have been telling people that they are not entitled to working tax credit at all, but that they will get child tax credit including child care costs. That is nonsense as help with child care is a payment of working tax credit.

The only people who are enjoying this are those in the Department for Work and Pensions, who were annoyed at losing tax credits to the Inland Revenue, and who are now basking in schadenfreude.

Gary Vaux is head of money advice, Hertfordshire Council. He is unable to answer queries by post or telephone. If you have a question to be answered please write to him c/o Community Care.

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