Those parts of the welfare state used by everyone at some point in their lives, like health and education, feature constantly in the media. Welfare benefits, unless the story is of scroungers and fraud, are minority issues, difficult to understand or explain. This applies even more to tax credits, in spite of the large amount paid out—£13.6bn to over 6m people in low-paid jobs last year. The term “tax credit” still puzzles many people.
But the extraordinary overpayment of £1.9bn in tax credits to some of the poorest people in the country did cause a brief media storm at the end of June, following the publication on the same day of reports from the parliamentary ombudsman, Ann Abraham, and the charity which I run, Citizens Advice. The attempt to claw back at least some of the money (from nearly 2m families) created thousands of sad stories about those made ill with worry by the demand to repay huge sums, £5,000 in many cases, over short periods. Within hours of the publications of the two reports on 22nd June, Tony Blair was apologising to the victims and Gordon Brown was pledging to do whatever was necessary to put matters right.
The concept of a tax credit—of people on low wages receiving money from the inland revenue instead of paying tax—is simple and politically attractive. The objective—which underpins the government’s “welfare to work” strategy of “making work pay” by creating a relatively generous system of payments for people who move from total dependency on benefits into low-paid work—is a good one. In total, 6.1m families containing 10.3m children have been awarded tax credits over recent years. A lone parent with one child, working 20 hours a week earning the minimum wage and paying £80 a week for childcare, would be entitled to over £10,000 a year.
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