I used to be a great admirer of the American Earned Income Tax Credit. It boosts the income of low-income working families and is better targeted than many tax allowances because it is withdrawn as income rises. Indeed, as a member of the No. 10 Policy Unit in the mid-1980s, I helped persuade Margaret Thatcher and Norman Fowler of its virtues. It was proposed in our Green Paper on the reform of social security in June 1985 and, despite being criticised, it survived into the White Paper in December 1985. But as the measure was progressing through parliament in 1986, opposition became widespread and the government had to make concessions. Instead of being a tax credit delivered through the pay packet, it became Family Credit-a benefit for low-income working families, claimed by the mother.
Family Credit now goes to approximately 750,000 families (with about 70 per cent take-up). Very few two-earner couples are eligible: their incomes are not low enough. In practice, it goes to two types of family: 351,000 recipients are working single parents. The rest tend to be couples where the wife is unlikely to be working and the husband is on relatively low pay. The average weekly award of Family Credit is ?59 per week. Total expenditure is running at ?2.3 billion per year.
Why did we end up with a benefit rather than a tax credit? And do the arguments used to defeat my proposal still apply to Gordon Brown’s plan for a revised version of the tax credit?
If you are a subscriber, please log in »
This article is available to subscribers only
Subscribing to Prospect is the most reliable and convenient way to receive the magazine every month, and offers the best value.Subscription Types:
Online
An online subscription offers you complete and unlimited access to the entire website, including our searchable archive of every back issue of Prospect, and a PDF edition of each new issue: all this for just £20 per year. Purchase an online subscription »Renewal
Renew an existing subscription »Institutional access
If you are a library, business organisation or any other large institution that needs a multi-user licence, you can obtain institutional access.
Share
Subscribe to post comments
Print
