Tax credits: Where it all started
The tax credits system was introduced in April 2003 and was radically different to its predecessors. The system closed after 22 years on 5 April 2025.
The tax credits system replaced Children's Tax Credit, Working Families Tax Credit, Disabled Person's Tax Credit and elements of the New Deal 50+. In addition, support for children paid through the benefits system was also integrated into Child Tax Credit. Although introduced in April 2003, debate about the design of the new system started much earlier.
Below we set out the history leading up to the Tax Credits Act 2002.
- March 1999: The Government announced their intention to create two new tax credits. The Treasury published a report called Tackling Poverty and Extending Opportunity which was part of the'Modernisation of Britain’s Tax and Benefit’s System' series. This report considered access to work and the main routes into work as part of reform of the tax and benefits system.
- March 2000: In the 2000 Budget, the Government announced the introduction of an ‘employment tax credit’ to extend the principle of the Working Families’ Tax Credit from 2003.
The detail of the new scheme was set out in Tackling Poverty and Making Work Pay - Tax Credits for the 21st Century.
- July 2001: The Inland Revenue launched a consultation document New Tax Credits – Supporting Families, making work pay and tacking poverty.
A regulatory impact assessment was also published alongside the consultation document.
Many organisations responded to the consultation document. Below are links to some of the responses:
Low Incomes Tax Reform Group
Joseph Rowntree Foundation
- November 2001: The Treasury published a summary of the responses to the consultation and further details of the scheme were published.
- November 2001: The Tax Credits Bill was introduced to the House of Commons on 28th November 2001 along with some explanatory notes.
- December 2001: The Bill had its second reading in the House of Commons on 10th December.
- January 2002: The Bill was considered by Standing Committee A on 15th, 17th, 22nd and 24th January.
- February 2002: On the 7th February, the Bill was given its third reading in the House of Commons and passed to the House of Lords.
- April 2002: A joint report The Child and Working Tax Credits was published by the Treasury and Inland Revenue as part of Budget 2002 which set out the detail of the new tax credits system.
See also the following freedom of information request documents that relate to the 2002 report:
- The first document is a briefing about new tax credits which sets out the aims and principles, the key features and the next stage of reform.
- The second document sets out some early plans for the new tax credits system.
- The third document explains early thoughts about the income test to be used in the new tax credits system.
- April 2002: The Bill had its second reading in the House of Lords.
- May 2002: The Bill was considered in the Grand Committee on the 16th, 21st, 23rd and 28th of May.
- June 2002: The Bill reached the report stage of the Lords on the 12th and 13th of June. June 2002: The Bill had its third reading in the House of Lords on the 20th June.
- June 2002: The Bill was passed back to the House of Commons on 26th June for consideration of the Lords amendments.
- July 2002: Amendments from the House of Commons were passed back to the House of Lords on 4th July for consideration.
- July 2002: The Tax Credits Bill became the Tax Credits Act 2002 when it received Royal Assent on 8th July 2002.
Last reviewed/updated 1 April 2025