The Treasury has denied that it was planning a U-turn on the new Working Families Tax Credit, one of the flagships of the Labour Government's reform of the welfare system.

A spokesman confirmed that the credit - paid direct into the pay packets of working parents on low incomes - would be replaced in 2003 by an Employment Tax Credit and an Integrated Children's Credit, but said that this was an expansion of the benefit, not its abolition.

The Working Families Tax Credit had always been planned to be one stage in an evolutionary reform of the welfare system, and this had been made clear by Chancellor of the Exchequer Gordon Brown as far back as last year's Budget, he said.

Mr Brown detailed the new credits in an answer to shadow chancellor Michael Portillo in the House of Commons on 6 April, when he said that the Employment Tax Credit was designed to make work pay for people with or without children, while the Integrated Children's Credit would go direct to a child's main carer.

The Working Families Tax Credit benefits around one million families, giving them about �20 a week in relief from income tax.

Bureaucratic burden

But it has attracted criticism from women, because it means money often goes into the father's pocket rather than the mother's purse, unlike previous child benefits.

And it has been unpopular with employers, who say it forces them into the role of unpaid tax officials and leaves them with the bureaucratic burden of ensuring that the correct sums are paid to employees with children.

But the Treasury spokesman said that the changes were not in response to any criticism.

He said: "It is ridiculous to suggest that we are scrapping the Working Families Tax Credit. What we are doing is what we always made clear we would do.

"We are expanding it to make work pay and to tackle child poverty with an Employment Tax Credit and an Integrated Children's Credit."

A Labour Party spokesman said: "Labour is expanding the Working Families Tax Credit. The Conservatives would scrap it. They would land one million families with a �20-a-week tax hike."