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Squeezed Middle: Cheesed off and strapped for cash

Broke-ness crept up on me stealthily, like adulthood.

How did I get here (not here, our local branch of 99p Stores – I walked – but here in life), I can’t help but ask myself, as I pause next to a shelf of no-brand tortilla chips and glance from one hand to the other? In my left I have some organic mature cheddar, purchased minutes ago in Sainsbury’s for £2.90. In my right, I have a packet exactly the same size with “Signature . . . A Cheese to Please” emblazoned across it. Price: 99p.

When and how did I become a person who notices the price of cheese? Let alone a person who considers returning a block of organic cheddar to Sainsbury’s and purchasing a cheese product of questionable provenance from 99p Stores, for the sake of saving £1.91?

It didn’t happen overnight. Broke-ness crept up on me stealthily, like adulthood and the ability to enjoy The Archers. Four years ago, I was throwing money around like Paris Hilton on speed. I’d buy ridiculous dresses and only wear them once, go on holidays to Brazil, spend £50 in one night on cocktails. I rarely bothered to check my bank balance, let alone stick to a budget.

Then I had two children and the economy hit the skidders almost simultaneously. I had never believed people who told me that kids were expensive. A baby only needs a drawer to sleep in and a few nappies, doesn’t it? Well, no. Kids also need somewhere to live and that is currently extortionately, cruelly expensive. Kids need you to look after them, and they don’t even pay you a minimum wage. If you try and earn some money, they need childcare, which costs as much as, or more, than you earn. Your household income is halved and then halved again, while your outgoings are doubling, tripling . . . it’s your basic, reliable recipe for economic meltdown.

I look back to the cheese. I originally bought not just Sainsbury’s cheddar but organic Sainsbury’s cheddar. Worrying about money all the time is so boring. I add variety with the full range of traditional middle-class worries: harmful chemicals in the food chain, the fairness or otherwise of trade, intensive farming, the destruction of hedgerows . . .

A woman in a bobble hat pushes past me, heading for the Baby Goods section. She loads two boxes of toxic-looking fragranced nappy bags into her basket. Her daughter, dressed head-to-toe in pink, is clutching a bumper bag of Haribo. It must be bliss not to worry so much. Baby crying? Feed her Haribo! Can’t be faffed to wash smelly nappies? Wrap them in plastic and stick them in the ground! Short on cash? Get a City job, flog dodgy financial products, retire at 35, job’s a good ’un.

Perhaps that should be my New Year’s resolution: 2013 will be the year of sod it all. Decisively, I drop the packet of Signature . . . A Cheese to Please into my basket and inch my overloaded double buggy towards the checkout.


Alice O'Keeffe is an award-winning journalist and former arts editor of the New Statesman. She now works as a freelance writer and looks after two young children. You can find her on Twitter as @AliceOKeeffe.

This article first appeared in the 14 January 2013 issue of the New Statesman, Dinosaurs vs modernisers

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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.