Payments to rise in line with average earnings

The chancellor reaffirmed his commitment to halving child poverty by 2010, promising families on low incomes that certain tax credit payments would rise at least in line with earnings until the end of this parliament.

In a package of measures that also embraced middle income families Gordon Brown said keeping children and their families out of poverty was essential if they were going to prosper in later life.

He said all families with children born after August 31 2002 would benefit from further child trust fund payments. Children, who have already been allocated £250, or £500 if they are in low income families, would be given a second instalment when they are seven years old. Middle income earners were told tax free childcare vouchers, which cover £50 a week of childcare costs, would rise in value by 10% to £55.

Anti-poverty groups welcomed the chancellor's focus on children but said much more investment will be needed if the government is to meet its child poverty targets. Child Poverty Action Group's chief executive Kate Green said: "Continuing to increase the child element of child tax credit in line with average earnings will help many of the poorest families, but the Treasury must also continue to improve the administration and increase take-up. In future years we would also like to see child benefit increased further as it provides guaranteed support, particularly for larger families who are at the greatest risk of poverty."

One Parent Families chief executive Chris Pond said the latest figures showed progress in tackling lone-parent poverty had stalled "so the pressure is now on for a bigger push to ensure the poverty-reduction targets do not slip".

From April, this year's increase in the child element of child tax credit will be worth an extra £75 a year to the poorest families with annual incomes of less than £22,500.

The rise in the credit will total 14% over three years. The chancellor said that, for a family with two children the tax credit will be worth up to £88 a week or £4,500 a year in 2009. This, he said, represented: "a far bigger family tax cut than we could give if we used the same money to improve personal tax allowances or cut the tax rate".

Other tax credit payments will continue to rise in line with inflation. Child benefit, the universal benefit paid to all families with children regardless of income, will also rise by inflation. From April, weekly rates go up to £17.45, up 45p, for the eldest or only child and £11.70, up 30p, fore each other child.

Also from April, as announced in last year's budget, the proportion of childcare costs that eligible families can claim through the tax credit system goes up from 70% to 80% of the total bill, subject to a weekly limit of £175 for a family with one child and £300 for two or more children. Some help with childcare costs is available to families with an income of up to £59,000.

Childcare vouchers, which are believed to be offered by a quarter of employers, are targeted at families on incomes above the tax credit benefit levels. The scheme came into effect last year and allows parents to buy vouchers from their employer from their gross, rather than net income, up to the value of £50 a week - £55 from next year.

It caused controversy at the time when it was discovered that some families were targeted by employers who would be better off claiming childcare payments under the tax credit system.