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Automotive for the people

Once a symbol of all that was wrong with British industry, our car sector is today a source of pride.

A decade ago, it would have been a joke to claim that the UK could become Europe’s second-biggest car-maker. No one is laughing now. Once a symbol of all that was wrong with British industry, our automotive sector is today a source of pride. Across the rest of the economy, UK firms are sitting on a £720bn pile of cash, uncertain about the future and unwilling to invest. But in the automotive sector, barely a month goes by without another announcement of new investment. In the past 18 months, £5.5bn has been committed. As a result, the Society of Motor Manufacturers and Traders, the industry body, expects UK car production to reach two million by 2015, beating the national record set in 1972. This would bring us level with Spain and put us within touching distance of France. Only Germany would lie ahead, though still by a very large margin.

How did this transformation happen? Success has many authors. Take the £125m investment from Vauxhall in Ellesmere Port, agreed in May. Unite, which displayed the modern face of engaged and flexible trade unionism, and the management and the secretary of state all deserve credit for the deal. But it was ministerial attention over a much longer period of time, working with the industry, that has put the succession of deals such as this one on the table: Nissan building the new electric Leaf in Sunderland; Honda creating 500 more jobs in Swindon; and McLaren’s new facilities in Woking. 

At the heart of this ongoing strategic collaboration between the government and industry has been the Automotive Council. A simple Labour innovation, it has allowed the industry to develop a shared sense of destination, an understanding of the challenges in getting there and a shared commitment to overcoming them. It has set the UK industry on the path to global success – competitive, greener and technologically advanced. There is more computer code in a Jaguar XJ than in a jumbo jet. Competition between UK-based manufacturers in the domestic and global marketplaces must remain as fierce as ever. But all share an interest in making the UK a great place to make cars. The industry is on the verge of a revolution as it seeks a low-carbon future. Jaguar Land Rover aims to make an electric vehicle that, if charged using renewable energy sources, would emit less CO2 when driven than comes from the food intake required to walk. Rather than sit back passively, the Automotive Council identified critical areas of technology where the UK could lead the world, from energy storage to electric motors to lightweight structures. The council has focused attention on how we can become as good at making car parts as we are at assembling them. The advantages of many lower-cost producers are diminishing. We can seize this opportunity by creating stronger domestic supply chains – our version of the German Mittelstand – and generating new, high-quality jobs.

Yet this is not inevitable; it is made more difficult in the context of a recession made in Downing Street. The government must rebuild the knowledgeable infrastructure it destroyed whenit scrapped regional development agencies. And it must address the problem of finance: if the government can’t get the banks to lend, it should consider the case for a British investment bank, as Labour is doing. The growth that we need is private-sector growth. But the success in the automotive sector shows how an active government, working intelligently with industry, can make this more likely. In too many areas, this government has scorched the earth, causing unnecessary disruption and destroying valuable know-how. So it deserves credit for continuing with the Automotive Council. Business needs certainty. The more we can put the interests of industry beyond party politics, the more we can support and sustain success. Yet the government could do so much more. We need a united and compelling vision for the economy, to pay our way in the world and ensure fairness at home. We need a government with real ambition for Britain, prepared to apply the lessons from the success of the automotive sector – consistently, systematically and appropriately – across our economy.

Chuka Umunna is the shadow business secretary and MP for Streatham

Chuka Umunna is the shadow business secretary and the Labour MP for Streatham.

This article first appeared in the 16 July 2012 issue of the New Statesman, Age of Crisis

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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.