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State-funded sport, like the NHS, has become something Britain can celebrate

The National Lottery has fundamentally altered the economics of sport in the UK.

As a Brit living in America, I was pleased to see the Olympics succeed in London. But as an economist, I have to say that the financial benefits are limited. We have already seen that the alleged tourism bonanza was a mirage. The boost to GDP is a drop in the bucket – £10bn spread over seven years equals about one-tenth of 1 per cent of GDP per year – and the development benefits to east London are not likely to be significant, given the size of east London’s problem.

Still, one thing we can all agree on is that Team GB’s medal count was impressive, particularly when you consider the progression over the past six Olympics. We won 20 medals (five gold) in 1992, then 15 (with one gold), 28 (11), 30 (9), 47 (19) and now 65 (29). This is a step change in performance, and it is due largely to government intervention initiated by John Major. The Conservative prime minister insisted that the National Lottery, which he created in 1994, should give a significant percentage of its revenues (5.6 per cent back then) to “sporting good causes”.

Culture change

The National Lottery has transformed the administration of British sport. In 1997, the rather lame and well-intentioned Sports Council was bulked up to become UK Sport, a well-funded and ruthless body committed to winning. UK Sport currently distributes roughly £100m a year, about half of it to governing bodies that use the funds to foster “grass-roots” sport. The rest goes to elite athletes for their training programmes. The key point is that the elite athletes and their federations get the support only if they get results – if they fail, their funding is cut off. This brutal approach has been wildly successful; expect delegations to flock from around the world to learn the British secret. Even the Australians are envious.

The mid-1990s will be remembered as the point when British sporting culture changed for ever. In essence, the National Lottery provided the funding to transform British sport from amateurism to professionalism. To understand how peculiar this change is, one has to understand a little sports history.

In the modern world, there have been two models of sport. The first, which emerged in Germany and Scandinavia at the beginning of the 19th century, was primarily focused on preparation for military service. The father of modern gymnastics was a German nationalist, Friedrich Ludwig Jahn, who witnessed the defeat of the Prussian army by Napoleon at the Battle of Jena in 1806 and concluded that this resulted from a lack of fitness. As well as inventing gymnastic equipment such as the horse, he promoted associations for young men to practise gymnastics. Their increased physical prowess contributed to the German revenge over the French at Sedan in 1870. The French soon followed suit and, by 1900, governments across Europe were promoting various sports for their martial virtues (in France, even cycling was endorsed with wartime in mind).

Even after the Second World War, the conscripted armies of Europe and elsewhere placed an emphasis on the benefits of sport. As the welfare state grew in the 20th century, governments came to promote sports for broader social purposes. In the 1700s Jean-Jacques Rousseau argued that the public practice of sport would foster a sense of citizenship and responsibility.

The second model of sport evolved in the Anglo-Saxon world. If military gymnastics is purposeful, then cricket is essentially purposeless. In Britain, sports such football, golf or tennis developed as private pastimes (it is doubtful that the Duke of Wellington ever said the Battle of Waterloo was won on the playing fields of Eton – the attribution was first made by a Frenchman three years after the Iron Duke’s demise). Individuals formed their own clubs, and then voluntarily gathered under governing bodies such as the MCC or the FA.

Even when professionalism came to sports such as football, the involvement of the state was almost completely absent. When protesters argued in the 1960s that the government should prevent the MCC from sending a touring side to play in apartheid South Africa, the government could say with some justification that it had no leverage whatsoever.

The American system evolved as a variant of the British model. Non-Americans tend to notice the professional sporting organisations – Major League Baseball, the National Football League (NFL) and the National Basketball Association (NBA) – but the most important organisation in American sport is the National Collegiate Athletic Association (NCAA). Attendance at college football matches is three times larger than at the NFL, and college basketball attracts twice as many people as the NBA. A large number of athletes, both American and non-American, train in US colleges. Most professional athletes played in college first.

Imitation of strife

The NCAA jealously guards its amateur status, and the college athletic departments have budgets that would put most European football teams to shame (Michigan’s athletic department budget is about the size of Aston Villa’s – and there are dozens like it). All of this is done without the direct intervention of the federal government. Indeed, the suggestion that it might have a role in funding sports is met with horror in the US.

While the American system evolved in imitation of the sporting rivalry between Oxford and Cambridge, that model never developed in the UK. Arguably, British universities’ reliance on state funding after the war made them less interested in developing a sense of sporting loyalty, something that, in turn, generates alumni giving in the US. Equally, it may be that there is just too much sport in Britain to sustain a viable collegiate system.

Whatever the case, Britain has moved decisively in the past 20 years towards the state-funded model, and, judging by the British response to the London Games, people are happy with it. State sport, just like the National Health Service in the opening ceremony, has become something to celebrate.

Stefan Szymanski is professor of sports management at the University of Michigan. His research on the evolution of modern sport can be downloaded here


This article first appeared in the 20 August 2012 issue of the New Statesman, Back To Reality

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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.