Labour must embrace localism

Central government is no longer trusted or effective. That creates huge opportunities for the Opposi

In politics, it seems we’re all localists now. But that has not stopped a growing backlash against the idea of decentralising power in England.

Last week a survey of civil servants found that nearly a third thought localism was flawed and only 10% were fully in favour. The Committee on Climate Change recently called for new national duties to be placed on councils to produce low carbon strategies. Even TV chef Jamie Oliver is getting in on the act, demanding national standards for school dinners in Michael Gove’s academies.

Should Labour join in? On the face of it, this sounds like good politics. There are real reasons to criticise the coalition – for instance, the clear evidence that council cuts have hit poorest areas worst and the limited amount of new power for local government. The obvious thing for an opposition party to do is to try and discredit localism as nothing more than cover for cuts.

Obvious, but wrong. Instead of trying to knock localism down, Labour should outflank the coalition by doing it better. The party cannot return to the high centralism of the Blair/Brown years, when it turned out the man in Whitehall really didn’t know best when it came to NHS IT, teenage pregnancy and public satisfaction with state services. If the past 15 years proved anything, it is that central control cannot deliver an end to inequality.

Labour needs a new philosophy of governing, and localism fits the bill. It can address a number of the problems that any government will face after the next election. The English are starting to demand a greater say in the way they are governed against the backdrop of the Scottish independence debate. Devolving more power to cities and shires is part of any credible response.

Localism can drive growth – mounting evidence shows that greater financial independence for cities can increase GDP. It can also help tackle austerity. Studies suggest that £20bn could be saved over 10 years by giving councils more power to reorganise something as simple as all the public sector property in an area. Moreover, at a time when politics is facing a generalised crisis of trust, over 60% of us say we trust our councils.

A progressive approach to localism needs to do three things: break down the power of Whitehall departments, encourage councils to cluster into bigger units and introducing compulsory voting.

A lack of joined up thinking in Whitehall creates artificial walls between business and transport, welfare and justice. We need to break down the barriers, and that means breaking the power of the great departments of state.

Labour should promise to introduce a devolution bill that would make Whitehall significantly smaller by handing control of large elements of services such as criminal justice, skills and business policy, and benefits administration to local authorities. The government should publish a whole-of-government strategy for the coming parliament, with a handful of big, clear goals for local authorities and other local services, policed through a new department of the prime minister and cabinet.

Councils need to change too. They are already taking a 28% cut in their central government grants and there is almost certainly more to come whoever wins the next election. If they are going to maintain their services and get to the right scale to drive growth, local authorities need to cluster together across cities and shires to share services and pool their investment power to drive growth.

Some councils already clubbing together into combined authorities – a bit like the Greater London Authority without the mayor’s powers – that currently cover Greater Manchester and may soon cover West Yorkshire as well.  Labour should encourage more of this with carrots and sticks: new powers for those who voluntarily cluster, the threat of a top down restructuring for those who drag their feet. This should be a precursor to the eventual election of Boris-style ‘metro-mayors’ for all the country’s major conurbations.

There exists an opportunity to create a new era of prosperous English city states that can channel the best of Chamberlain and Morrison, but to justify devolution we need to make sure that local politicians are accountable to their electorates for the exercise of their new powers. Low turnouts – the average is in the early 30s - have for too long been an excuse for centralism. But just because the public isn’t interested in voting, doesn’t mean voting isn’t in the public interest. That is why we should consider introducing compulsory voting for local elections.

David Blunkett once gave a speech which complained that ministers had ‘responsibility without power’. His government tried to resolve this problem by taking more power into the centre. This time round, if the party wants to win and, more importantly, to govern well, it needs to take the other path: Labour needs its own localism.

Simon Parker is Director of the New Local Government Network

How it used to be - civil servants sorting files. Source: Getty Images

Simon Parker is director of the New Local Government Network

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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.