Tax and benefits
13. The development of ICC also takes place within
the context of the Government's attempts more closely to integrate
tax and benefits. Whereas in Australia the integration of support
for children in low income families across the work/no-work divide
led (between the mid-seventies and mid-nineties) to the complete
removal of benefits for children from the tax system,[17]
in the UK the decision has been taken to move income-related benefits
for children into the tax system. Why use the tax system, rather
than the benefits system, to construct a single administrative
mechanism to pay people out of work, people in work on low incomes,
and people with higher incomes? In Canada, where an integrated
child credit is delivered through the tax system, the explanation
appears to lie in the fact that the child credit is a federal
initiative, replacing a variety of social assistance offered at
provincial level. The tax system is the national system available
to the Canadian federal government to deliver its reforms.[18]
Since the mid-nineties in Australia, there has been a move to
transfer support for children back into the tax system. However,
the reasons for this appear largely to do with the introduction
of Value Added Tax in Australia and the Australian government's
desire to compensate families with children, who, without extra
tax assistance, stood to be disproportionately worse off.[19]
In the UK, IFS suggested that one reason for using the tax system
to deliver unified support for children rather than the benefits
system was that less stigma attached to claiming tax reductions
than claiming means-tested benefits.[20]
Andrew Dilnot of IFS also agreed that "it is a plausible
thing to argue that it is easier to get popular support for tax
reductions than it is for social security spending increases and...to
the extent that the Integrated Tax Credit is seen as part of the
tax system it may make it easier for governments of either political
persuasion...more easily to direct resources."[21]
14. Compared to the system of integrated child credits
which we examined in Canada, the UK proposals represent only a
partial integration of tax and benefits. In Canada, once an eligible
child has been identified, the assessment for Canada Child Tax
Benefit is done automatically each year using information collected
for income tax purposes and payment is made through the tax system.
In the UK, obtaining ICC will require a specific application,
and the assessment of ICC, although done by the Inland Revenue,
will be separate from the collection of income information for
income tax purposes. The Low Incomes Tax Reform Group (LITRG),
established by the Chartered Institute of Taxation, has drawn
attention to the lack of integration of the rules, terminology,
processes, forms, and computers between the current WFTC and Disabled
Person's Tax Credit (DPTC) (formerly benefits) and the income
tax system, a situation which appears likely to continue with
ICC.[22]
The point was put to the Treasury that, seen from a Canadian view
point, the integration of tax and benefits in the UK was, in practice,
pretty superficial. The response was that integration of tax and
benefits was an evolving process. ICC represented a further step
along the way, beyond WFTC and DPTC. Mr Macpherson, Director of
Welfare Reform at the Treasury, told us "I would not say
that there is some blueprint in terms of where this gradual process
of tax and benefit integration will end up."[23]
The splitting of family benefits
into adult and child components
15. The integration of means-tested financial support
for children does lead, conversely, to the splitting of Income
Support/Jobseeker's Allowance and WFTC/DPTC into separate adult
and child components. Adults who are out of work will continue
to receive Income Support or Jobseeker's Allowance, paid through
the new Working Age Agency. For adults in low-paid work, an Employment
Tax Credit paid through the Inland Revenue will replace WFTC or
DPTC. Unlike WFTC, as we have noted above, the ETC will be available
to people who do not have dependent children. This 'disintegration'
of a family's benefit was seen as a positive step by the policy
team charged with the development of ICC. Mr Tony Orhnial, Director
of Personal Tax at the Inland Revenue, explained:
"What we have done here and the way people need
to understand the concept of 'integrated', is to sharpen up our
policy tools by pulling together various elements of Child Support.
Whereas we start with the Working Families' Tax Credit, which
has two distinct sets of objectives operated on with one policy
tool, with the new system we are going to be able to focus quite
sharply on child objectives within the ICC- if that is what we
want to do - and on employment objectives with the Employment
Tax Credit. So we will have more sharply focussed policy tools."[24]
16. It was precisely this separation of 'child' and
'employment' objectives which worried the Child Poverty Action
Group. Martin Barnes said "The relevance for Integrated Child
Credit is if you sell this as, 'This is the payment for the child',
does this make it easier to push forward a regime of sanctions
for the parents? Our concern is that it may do so."[25]
17. Some witnesses raised concerns that, when viewed
by those on the receiving end, the splitting of Income Support/Jobseeker's
Allowance, and WFTC/DPTC into separate components could be perceived
as a greater fragmentation of their financial support rather than
a move towards a more integrated approach. This is discussed in
more detail at paragraph 85 below.
7 HMT 2000, para 2.25. Back
8
Ibid. Back
9
HMT 2000, para 2.27. Back
10
HMT 2000, para 2.25. Back
11
HMT 2000, Chart 2.6 page 14. Back
12
IFS, Q 172. Back
13
Q 35 and 36. Back
14
See evidence from Disability Alliance (Appendix 2) and Child
Poverty Action Group (Ev. p .50, para 7.11). Back
15
Although no decisions have been announced concerning income-related
allowances for children with disabilities, see para 32. Back
16
Q 219. Back
17
See Peter Whiteford, Q 51 and 55. Back
18
See Jane Millar, Q 2. Back
19
See Peter Whiteford, Q 55. Back
20
Q 173. Back
21
Q 174. Back
22
Appendix 1, para 10. Back
23
Q 218. Back
24
Q 218. Back
25
Q 120. Back
