MPs warn of purse-to-wallet pitfall in new tax credit

MPS WARNED the Government that it must ensure plans to replace Family Credit with a new tax credit in next week's Budget do not switch cash from women to men in low-income households.

In its report on tax and benefit reform, the Commons select committee on social security said the planned working families tax credit could cost women up to pounds 40 a week, leaving them with an unfair share of the family income and harming the interests of their children.

It rejected Treasury evidence that there was little risk of a "purse to wallet" transfer resulting from the abolition of Family Credit, saying it would scrutinise carefully the practical implementation of the Government's proposals.

The report concluded that families must be given the choice between receiving the new tax credit in the pay packet - which goes to the man in nine out of 10 eligible couples - or having it paid directly to the principal carer, which is the situation now.

The MPs on the influential committee accepted evidence from experts that income was not shared fairly within households. Research showed that women were more likely to spend income on children.

According to the committee: "Whatever the other merits of paying through the wage packet, any transfer of income from women to men implicit in payment through the wage packet would not be in the best interests of children."

It noted that Martin Taylor, chairman of the Government's taskforce on tax and benefit reform, had recognised this and regarded protecting the interests of children as essential. Gordon Brown will announce the details of the Working Families Tax Credit, a key element in the his policies to improve the rewards from work for those on low pay, in Tuesday's Budget.

Yesterday's report emphasised the importance of help with childcare, saying: "We recommend that a very high priority be given to assisting low-income households with the cost of childcare."

This is something the Chancellor has signalled he will address in the Budget, although the likely scale of any new childcare credit is unclear.

While welcoming the broad thrust of the Government's approach to tax and benefit reform, the select committee's report expressed other doubts about the Working Families Tax Credit.

One concern was whether encouraging people to work was the right priority for all families, especially those with very young children.

In addition, it said that the administration of the existing Family Credit by the Benefits Agency was very efficient. The Government must set targets to ensure the new system is run just as effectively by the Inland Revenue, and that recipients are guaranteed a fixed level of payment for six months at a time to provide stability.

The new system must also address the needs of the self-employed, the MPs said.

They can receive Family Credit, but, as they have no pay packet, it is not clear how they will be paid the Working Families Tax Credit.

The select committee stressed that although the new credit would require the Inland Revenue to assess the tax of claimant couples jointly, there should be no question of ending individual and independent taxation for the majority of couples.