Frank Field – 2016 Parliamentary Question to the HM Treasury

The below Parliamentary question was asked by Frank Field on 2016-02-09.

To ask Mr Chancellor of the Exchequer, how many tax credit claimants in work reported income rises of (a) more than £2,500, (b) more than £2,500 but less than £5,000 and (c) more than £5,000 in the most recent 12 months for which data is available.

Damian Hinds

As announced in the combined Autumn Statement and Spending Review, the amount by which a tax credit claimant’s income can increase within the year before their tax credit award is adjusted (the income rise disregard), will be reduced from £5,000 to £2,500. This makes the tax credit system fairer so claimants on similar incomes will receive similar awards. Currently two families on precisely the same earnings at the end of the year can receive significantly different awards.

A tax credit award will only be adjusted in response to a claimant earning more money. Next year there are expected to be 800,000 claimants whose income will increase by more than £2500 and who as a result will see an adjustment in their tax credit payment. None will be cash losers because their income will have increased.

The change returns the disregard back to the level it was between 2003 and 2006 – something the tax credit system is now operationally better able to cope with now that it has more up to date information on people’s earnings through Real Time Information. HMRC are also making it easier to report changes quickly online, so that people will less often receive overpayments. Claimants can contact HMRC if they are suffering financial hardship and are having difficulty paying back an overpayment.

The change will bring forward some of the benefits of Universal Credit so that the tax credit award reflects a claimant’s recent earnings and the system responds more quickly to changes in earnings.