At the launch in London of the Child Tax Credit and Working Tax Credit, chancellor of the exchequer Gordon Brown said the new tax credits, which become available next April, would 'modernise the existing systems, ensuring better support for children, whether or not their parents are in work and making work pay for those without children as well'. He added that the system was changing so that 'instead of a tax credit paid through the wage packet to the main earner - normally the father - we will pay the Child Tax Credit directly in cash or through a bank account to the carer - usually the mother'.
Mr Brown said the new scheme would see up to 2bn 'transferred' from fathers to mothers, 'providing them and their children with a secure and regular source of income.'
From next April the childcare tax credit will be part of the Child Tax Credit and the Working Tax Credit, both of which will replace the Children's Tax Credit, Working Families' Tax Credit, Disabled Person's Tax Credit, and the child elements of both Income Support and the income-based Jobseekers' Allowance. Eligibility for the new childcare element of the Working Tax Credit has been extended to students and student nurses, while a higher rate of Child Tax Credit will be paid to parents who have children aged under one or disabled children.
The childcare tax credit will continue to pay up to 70 per cent of childcare costs of up to 135 per week for one child - a weekly credit of up to 94.50 - and 200 per week for two or more children - a weekly credit of up to 140 - and be paid direct to the child's main carer either weekly or every four weeks alongside the new Child Tax Credit.
The Inland Revenue gave the example of a couple on an annual joint income of 23,000 who pay 120 a week for childcare for their two children. It said the childcare element of the Working Tax Credit covered 84 of their costs, giving them 4,365 a year in financial assistance.
Early years organisations welcomed the new tax credits system. The Daycare Trust said that while it hoped it would be 'a more transparent system for families to access', parents on low incomes still needed help with meeting their childcare costs. Trust director Stephen Burke pointed out that the typical cost of a nursery place for a child under two has risen by about 10 per cent in the past year to 120 a week - 6,200 a year - and families on low incomes still had to find 30 per cent of the cost. 'The average award through the current childcare tax credit of 39.22 a week is less than a third of the typical cost of a nursery place,' he said.
Under the new system providers will not lose money to parents who cheated. Rosemary Murphy, chief executive of the National Day Nurseries Association, said that under the new system nurseries would not know which parents were recipients of the childcare tax credit, which meant that they would no longer have to hold places for children, unlike under the current system. 'Fraud is now the Government's problem, not ours,' she said.
