Take-up of Family Credit and Working Families' Tax Credit: final report

The current government has substantially increased the use of means-tested tax and benefit programmes to try to help people on low incomes. An important early example of this was the replacement in October 1999 of Family Credit (FC), a benefit providing support for low-income working parents, by Working Families' Tax Credit (WFTC). WFTC was delivered differently from FC, it was described as a tax credit rather than a benefit, and it was also much more generous than its predecessor.

However, the efficacy of using means-testing to help people on low incomes is limited by the fact that many of the people eligible for means-tested programmes do not take them up. Because of this, one of the government's stated aims when introducing WFTC was to encourage take-up, arguing that ӡs a tax credit rather than a welfare benefit, it will reduce the stigma associated with claiming in-work support, and encourage higher take-upԮ

In this paper we try to answer the question of whether the replacement of FC by WFTC did indeed encourage take-up. We also try and identify more generally what factors are important in explaining non-take-up of FC and WFTC, in particular quantifying the effect of entitlement level and examining the effects of people's knowledge of, and attitudes towards, in-work support. Our approach is an econometric one, investigating the relationship between take-up of FC/WFTC and a variety of explanatory variables in two micro-data-sets, the Family Resources Survey (FRS) and the Families and Children Survey (FACS).