CommentPlus: pick of the papers

The ten must-read pieces from this morning's papers.

1. The two-faced Tories can't have it both ways (Times)

If Britain really is on the brink of bankruptcy, we can't protect every spending programme, says Anatole Kaletsky. The Tories should say so, but their entire election strategy appears to consist of blatantly contradictory messages.

Read the CommentPlus summary.

2. I long for a real Labour voice to slam this City-fearing trio (Guardian)

Simon Jenkins says the Ask the Chancellors debate proved that Alistair Darling, George Osborne and Vince Cable still don't see that they were conned into propping up the banks at our expense. Without a true voice of the left, the argument is dead.

Read the CommentPlus summary.

3. It's the geriatrics wot will win the Ovaltine Election (Independent)

This is not a young country, but a very old one that is feeling its age more than ever. Matthew Norman discusses the chancellors' TV debate, and says Osborne's relative youth counted against him.

4. The Tories will be the only ones to benefit from public debates (Daily Telegraph)

Bruce Anderson agrees that Osborne looked too youthful, but defends "flashes of intellect and steel", saying that the government's spin and cynicism will ultimately be exposed by the TV cameras in the leaders' debates.

5. The ghost of Section 28 (Guardian)

Martin Popplewell, who conducted David Cameron's distastrous interview on gay rights with, says the Tories must do more if they want the gay voters who deserted the party to return.

Read the CommentPlus summary.

6. Why Germany cannot be a model for the eurozone (Financial Times)

Last week's European Council was not a solution but a fudge, says Martin Wolf. It shows a worrying unwillingness to accept default and, more importantly, that Germany's views on how the eurozone should work are wrong.

7. Women are at the heart of US foreign policy (Times)

The US secretary of state, Hillary Clinton, writes about global women's rights, saying that America views the subjugation of women as a threat to US law and order and the common security of the world.

Read the CommentPlus summary.

8. Social care needs a rational and fair system of funding (Independent)

Present arrangements for care of the elderly are unworthy of a civilised country, says the leading article. Yesterday's white paper is welcome because it puts the argument about social care squarely on to the electoral agenda, but the question of funding must be tackled.

9. The pontiff is not so potent (Guardian)

Andrew Brown argues that the shape of the world's oldest living bureaucracy, the Catholic Church, is very much misunderstood.

10. Hermit economics hobbles Pyongyang (Financial Times)

Aidan Foster-Carter discusses North Korea, saying that the pariah state's decision-making is going from bad to worse. The path Kim Jong-il is on is patently a dead end.

Sign up now to CommentPlus for the pick of the day's opinion, comment and analysis in your inbox at 8am, every weekday.



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.