Leader: Labour has a bold economic programme but can it win the people’s trust?

Mr Miliband has reminded us again of his talents as a rhetorician but it is his party’s conduct in the next year that will determine whether he is rewarded with the chance to serve.

Ed Miliband left the Labour party conference in Brighton in a stronger position than when he arrived. After a dismal summer for the party, his hour-long, conversational speech on Tuesday 24 September, delivered from memory and without notes, attempted to engage with most of the criticisms levelled at his deliberative and sometimes ponderous leadership. His good speech, as well as the sunny weather on the south coast, seemed to raise the morale of many Labour MPs, who had seemed pessimistic at the beginning of the conference.
Confronting accusations of a policy vacuum, Mr Miliband outlined a series of signature commitments aimed at easing what he and his colleagues call the “living standards crisis”: prices, he said, had risen faster than wages in 38 of the coalition’s 39 months. With his populist pledge to freeze gas and electricity bills until 2017 – resisted robustly by the energy companies, which warned of possible power shortages and blackouts – he attempted to address what polls show is one of voters’ greatest concerns. The pledge also offered a powerful dividing line with the Conservatives, who rejected the proposal out of hand. With this measure, the Labour leader has begun to articulate what he means by phrases such as “responsible capitalism” and signalled his intention to use the power of government to shape markets in favour of consumers.
Similarly bold were his promises on childcare and housing. His plan to require all primary schools to offer care from 8am to 6pm would benefit the economy by enabling more parents, particularly women, to return to full-time employment – a model successfully pursued in the Scandinavian countries. On housing, where the coalition has inflated demand through the Help to Buy scheme, Mr Miliband turned his attention to the fundamental problem of supply. His pledge to build 200,000 new homes a year by 2020 and to punish land-banking developers by forcing them to “use or lose” their land would, if implemented, go some way to mending Britain’s broken housing market. After so skilfully mobilising opposition to the “bedroom tax”, he was also sensible to pledge to repeal this punitive and unpopular measure.
However, in response to those who fear that he simply wishes to pursue what his brother, David Miliband, once characterised in these pages as a programme of “defensive social democracy”, he also spoke ambitiously of creating an integrated health and social care service and of winning a “race to the top” through a broad expansion of apprenticeships, more in line with the German model.
Yet, for Labour, the greatest challenge remains to persuade a sceptical electorate to favour it over the Conservatives when Mr Miliband’s poll ratings are so poor and the party is not trusted to manage the economy. Where the speech fell short was in its failure to reassure the public that Labour has learned from its past mistakes and can once again be entrusted with the nation’s finances.
The party’s perceived fiscal profligacy is perhaps the greatest obstacle to its election but Mr Miliband mentioned the deficit just once in his speech. Until Labour wins back economic trust – if, indeed, it can do so before the general election in 2015 – the danger is that voters will doubt its ability to deliver its ambitious and, in some cases, expensive policies of transformation without alienating business and again imperilling stability.
Last year, Mr Miliband’s bravura conference performance in Manchester, in which he evoked the spirit of Disraeli, raised hopes that Labour could establish itself as a government-in-waiting. Yet because of the party’s failure to sustain the momentum that followed and to flesh out the meaning of its leader’s “one nation” theme, this opportunity was wasted. With a sharper slogan – “Britain can do better than this” – and a set of emblematic policies, the shadow cabinet now has the makings of a coherent programme. Mr Miliband has reminded us again of his talents as a rhetorician but it is his party’s conduct in the next year that will determine whether he is rewarded with the chance to serve, or whether parliament will remain hung.
Ed Miliband's bravura conference performance in Manchester raised hopes that Labour could establish itself as a government-in-waiting. Image: Getty

This article first appeared in the 30 September 2013 issue of the New Statesman, The Tory Game of Thrones

Show Hide image

Q&A: What are tax credits and how do they work?

All you need to know about the government's plan to cut tax credits.

What are tax credits?

Tax credits are payments made regularly by the state into bank accounts to support families with children, or those who are in low-paid jobs. There are two types of tax credit: the working tax credit and the child tax credit.

What are they for?

To redistribute income to those less able to get by, or to provide for their children, on what they earn.

Are they similar to tax relief?

No. They don’t have much to do with tax. They’re more of a welfare thing. You don’t need to be a taxpayer to receive tax credits. It’s just that, unlike other benefits, they are based on the tax year and paid via the tax office.

Who is eligible?

Anyone aged over 16 (for child tax credits) and over 25 (for working tax credits) who normally lives in the UK can apply for them, depending on their income, the hours they work, whether they have a disability, and whether they pay for childcare.

