Memorandum submitted by the Social Market
Foundation (CP 22)
MEASURING THE MEANS: CHILD TAX CREDIT AND
THE PROBLEM OF TAKE-UP
SUMMARY
1. The new Child Tax Credit is central to
the Government's anti-poverty strategy. It follows that ensuring
a high rate of take-up is a policy imperative. The current measure
of take-up, however, which records the numbers claiming, will
not enable an effective assessment to be made. Take-up would be
better understood in terms of the amount of money claimed.
2. The current measure records the proportion
of those claiming from the total eligible. It fails to capture
the fact that take-up is linked to the level of entitlement. People
with smaller awards, and who are therefore further up the income
scale to start with, are less likely to claim. Unsurprisingly,
the highest take-up rates of the old Working Families Tax Credit
were among those who received the highest wards, over £120
a week; the lowest among those who would receive £20 or less
a week.
3. The Child Tax Credit (CTC) will further
widen take-up inequality. The CTC goes to families with children
with incomes up to £60,000 a year, covering 90% of all families.
Those with annual incomes of around £20,000 to £50,000
will receive the minimum award of £10 per week. Although
it might be perceived as a policy problem when well-off middle
earners fail (consciously or otherwise) to claim, what is for
them, relatively small sums of money, this is not a critical issue.
NEW MEASURE
4. Ministers and the public alike would
be better served by a new principle measure of take-up. Currently,
the prime measure is of caseload: the number of claimaints as
a proportion of those eligible). An alternative measure calculates
the proportion of tax credit money claimed from the total available.
This measure of expenditure claimed is not the accepted one in
popular political discourse. The figures are buried beneath layers
of departmental data but need to be sold as the best way of diagnosing
policy performance in all means-tested benefits but especially
the CTC.
5. The Child Tax Credit has critical implications
for the measure of take-up. The current data neither instructs
government policy-making objectives nor assists public understanding
of a highly complex system. The current take-up figure fails to
capture the reality that the degree of take-up is linked to the
level of entitlement. People with smaller awards, and who are
therefore further up the income scale to start with, are less
likely to claim.
6. As take-up rates are higher for families
in most need, and who are entitled to larger awards, so a take-up
rate for expenditure is higher than that by number of claimants,
75% compared to 65% for the Working Families' Tax Credit. It therefore
incorporates the fact that claiming is linked to the amount you
are eligible for. In the current measure a poor person counts
as a unit of 1 and so does a wealthy person. In the revised measure
they count relatively differently according to how poor they are.
7. Such a measure, especially for the almost-all-encompassing
CTC, would more accurately demonstrate policy success or failure.
The new credit covers families with children with combined household
incomes up to £60,000 a year. This will cover 90% of all
families. Those with annual incomes of approximately £20,00
to £50,000 will receive the minimum award of £10 per
week. Improvements in the current take-up measure may be the result
of middle earners or low earners taking-up the credits.
8. When well-off middle earners fail (consciously
or otherwise) to claim, what is for them, relatively small sums
of money, problems of policy implementation clearly arise. However,
it is not a problem of overriding concern. Why do we focus simply
on the numbers of people with potential entitlement that are not
claiming, rather than looking at what their potential entitlement
is?
9. The issue of take-up of tax credits is
seen as the barrier to any claim of policy success. For a government
that prides itself on a "what works" approach to public
policy making, a policy which only reaches 65% of its target audience
seems misconceived. But the problem is not, in fact, quite as
acute as this. The evidence on take-up shows that many of those
who fail to claim their due are missing out on small sums of money.
10. Most recipients claim sums in excess
of £80 a week, as the chart below shows. There is a similar
correlation with pensioners and the Minimum Income Guarantee.
From this data, we can reasonably predict a large take-up deficit
for the WTC as the likely average weekly ward is likely to be
£20 a week.
Chart: Take up of tax credits by level of
entitlement.
Source:
DWP, 2002
11. So we should not be concerned if large
numbers of relatively well off earners do not take up their credits.
However, many poorer families miss out on large weekly sums and
it is of course these larger sums which will increase a take-up
measure based on money claimed. As chart 1 shows 15% of those
entitled miss out on awards of £80-100 per week. Further,
Labour's child poverty target, to halve relative poverty by 2009,
requires greater take-up among poorer families.
12. A new measure of take-up is required
then for two reasons: structure and objective. The structure of
the CTC means that means-testing is extended to a greater number
of people than ever before. Means-testing no longer equates solely
with safety-net support. Tax credits transform the welfare state
from the dualism of means-tested support for the poorest combined
with universal support for children and pensioners. Second, the
take-up definitions do not serve the Government's central policy
priority of providing extra support to the poorest. Official government
figures, and accompanying media derision, of less than impressive
take-up tell us nothing about how much money is actually successfully
claimed.
CONCLUSION
13. Increasing take-up levels among lower
earners must be prioritised as a matter of urgency. 15% of those
entitled missed out on targets of £80-100 per week of the
old Working Families Tax Credit. Crucial government targets—most
noteworthy to abolish child poverty but also to increase employment
levels—squarely depend on increasing take-up of the new
tax credits.
Roger Wicks
Research Fellow
15 September 2003
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