Gibraltar is just displacement activity for Spain

Trying to distract itself from the financial crisis.

Normally Spanish late night television is like Hello magazine in debate form. A group of journalists sit around and shout at each other about which Matador is dating which model. It’s light it’s fluffy and it goes on for hours.

Last week though it was all a little different as the debate turned from Spain’s equivalent of Katy Price to a large inhabited rock at the very tip of the country. In the UK the story of Gibraltar has been covered with a hint of incredulity and as the situation in Syria intensifies is less often in the news. But Spanish media continue to cover it, and with increasing levels of belligerence.

As an example in the four days up to August 28th Spanish television channel Telecinco, always slightly right leaning perhaps, had covered the story in its news coverage no less than 8 times. It’s got the attention of the Spanish populace in a way that it never has in the UK.

However almost everyone you speak to in the Spanish capital knows it’s all a smoke screen for the major problems in the country. In particular the word on the streets of Madrid is that a dispute with Gibraltar couldn’t come at a better time for the scandal hit government of Mariano Rajoy.

Rajoy and his party, the Partido Popular (PP,) have been accused of taking backhanders and general corruption in a story that just won’t go away. Worse he’s presiding over the worst financial crisis in the country’s democratic history. Perhaps it’s significant then that it is the central government that has complained the most vehemently over alleged damage to Spanish fishing. Raising what was effectively a local fishing dispute to a matter that could yet go before the United Nations.

Significant or not, suddenly the Spanish are talking about little else (well there is one other subject but more on that later.) Rarely now do you overhear conversations in Madrid about the "crisis" or the employment situations of their friends and children. And yet in the same breath Spaniards mention that they know it’s all a distraction. The Spanish wanted, no needed, something else to occupy their minds other than one in four being out of work, over half the youth unable to find employment and a government and monarchy deeply embroiled in corruption scandals.

For many though there was a sense of disappointment that the argument was being led by a beleaguered government and on a subject normally only beloved of the right. So when the national obsession came up with a new distraction the smiles spread.

To many outside of Spain the distraction of one club seeking to buy a talented welsh footballer for a rumoured £86 million seems hardly something that would grip a nation.

Except, for the Spanish the club in question, Real Madrid is not just a football team. It’s a national icon and football is a way of life. To many it seems insane in a crisis riven economy to spend so much on one man. But the debate in Spain about the cost of Gareth Bale lasted 5 minutes.

Because Spaniards on the whole, and Real fans in particular, didn’t see it as a waste of money, they saw it as a source of pride. The reason was for the Spanish the acquisition of Bale is a different type of distraction to Gibraltar. It’s one where Spain was no longer a nation in suffering but one where they could compete with, and beat, the rest of the world. It’s just the tonic the nation needed.

Now all of us should just hope Spain doesn’t think that the Gibraltar situation is another where they can take on the world and beat them. But then they already know it’s just one big distraction, and they’d probably prefer to watch the football anyway.

Mike Cobb is a reporter at Private Banker International

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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.