What are their circumstances?

The more you earn, the less you are likely to receive. Single claimants must work at least 16 hours a week. Let’s take a full-time worker: if you work at least 30 hours a week, you are generally eligible for working tax credits if you earn less than £13,253 a year (if you’re single and don’t have children), or less than £18,023 (jointly as part of a couple without children but working at least 30 hours a week).

And for families?

A family with children and an income below about £32,200 can claim child tax credit. It used to be that the more children you have, the more you are eligible to receive – but George Osborne in his most recent Budget has limited child tax credit to two children.

How much money do you receive?

Again, this depends on your circumstances. The basic payment for a single claimant, or a joint claim by a couple, of working tax credits is £1,940 for the tax year. You can then receive extra, depending on your circumstances. For example, single parents can receive up to an additional £2,010, on top of the basic £1,940 payment; people who work more than 30 hours a week can receive up to an extra £810; and disabled workers up to £2,970. The average award of tax credit is £6,340 per year. Child tax credit claimants get £545 per year as a flat payment, plus £2,780 per child.

How many people claim tax credits?

About 4.5m people – the vast majority of these people (around 4m) have children.

How much does it cost the taxpayer?

The estimation is that they will cost the government £30bn in April 2015/16. That’s around 14 per cent of the £220bn welfare budget, which the Tories have pledged to cut by £12bn.

Who introduced this system?

New Labour. Gordon Brown, when he was Chancellor, developed tax credits in his first term. The system as we know it was established in April 2003.

Why did they do this?

To lift working people out of poverty, and to remove the disincentives to work believed to have been inculcated by welfare. The tax credit system made it more attractive for people depending on benefits to work, and gave those in low-paid jobs a helping hand.

Did it work?

Yes. Tax credits’ biggest achievement was lifting a record number of children out of poverty since the war. The proportion of children living below the poverty line fell from 35 per cent in 1998/9 to 19 per cent in 2012/13.

So what’s the problem?

Well, it’s a bit of a weird system in that it lets companies pay wages that are too low to live on without the state supplementing them. Many also criticise tax credits for allowing the minimum wage – also brought in by New Labour – to stagnate (ie. not keep up with the rate of inflation). David Cameron has called the system of taxing low earners and then handing them some money back via tax credits a “ridiculous merry-go-round”.

Then it’s a good thing to scrap them?

It would be fine if all those low earners and families struggling to get by would be given support in place of tax credits – a living wage, for example.

And that’s why the Tories are introducing a living wage...

That’s what they call it. But it’s not. The Chancellor announced in his most recent Budget a new minimum wage of £7.20 an hour for over-25s, rising to £9 by 2020. He called this the “national living wage” – it’s not, because the current living wage (which is calculated by the Living Wage Foundation, and currently non-compulsory) is already £9.15 in London and £7.85 in the rest of the country.

Will people be better off?

No. Quite the reverse. The IFS has said this slightly higher national minimum wage will not compensate working families who will be subjected to tax credit cuts; it is arithmetically impossible. The IFS director, Paul Johnson, commented: “Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.” It has been calculated that 3.2m low-paid workers will have their pay packets cut by an average of £1,350 a year.

Could the government change its policy to avoid this?

The Prime Minister and his frontbenchers have been pretty stubborn about pushing on with the plan. In spite of criticism from all angles – the IFS, campaigners, Labour, The Sun – Cameron has ruled out a review of the policy in the Autumn Statement, which is on 25 November. But there is an alternative. The chair of parliament’s Work & Pensions Select Committee and Labour MP Frank Field has proposed what he calls a “cost neutral” tweak to the tax credit cuts.

How would this alternative work?

Currently, if your income is less than £6,420, you will receive the maximum amount of tax credits. That threshold is called the gross income threshold. Field wants to introduce a second gross income threshold of £13,100 (what you earn if you work 35 hours a week on minimum wage). Those earning a salary between those two thresholds would have their tax credits reduced at a slower rate on whatever they earn above £6,420 up to £13,100. The percentage of what you earn above the basic threshold that is deducted from your tax credits is called the taper rate, and it is currently at 41 per cent. In contrast to this plan, the Tories want to halve the income threshold to £3,850 a year and increase the taper rate to 48 per cent once you hit that threshold, which basically means you lose more tax credits, faster, the more you earn.

When will the tax credit cuts come in?

They will be imposed from April next year, barring a u-turn.

Anoosh Chakelian is deputy web editor at the New Statesman.