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BRIEFING:
BUDGET 2003
The Government has committed itself to ending child poverty. Important
steps have already been taken but this Budget offers a chance to
set the policy for the next financial year and beyond. Much has
already been done and we welcome the steps already taken.
Significant
changes in financial support for families with children begin on
6th April 2003 - the introduction of the child tax credit and working
tax credit; an increase in the flat-rate statutory maternity pay
from £75 to £100 a week; paid maternity leave increasing
to 26 weeks and paternity pay for up to 2 weeks.
This paper speculates
on what may be included in the Budget statement on 9th April, in
particular:
and makes proposals
for action that the Chancellor should take to make further progress
in ending child poverty.
1. The child tax credit
The
new child tax credit and working tax credits begin on 6th April.
The rates from April 2004 should be announced in the Budget.
The intention
to up-rate the child tax credit at least in line with earnings from
April 2004 has already been announced.
The Institute
for Fiscal Studies (IFS) has calculated that the government will
need to increase the child tax credit, beyond the link with earnings,
if the target to reduce child poverty by a quarter by 2004/05 is
to be achieved. Increasing the child element of the child tax credit
by £3 a week (above average earnings growth) would lift a
further 200,000 children out of poverty, at a cost of £1 billion
a year. To put this in context, an additional £2.5 billion
(for the child tax credit from April 2003) was announced in Budget
2002.
The latest Housing
Below Average Income figures were published on 13th April for the
year 2001/02. The fall of 100,000 in the number of children living
in poverty was less than the IFS had assumed in its initial forecast.
Commenting on the latest figures the IFS suggests that the Government
is further behind schedule than last year in meeting its child poverty
target.
The rates from
for the child tax credit April 2003 were announced in Budget 2002.
In previous years, increases in benefits and tax credits have been
introduced in the June or October following the Budget statement.
Because the child tax credit is awarded for up to 12 months it is
no longer possible to up-rate mid-year.
Most families
receiving income support will not transfer onto the new child tax
credit until April 2004. The Chancellor could announce mid-year
increases in income support as a step towards a higher rate of child
tax credit from April 2004. There are precedents for this - for
example, following the abolition of the married couple’s allowance
income support rates were increased in advance of the introduction
of the children’s tax credit. We recognise that the argument that
may be used against first increasing income support and other means-tested
benefit rates (for children) is that it contradicts the objective
of equalising levels of support in child tax credit and income support.
CPAG’s proposal:
- The Chancellor
should increase the child tax credit by an additional £3
a week over and above uprating. The IFS estimates the cost at
over £1 billion a year.
2.
The child trust fund (‘baby bonds’)
The
proposal to establish a child trust fund (‘baby bond’) was announced,
along with publication of a consultation document, in April 2001.
A savings gateway - a matched savings scheme to encourage low-income
households to save - is currently being piloted.
The Chancellor
may announce a date for the start of the child trust fund. If he
does, it is unlikely to begin before October 2004.
The consultation
document proposed that an account will be set up for each child
at birth. The Government will pay a contribution for all children
with (as an example of ‘progressive universalism’) a larger amount
for low-income households.
The fund may
be administered by the Inland Revenue and could be linked to the
child tax credit (which could in turn boost the take-up of the credit).
In designing the IT for the child tax credit the Revenue has built
in the capacity to handle a future extension of tax credits.
The cost of
the fund will depend on the amount for each child and the ages at
which the Government makes contributions. The consultation document
(April 2001) suggested a sum of £500 at birth, with top-ups
payments of £100 at ages 5, 11 and possibly 16. Family and
friends may be able to make additional contributions subject to
an annual limit. The child will have access to the fund at age 18.
Estimates of
the cost vary, with £375 million a year being at the lower
range (IPPR, 2002).
If there is
no announcement on a start date for the fund in the Budget, this
may be deferred until the summer spending review statement.
The Government
has had two goes at consulting on the trust fund, and has published
reports on encouraging saving.
The IPPR, which
has been promoting ‘asset based welfare’, has recently highlighted
the low take-up of ISA’s among people on low-income. A recent survey
also revealed that only half the population know what an ISA is.
The Budget may include other changes to savings schemes and incentives.
CPAG’s proposal:
- CPAG supports
the principle of helping families to save and the goal of providing
assets for all children. However, a more urgent need is reform
of the social fund. The fund is intended to provide help for people
on low incomes to meet urgent costs or lump sum items (e.g., a
replacement cooker, a bed, bedding, etc). The fund is strictly
cask limited and most payments are made in the form of a loan.
Two years ago the then Social Security Select Committee called
for urgent reform of the social fund and an urgent injection of
cash. An additional £90 million over three years was announced
in last November’s Pre-Budget Statement. The Department for Work
and Pensions says that the social fund is under review.
