Background

On 25 November 2020, the Chief Secretary to the Treasury, Steve Barclay, announced in a written statement that the Government would be bringing forward regulations that would increase “most tax credits rates and thresholds” and the child benefit and guardian’s allowance. The increase would be in line with the general rise in prices by 0.5 percent as measured by the September 2020 consumer prices index. Mr Barclay stated that the uprating of tax credits would take place at the start of the new tax year on 6 April 2021, with the uprating of child benefit and guardian’s allowance taking place in the first full week of the tax year on 12 April 2021.

HM Revenue and Customs (HMRC) reported that there were approximately 2.3 million claims for tax credits in April 2020:

In the same month, HMRC stated that there were an estimated 7.3 million child benefit claims supporting 12.7 million children. In addition, there were approximately 3,000 claims for guardian’s allowance.

A summary of these tax credits and benefits from the UK Government website is as follows:

Child tax credits

CTCs are payable to people on low incomes and with children. The amount a person receives is dependent on when their child was born. For example, an individual can receive the ‘child element’ of CTC for all of their children, in addition to the basic amount (the ‘family element’), if their children were born before 6 April 2017. If one or more children were born on or after 6 April 2017, an individual could receive the child element of CTC for up to two children. An individual could also receive the family element of CTC if at least one of their children was born before 6 April 2017. At present, an individual can receive a yearly amount of up to £545 for the family element and up to £2,830 for the child element. In addition, a person could receive a yearly amount of up to £3,415 for each disabled child and up to £1,385 for each severely disabled child (in addition to the £3,415 disabled child payment).

Working tax credits

WTCs are payable to people on low incomes. An individual or couple is eligible for the tax credit if they work a certain number of hours per week. For example, a person who is single and has one or more children must work at least 16 hours to qualify for WTCs. Recipients of the tax credit receive a basic income of up to £3,040 a year and an extra amount (known as elements), dependent on certain circumstances. This can include whether an applicant: is a single parent; has a disability; or pays for approved childcare.

Child benefit

Child benefit is available to an individual who lives in the UK and is responsible for raising a child who is either under 16 years of age or under the age of 20 and in approved education or training. Under the scheme, there are two rates: an allowance for an eldest or only child at £21.05 per week; and an additional weekly rate of £13.95 per child.

Guardian’s allowance

The guardian’s allowance is given to an individual who is bringing up a child whose parents have died. Some individuals are also eligible for the allowance if the child has one surviving parent under certain circumstances, such as if the parents were not married and the mother had died. Other conditions for eligibility for the benefit include the individual qualifying for child benefit and that one of the child’s parents was either born in the UK or living in the UK since the age of 16 for at least 52 weeks in any two-year period. The current weekly rate for guardian’s allowance is £17.90 per child.

What do the regulations do?

On 18 January 2021, the draft Tax Credits, Child Benefit and Guardian’s Allowance Uprating Regulations 2021 were laid before Parliament under the draft affirmative procedure. They must be approved by both Houses before they can be brought into force. If approved, the draft regulations would set the annual rate for child tax credit and working tax credit from 6 April 2021 and the weekly rate of child benefit and guardian’s allowance from 12 April 2021. The proposed changes to the rates for these tax credits and benefits are detailed in the table below:

Table 1: rates for child tax credit, working tax credit, child benefit and guardian’s allowance
Tax credit/benefit Rate 2020/21 Proposed rate from April 2021 Amount of uprating
Child tax credit (yearly amount)
Child/qualifying young person element £2,830 £2,845 £15
Child disability element £3,415 £3,435 £20
Severely disabled rate of the child disability element £4,800 £4,825 £25
Child tax credit income threshold £16,385 £16,480 £95
Working tax credit (yearly amount)
Basic element £1,995 £2,005 £10
Second adult and the lone parent element £2,045 £2,060 £15
30-hour element £825 £830 £5
Disabled element £3,220 £3,240 £20
Severely disabled element £1,390 £1,400 £10
Working tax credit income threshold £6,530 £6,565 £35
Child benefit (weekly amount)
Weekly rate for the eldest child £21.05 £21.15 10p
Weekly rate for any subsequent children £13.95 £14.00 5p
Guardian’s allowance (weekly amount)
Weekly rate £17.90 £18.00 10p

Working tax credits and Covid-19

In March 2020, the Government announced that in response to the Covid-19 pandemic, it would be temporarily increasing the basic element of WTC by £1,045 to £3,040 for the 2020/21 tax year. This uplift was equivalent to an increase of £20 per week. The amount a claimant or household could receive would be dependent on their circumstances. The increase came into effect on 6 April 2020.

In the draft regulations’ explanatory memorandum, HMRC stated that section 77 of the Coronavirus Act 2020 temporarily increased the basic element of the tax credit “for the 2020/21 tax year only”. The act also enabled the basic element of WTC to return to the 6 April 2020 baseline rate (£1,995) for the purpose of “conducting the Treasury’s review of tax credit rates for the tax year 2021/2022”. Consequently, HMRC noted that the statutory annual review of benefits was “separate” from the temporary uplift which was “announced as a temporary measure in March 2020, and enacted for one year under different legislation”.

On 18 January 2021, Labour held an opposition day debate in the House of Commons calling on the Government to maintain the uplift to the basic element of WTCs. Opening the debate, the Shadow Secretary of State for Work and Pensions, Jonathan Reynolds, argued that reducing the basic element of working tax credit would be a “profound mistake for families, for the economy and for our ability to effectively tackle and recover from the Covid-19 pandemic”.

Responding, the Parliamentary Under-Secretary of State for Work and Pensions, Will Quince, stated that the Government “d[id] not know what the landscape w[ould] look like” in April 2021. Therefore, the Government would “wait for more clarity” before “assessing the best way to support low-income families moving forward”.

What parliamentary scrutiny has there been?

On 27 January 2021, the draft regulations were considered by the Joint Committee on Statutory Instruments and were not reported. On 2 February 2021, the House of Lords Secondary Legislation Scrutiny Committee considered the draft regulations. The committee noted that the draft regulations were an instrument of interest.

The House of Lords is due to debate the draft regulations on 8 February 2021. No date has yet been scheduled for a debate in the House of Commons.

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Cover image by Markus Spiske on Unsplash.

An editorial change was made to this article on 7 June 2021.