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The child tax credit and working tax credit were introduced in April 2003. When fully operational, the child tax credit will represent the majority of government financial support for children. It is designed to simplify the system of financial support for parents, and provides support that is meanstested against family income. The working tax credit is designed to make work more financially attractive. It means that people with or without children in work and on a low income may receive extra help from the State.

This Briefing Note looks at:

• the changes to tax credits that happened in April 2003;
• why the new tax credits have been introduced;
• how they work;
• the cost and distributional impact;
• the impact on work incentives;
• what levels of take-up we might expect.

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