United Kingdom
In receipt of tax credits
Key points
- In April 2008, around 2.8 million working-age households were in receipt of tax credits over and above those just receiving the family element of Child Tax Credit. This is double the number in 2001 and treble the number a decade ago. It represents around 15% of all working-age households.
- Much of the increase is due to the more generous eligibility criteria that were introduced as part of the introduction of the Working and Child Tax Credits (which replaced the Working Families Tax Credit in April 2003). Around three-quarters of the increase since 2003 rise has been due to more generous eligibility criteria for people with dependent children, whilst the other quarter has been due to people without dependent children now being eligible (prior to April 2003, tax credits were only available to people with dependent children).
- The proportion of working-age households who are in receipt of tax credits in London and the South East is much less than elsewhere in the UK: around 12% of all working-age households compared to 17% elsewhere.
- Only a quarter of the tax credit recipients in 2005/06 (excluding those just in receipt of the basic family element of Child Tax Credit) were no longer in low income because of the tax credit monies received. A further quarter remained in low income despite the tax credits. The remaining half would not have been in low income even if they had not been in receipt of tax credits.
Graph 1: Over time
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Graph 2: By region
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Download a spreadsheet with the district-level statistics
Map
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Graph 3: By group
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Why this indicator was originally chosen
The system of tax credits is a major Government initiative to tackle the continuing problems of low pay. These tax credits are more generous than the previous system of benefits that they replaced in terms of both the numbers of people who are eligible and the amounts of money that they are eligible for. Whilst this indicator does not meet the criterion of it being obvious which is the desired direction for change over time, it is clear that the trends in the last few years have been driven by the changes in eligibility rather than any underlying changes in need and thus that upward trends are currently to be desired.
Definitions and data sources
Tax credits are a form of means-tested benefit for working households. In April 2003, the Working Tax Credit (WTC) and Child Tax Credit (CTC) replaced the Working Families Tax Credit (WFTC) and Disabled Person's Tax Credit (DPTC). These, in turn, had been introduced in 1999 to replace Family Credit (FC) and Disability Working Allowance (DWA).
CTC includes a family element which is paid to any household with a dependent child with an annual income of less than £50,000. Households receiving only this family element are excluded from this indicator (on the grounds that even most above-average income households with children receive it).
The first graph shows the proportion of working-age households in receipt of tax credits (and their equivalents in previous years) for each year over the last decade.
The second graph shows, for the latest year, how this proportion varies by region.
The map shows, for the latest year, how the proportion varies by local authority.
Care has been taken to ensure that the data is on a like-for-like basis. In particular:
- The data from 2003 onwards is total recipients of either WTC or CTC in the stated month excluding both those just receiving the family element of CTC and those who are out of work.
- The 2001 and 2002 data is total recipients of either WFTC or DPTC in the stated month.
- The 1996 to 1999 data is total recipients of either FC or DWA in the stated month.
The reasons for these inclusions and exclusions are as follows:
- Those only in receipt of the family element of CTC are excluded from the figures from 2003 onwards because a) they are not in low income and b) their equivalents in previous years are also excluded (essentially, the family element of CTC replaced the Married Couples Allowance, with something called the Children's Tax Credit existing for a short period of time).
- Those who are out-of-work are excluded from the figures from 2007 onwards because, prior to 2007, the equivalent people were counted as benefit recipients rather than tax credit recipients. This is because the child supplements of some out-of-work benefits (although not the base benefits themselves) are now considered by the government to be tax credits rather than benefits.
- Recipients of DWA and DPTC in the years to 2002 are included because the data for WTC/CTC includes disabled claimants.
Note that awards for WTC/CTC run to the end of the tax year so any figures published within a given year should be considered provisional – they are simply a snapshot of the situation on one day. Claimants are constantly entering and leaving the system and their awards are not finalised until the end of the tax year when their income for that year is known.
The data in the first graph and map relates to Great Britain whilst that in the second graph relates to the UK. Its sources are:
- The Department for Work and Pensions Information Centre for data on FC and DWA.
