United Kingdom

In receipt of tax credits

Graphs on this page:

Supporting information:

Key points

  • All of the statistics below concern households in receipt of tax credits over and above the (non-means tested) family element.
  • In April 2011, 3.3 million working, working-age households were in receipt of tax credits over and above those just receiving the family element of Child Tax Credit.  This is more than double the number of a decade ago.  It represents around 17% of all working-age households.
  • Much of the increase is due to the wider 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).  Since 2003, however, there have been further year-on-year increases, averaging around 100,000 additional households each year.
  • Around half of the increase since 2003 rise has been due to more generous eligibility criteria for people with dependent children, whilst the other half 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 less than elsewhere in the United Kingdom: around 14% of all working-age households compared to an average of 19% elsewhere.
  • Averaging over the latest three years, only a quarter of the tax credit recipients (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.

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 families.  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 family with a dependent child with an annual income of less than £50,000.  Families receiving only this family element are excluded from this indicator (on the grounds that even most above-average income families with children receive it).

To allow comparisons both over time and between groups, the number of families in receipt of tax credits needs to be divided by the size of the total population.  However, there are no population estimates for the total number of working-age families.  As a proxy, the total estimated number of working-age households is used as the denominator in all the graphs (see the page on households, families and benefit units for a discussion of the differences between ‘households’ and ‘families’).

The first graph shows the number of working families in receipt of tax credits (and their equivalents in previous years), expressed as a proportion of the total number of working-age households.

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 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 source for the first and second graphs plus map is HM Revenue & Customs. The data relates to the United Kingdom.

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 2001 to 2002.

The third graph provides an analysis of the people in families 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 United Kingdom and, to improve its statistical reliability, is the average for the latest three years.  Note that the data is for working families only (i.e. it excludes workless families) and also 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

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.

The numbers

Graph 1

Date With dependent children Without dependent children
May 2001 7.2%
May 2002 7.7%
July 2003 11.8% 0.7%
December 2004 12.2% 1.4%
April 2005 12.4% 1.6%
April 2006 12.2% 1.7%
April 200712.5% 1.9%
April 200812.8% 2.0%
April 200913.2% 2.4%
April 201013.8% 2.9%
April 201114.2% 3.1%

Graph 2

East 15.0%
East Midlands 18.7%
London 14.4%
North East 20.1%
North West 20.3%
Northern Ireland 21.2%
Scotland 16.1%
South East 13.8%
South West 17.1%
Wales 19.5%
West Midlands 19.8%
Yorkshire and The Humber 20.0%

Graph 3

Still in low income 30%
No longer in low income because of the tax credits 23%
Would not be in low income even without the tax credits 47%