Today’s judgments won't derail HS2 - but serious questions remain

High court rules on compensation over HS2.

The Department for Transport will, once again, be in the spotlight today as the High Court gets set to rule on whether the government followed proper procedures before approving its HS2 rail project. Given the recent lamentable procedural failures over rail franchising, tension within the Department will likely be running high.

From the government’s point of view the best outcome is obviously a green light from the court. Not only will this save blushes at the Department, it will allow the coalition to push, full steam ahead – if that is the correct idiom for a project that will not bear fruit until 2033 – with what has become one of its flagship projects.

However, even if the judicial review does come down in favour of the protest groups it is unlikely that HS2 will be halted completely: in rail terms it will receive an amber light rather than a red one.

The protestors no doubt hope that any legal setback to the project will open the way for further challenges which will pull HS2 into a quagmire of reviews and disputes which could carry on until the government finally loses interest or, at least, until the next election is called.

This hope is probably in vain. Given the number of recent setbacks and U-turns the government will be in no mood, or position, to compromise over a scheme it has so solidly thrown its weight behind. Just like the weary commuter, waiting for the train back home after a long day at work, the government will likely accept the delay with resigned determination. This is doubtless helped by the fact that there is widespread support across the political spectrum for HS2. For many on the left it is one of those big infrastructure projects which not only creates jobs and opportunities but also helps to narrow geographical disparities between London and part of the country.

What the outcome of the judicial review will not do is resolve, conclusively, whether HS2 is a sensible idea. Here, so many questions remain unanswered.

There is the argument that the benefits of the spending should be spread more widely. For example, despite commitments on electrification, parts of the rail network in the South West remain chronically deprived of investment. Certainly, dividing the pot of HS2 money up more equally between the regions would produce a less dramatic, less visible end result. However, smaller incremental rail improvements across the country may yield a much greater economic benefit than one big, budget-busting project.

In many ways this is an argument about the need for speed. HS2 will certainly reduce journey times between London and the midlands and parts of the north, however, given the lofty sums of money involved the improvements are marginal at best. Moreover, given the fact that many people use their time on the train fairly productively – whether working or relaxing – there is a real question mark over whether a faster journey accrues genuine economic benefits. The debate is further complicated by the point that without improving regional transport connections – those roads and public transport services which feed into the stations HS2 serves – a reduction of time spent on the train probably becomes pretty pointless.

The one thing HS2 will certainly do is help improve capacity; something much needed on a rail network that is now bursting at the seams. However, HS2 is an expensive solution to this issue and there are simpler ways of increasing capacity. Adjusting the existing infrastructure to accommodate double-decker and longer trains, for example, would cost a fraction of HS2.

The answer to all of these points – and many more – will simply not come from the outcome of today’s review. Nor have they come from government, which has presented a less than compelling case for its policy. Only time and hindsight, it seems, will help us form a view of whether HS2 is a sound scheme. For now, the jury is still out.

The Department for Transport will, once again, be in the spotlight. Photograph: Getty Images

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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 a non-compulsory aspiration of campaigners) 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.