- HM Revenue & Customs for data on WTC, CTC, WFTC and DPTC.
Note that:
- For the two graphs, the total number of working-age households has been estimated by multiplying the total number of households in each year by the proportion of total households who were of working-age in the 2001 Census (there are no published annual estimates for working-age households).
- For the map, 2001 Census population estimates have been assumed to apply. This is because there are no estimates for how the number of working-age households has changed over time by local authority. The number of working-age households used is the number of households where the 'Household Reference Person' is of working age.
- Although not shown on the graph, there were a very small number of households with children in receipt of tax credits in 2000 to 2002.
The third graph provides an analysis of the people in households in receipt of tax credits over and above the basic family element of CTC. The three categorisations are:
- 'Still in low income': even after taking the tax credit monies into account, the household income remains below 60% of median income after deducting housing costs. In other words, 'the household is still in poverty despite the tax credits'.
- 'No longer in low income because of the tax credits': after taking the tax credit monies into account, the household's income is above the 60% of median income threshold. If, however, the household was not in receipt of tax credits then its income would be below 60% of median income. In other words, 'tax credits have lifted the household out of poverty'
- 'Would not be in low income even without the tax credits': if the household was not in receipt of any tax credits, its income would still be above 60% of median income. In other words, 'the household would not be in poverty even if tax credits did not exist'.
The data source for the third graph is Households Below Average Income, based on the Family Resources Survey. The data relates to the UK and is for 2005/06. Note that the data is for working households only (i.e. it excludes workless households) and excludes those only receiving the basic family element of CTC.
Overall adequacy of the indicator: medium. All the data is considered to be very reliable and provides an accurate count of the people on those benefit/tax credits. However, the extensive changes in the system from year-to-year makes the data somewhat difficult to interpret.
External links
See the HM Revenue & Customs website pages on tax credits and tax credit statistics.
Relevant 2007 Public Service Agreements
Overall aim: Halve the number of children in poverty by 2010-11, on the way to eradicating child poverty by 2020.
Lead department
HM Treasury.
Official national targets
Reduce by a half the number of children living in relative low-income by 2010/11.
Other indicators of progress
Number of children in absolute low-income households.
Number of children in relative low-income households and in material deprivation.
Previous 2004 targets
Halve the number of children in relative low-income households between 1998/99 and 2010/11, on the way to eradicating child poverty by 2020, including:
- reducing the proportion of children in workless households by 5% between spring 2005 and spring 2008; and
- increasing the proportion of parents with care on Income Support and income-based Jobseeker's Allowance who receive maintenance for their children by 65% by March 2008.
Relevant government policies
The numbers
Graph 1
| Date | With dependent children | Without dependent children |
|---|---|---|
| May 1994 | 3.4% | |
| May 1995 | 3.8% | |
| May 1996 | 4.3% | |
| May 1997 | 4.6% | |
| May 1998 | 4.7% | |
| May 1999 | 4.8% | |
| May 2000 | 6.2% | |
| May 2001 | 7.1% | |
| May 2002 | 7.6% | |
| July 2003 | 11.7% | 0.7% |
| December 2004 | 12.0% | 1.4% |
| April 2005 | 12.2% | 1.5% |
| April 2006 | 12.1% | 1.7% |
| April 2007 | 12.3% | 1.8% |
| April 2008 | 12.6% | 2.0% |
Graph 2
| East | 12.7% |
|---|---|
| East Midlands | 16.0% |
| London | 11.0% |
| North East | 17.6% |
| North West | 17.0% |
| Northern Ireland | 18.7% |
| Scotland | 14.9% |
| South East | 11.5% |
| South West | 14.6% |
| Wales | 17.2% |
| West Midlands | 16.6% |
| Yorkshire and The Humber | 17.3% |
Graph 3
| Still in low income | 26% |
|---|---|
| No longer in low income because of the tax credits | 24% |
| Would not be in low income even without the tax credits | 50% |