Worse off given more of a helping hand

The government has sought to offset its tax increases on the rich with tax credits for the less well-off, some more impressive than others.

Tax credits, currently available to nine out of 10 families with children, will increase by £20 next April for households with children, while families with disabled children will receive an extra £100 to be paid into a child trust fund. Children with severe disabilities will receive £200.

In spite of a slow take-up from lower income households – the main intended beneficiaries of the scheme – the government has remained loyal to child trust funds.

Since the long-term savings plan for children was introduced in 2005, the government has increased payments for children in lower income families by £250 and pledged an extra £250 for all children when they reach the age of seven.

Family Investments, a provider of child trust funds, said the extra money for disabled children would provide a “massive boost”.

David White, chief executive of The Children’s Mutual, the child trust fund provider, said that next year approximately 100,000 children would benefit from the additional annual payments, with an estimated 40,000 qualifying for the higher £200 allowance.

“The chancellor has highlighted long-term savings as the key to providing all children with a firm financial footing for their futures,” he said.

The government will also give grandparents – or other family members who care for children for more than 20 hours a week – credits towards their state pension.

Saga, which estimates that grandparents provide about £3.9bn-worth of free childcare each year, said the move was recognition of a vital family service.

While the take-up of tax credits is high among families with children, the government believes tax credit use by households without children needs to be increased by 100,000 by April 2011.

In recognition of the changes to working hours experienced by many individuals as a result of the recession, individuals who become unemployed or become part-time workers, will continue to receive working tax credit for four weeks after they stop working full-time.

The benefit is worth up to £32 a week for those on the minimum wage. This will also cover childcare payments, worth, on average, £68 per week, and will be paid to couples even if only one partner has stopped working.

Along with increases to individual savings allowances, the government has extended the payment of pension credits, so pensioners will no longer be penalised for saving modest sums.

Pension credits will be extended to those with £10,000 in the bank, rather than only those with less than £6,000, which will result in an extra half million pensioners receiving an average of £4 more per week.

Basic state pension will rise by 2.5 per cent next year, regardless of inflation, which experts say will go some way to mitigating the real rate of inflation felt by pensioners.

But with no mention of help for those in care, Janet Davies, director of Symponia, the financial advisers, said more pensioners were likely to look to equity release as a way to boost funding for care.

Ros Altman, the independent pensions expert, said the measures designed to help the elderly were useful, but need not be delayed.

“The chancellor has promised more help for poorer pensioners, but nothing will happen until the end of 2009,” she pointed out. “There is no sense of urgency at all.”

Finally, after one of the coldest winters on record, which coincided with huge rises in energy prices, the chancellor extended extra money given to pensioners.

An additional £50 will provide those over 60 with £250 and over-80s will receive £400 this year to help with fuel payments.