Thursday 14 July 2011

Working but Losing …

Why the tax credit changes from April 2011 will reduce work incentives for single parents

This report from Gingerbread (published in April 2011) is worrying. Tax credits are supposed to be an incentive not a deterrent. Yes, I know it’s more than a bit after the event but I hope better late than never rules.

Executive Summary1

The government has clear plans to encourage more single parents into the workplace, with a proposal to extend the requirement to seek work to single parents of five-year-olds from early 2012 included in the Welfare Reform Bill 2011. However, the findings in this report illustrate that, despite these plans, the package of tax credit reforms coming into force at the start of the tax year in April 2011 will actually result in a reduction in the gains to work for all single parents. For single parents using childcare, this will mean an average cash value loss of £492 a year in gains to work.

This report looks at the work incentives for single parents who are currently working and claiming Working Tax Credit (WTC)2 and Child Tax Credit (CTC). Changes to tax credits will impact on all WTC claimants, but because single parents have a higher take up of the childcare element they will feel the
effects more severely. As sole carers, they also face more stark decisions about how best to balance work and home life.

36% of all single parents receive an award of WTC, compared to just 15% of couples with children, meaning that single parents are twice as likely to be in the WTC group as couples with children3; 64% of the 488,000 families who currently receive the childcare element of WTC are single parents4.

In his Conservative party conference address in October 2010 Prime Minister David Cameron said: “Let us support the real routes out of poverty: a strong family; a good education; a job. So we'll … most of all, make sure that work really pays for every single person in our country. The injustice of some low paid single mothers going out to work and losing 96p for every extra pound they earned … Iain Duncan Smith has found a way to end that system … So, to that single mother struggling and working her heart out for her children we can now say: ‘We’re on your side; we’ll help you work; we will bring that injustice to an end’”.

However, this report shows that from 6 April 2011 all single parents will be worse off in terms of the gains they get from work; forcing many into the tough decision of whether to remain in work.

1Gingerbread is grateful to Landman Economics for providing the analysis used in this report.
2Parents are only eligible for the childcare element of tax credits if they are working 16 hours or more a week and using registered childcare
3Source: Landman Economics calculations using 2008-09 Family Resources Survey
4Child and Working Tax Credit Statistics Finalised Annual Awards 2008-09, HMRC 2010

Full report (PDF 10pp)


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