Tax: Tax credit for low-paid will help families on pounds 38,000

FAMILIES EARNING up to pounds 38,000 a year will benefit from a flagship government policy aimed to helping the low paid, it was revealed yesterday.

The Tories warned that the pounds 5bn-a-year working families tax credit, which will replace the pounds 3.5bn family credit scheme next October, would give money to people who did not really need it.

Iain Duncan Smith, the opposition spokesman on social security, accused the Government of "scattering money" at higher-rate taxpayers and bringing them into the dependency of the welfare system. The Tories published figures showing that a family with five children aged under 11 could still receive the new tax credit with an annual income of pounds 38,000. A family with four children and earning pounds 35,000 would receive pounds 5.69 a week.

Mr Duncan Smith said that the new system would undermine Labour's much- heralded commitment to the family, because it was biased towards lone parents and penalised married couples with only one wage-earner.

A couple with one earner on pounds 15,000 a year would receive only 25p a week, while a single mother on the same income and with weekly child care costs of pounds 100 would get pounds 70.25 a week.

Mr Duncan Smith said the Tories would oppose the scheme and called for the family credit system to be retained. But he stopped short of promising that they would abolish it if they returned to power.

Further criticism of the working families tax credit came from the independent Institute for Fiscal Studies (IFS). Far from encouraging people to take jobs, the IFS said it could deter a husband or wife from returning to work because they could lose 70p in every extra pounds 1 they earn.

The new credit scheme is the idea of Gordon Brown, the Chancellor, whose officials insisted that people on high incomes would receive only very small amounts.

Dawn Primarolo, a Treasury minister, said that 1.5 million hard-working families would be better off under the new scheme and they would be appalled at the Tories' failure to support it. "The Government believes it is right to take action to ensure that work pays more than benefit and right also to provide for the first time proper help with childcare costs so that parents can balance work and family responsibilities," she said.