3.
Education maintenance allowances (EMAs)
In
last summer’s Spending Review the Chancellor announced that education
maintenance allowances (EMA) (currently being piloted) will be rolled
out nationally from September 2004. The EMA will be worth up to
£1,500 a year depending on household income.
In light of
the controversy surrounding proposals in the Education White Paper
on funding higher education, the Chancellor may emphasise EMAs in
the context of the policy to improve post-16 staying-on rates, particularly
for children from low income households. An announcement on the
level of the EAM (and the income thresholds for eligibility) may
be delayed until Budget 2004, or this summer’s spending review.
In last year’s
Spending Review statement to Parliament, the Chancellor said that
EMA’s would be funded by savings from lower unemployment. This appeared
to rule out the abolition of child benefit for over 16’s as a means
to fund the scheme. Unemployment has continued to fall since the
statement, but does this mean that child benefit for over 16’s will
continue? There may be pressure to fund the scheme by withdrawing
child benefit from over 16’s. CPAG welcomes the roll-out of EMA’s
but would strongly oppose any plans to abolish child benefit for
over 16’s.
The DWP has
recently been conducting a review of financial support for young
people. Any further changes in financial support for over 16’s (beyond
the EMA) are unlikely to be announced this year.
CPAG’s proposal:
- CPAG welcomes
the education maintenance allowances. We would strongly oppose
funding the EMA by the removal of child benefit for over 16s.
4.
Children’s centres and child care
Funding
for a network of children’s centres was announced in the spending
review 2002 and, following a cross department review of childcare,
further details were included in the November Pre-Budget Report.
Further details
were provided by Charles Clarke, the Secretary of State for Education
and Skills, on 25th March. Local authorities will be given £435
million over three years (£5/125/305 million) for children’s
centres and neighbourhood nurseries.
The Treasury
and the Department for Trade and Industry have been considering
further measures to improve work-life balance for parents with children.
Proposals include:
- Extending
eligibility for help with child care costs (child care tax credit)
where a child is cared for in the parent’s home;
- Whether
fathers should be allowed time off to attend ante-natal care and
extending paternity leave;
- Extending
help with child care costs for mothers before they return to work.
The Government
will soon publish a Green Paper on a long-term strategy for children
at risk. The strategy may include targets to reduce child poverty.
The Chancellor may refer to the green paper in his statement, but
publication has been put back to the summer.
5.
Help with housing costs
In
Budget 1999 the Chancellor declared an intention to provide more
help with housing costs for people going back to work, including
help for homeowners. The statement was made at the same time as
the announcement of the final phasing out of mortgage tax relief
(MIRAS). Since Budget 1999 people starting a new job or increasing
weekly hours of work (and so counted as being in full time work)
may qualify for income support for housing costs for the first four
week (six weeks fopr lone parents). Though welcome, low paid homeowners
(who are not eligible for income support) get no help with housing
costs. They may be eligible for council tax benefit.
The Chancellor
may provide further details about the piloting of new housing benefit
rules, announced by the DWP last year. There may be a nod in the
direction of providing further help with mortgage costs for people
on low pay.
6. Conclusion
The
Budget may give some clues as to the direction and momentum to be
given to the child poverty agenda over the next couple of years.
Following the
introduction of new tax credits in April, the immediate political
focus is likely to be on publicising the new pension credit starting
in October.
The Green Paper
on children at risk may mark an important staging post for the strategies
to tackle child poverty, and could signify the direction of policies
post 2004/05.
Resources
CPAG has produced:
A
4-page A4 summary guide to the new tax credits, including:
Introduction
What is working tax credit?
What is
child tax credit?
How are
tax credits made up?
What is
the income threshold?
Take-up
issues
How are
claims dealt with?
How are
payments made?
Changes
in circumstances – a new culture
Unfinished
business
Download a 31KB pdf copy
of this 4-page A4 summary guide.
and a tax
credits factsheet. Copies available online and also from CPAG,
94 White Lion Street, London, N1 9PF, please enclose a large sae.
CPAG will be
publishing a new edition of the Welfare
Benefits and Tax Credits Handbook in mid-April. The 2003/04
edition includes full information on new tax credits, social security
benefits and the new pension credit. Copies available from CPAG
at £30.00 plus £3.30 p&p (payment with order). A
review copy for journalists and editors will be available (from
mid-April) on request - contact: Liz Dawson, 020 7837 7979 ext 212
(ldawson@cpag.org.uk)
For further
information:
Ashley
Riley
Press Officer
Mobile: 07811 324339
020 7 837 7979 ext. 216
email ariley@cpag.org.uk
Martin Barnes
Director
020 7 837 7979 ext. 207
email mbarnes@cpag.org.uk
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