Paul Ryan on Europe

Compared to Ryan's budgets, Cameron's coalition looks positively profligate.

As a congressman, Paul Ryan hasn't turned his gaze overseas all that often. He is far too busy focusing on important domestic issues like changing the taxation on arrow shafts from a 12.5 per cent of sales to a 39¢ flat tax to spend time worrying about the Old World.

But he has made two notable, on-the-record, contributions to debates happening on this side of the pond.

The first was in 2009, when he co-authored a Wall Street Journal article about the perils of socialised medicine.

The piece, titled Beware of the Big-Government Tipping Point, was published in January 2009, the day before Barack Obama was sworn in as president, and is a strongly worded attack on the then-nascent idea of Obamacare.

In the piece, Ryan touches on the NHS, arguing that:

We need only look to Great Britain and elsewhere to see the effects of socialized health care on the broader economy. Once a large number of citizens get their health care from the state, it dramatically alters their attachment to government.

This line has been ramped up in the re-reporting of it, becoming a "savaging" in the Times, where Sam Coates suggested that Ryan had claimed "that free healthcare distorts the democratic process". The truth is that the pieces more mild, more wonkish, and even partially correct – although deeply cynical.

He is right,because it is obvious to anyone that the American attitude to government is clearly different to the British one. For all that some on the right of the Conservative party love to repeat Ronald Reagan's famous quote about Government being the problem, that view is only really held by the fringes of European society - as opposed to the US, where it is the mainstream opinion.

It's only partly right, though, because he's clearly overstating the effect healthcare has. Attachment to the state comes from more than just getting your medicine from The Man. It is experiencing a caring state full stop which changes how a nation sees the role of government.

And it's deeply cynical because he seems to be arguing that a government should stay deliberately bad – should stop doing good things, and only do things which will anger its citizens – because otherwise people will realise that big government isn't such a bad thing.

It's putting the cart before the horse. If Ryan thinks universal healthcare is bad, he should have the courage to let the voters decide whether they agree with him – not prevent them from getting healthcare because they might realise he's wrong.

Ryan's other moment touching on British issues came in 2011. He was given the opportunity to make the Republican response to Obama's State of the Union address (roughly analogous to the Queen's speech, in that it lays out the legislative agenda for the year ahead). He argued:

If we continue down our current path, we know what our future will be. Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.

Lumping together "Greece, Ireland and the United Kingdom" betrays a basic lack of comprehension of the extreme differences between the crises in those three countries.

For one thing, there is no way that America could ever (in the foreseeable future) face crises similar to those of Ireland and Greece. Simplifying matters enormously, Greece's problems were borne from corrupt governments systematically lying on national accounts to enter the Euro, running spiralling deficits once the cheap credit became available, and having no recourse to the currency markets when the truth came out.

Ireland, meanwhile, suffered a hangover from a privately financed housing boom which turned into a privately financed housing bust, a banking crisis which required a government bailout, and, again, the straightjacket imposed by the Euro combined with German intransigence aggravating the whole matter.

And if Ryan was seriously suggesting that following Obama's vision for America could take the country in the direction of the UK, he needed to take a look in a mirror.

Even in 2011, it was clear that the UK did not have any particular debt crisis, and that overzealous attempts to deal with the deficit were harming demand and compounding the error. Construction spending had fallen, confidence had been slammed and the VAT rise had just been introduced.

Of course, for all that Ryan looked economically illiterate comparing the three at the time –and he did – in hindsight, he looks even worse. The Conservatives, we now know, inherited recovery and turned it into recession, and they did that through targeted application of austerity. But compared to Paul Ryan's budgets, the Coalition looks positively profligate.

The VP pick has not got a perfect track record talking about things outside his expertise, then. I'd suggest he stick to areas he knows about, but it's becoming rapidly questionable whether there actually are any. Maybe he should just keep quiet and be a pretty face on the campaign trail.


Paul Ryan. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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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.