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Squeezed Middle: Stay-at-homes v the Boden-clad Spartans

Would life be easier if I gave up work and signed on?

I smile and wave at Zeynab, my neighbour, as she hauls her double buggy down the street. Her two boys are huge, surely big enough to be walking. I imagine her in 20 years: aged, weary, still pushing around two big, beardy men. The older one is sucking one of those boiled sugar lollipops that bring dentists out in hives.

I always stop and chat to Zeynab, partly because she is not one of the squeezed-middle mums. Why should we stick together so anxiously, like Boden-clad Spartans under attack from all sides? One of the good things about our area is that there is a real social mix; many of the flats in our street are still social housing. We should all make the effort to reach out, across the barriers of class.

Besides, all the property-price chat and Danish-design baby clothing stresses me out. Spending time with more down-to-earth mums such as Zeynab might help me to appreciate my lot in life – even if her English isn’t great and there are some cultural differences in our approaches to child-rearing.

“Hey! You had a new baby!” she says. I am on my way to pick up Larry, my two-year old, from nursery, carrying Moe asleep in his sling. She peeks in and coos. “How old is he?” Moe is three months. “Wow, he’s tiny for three months. You’re breastfeeding him?”

Immediately, she has my back up. Never, ever tell a breastfeeding mother that her new-born baby looks small. It’s like pointing, laughing and wiggling a little finger at a naked man. It’s just not nice.

But she has only just begun: “Did you mean to have a second? Or was it a mistake?” I am so gobsmacked that I fail to tell her to sod right off and instead blurt out something polite about how I’d always wanted two.

“It must be very hard. I mean, you have a mortgage, right? You have to pay for the nursery. You have to go back to work. Very hard.”

I feel like I have stepped through the looking glass. There was I, feeling all socially superior. I was not expecting Zeynab’s pity, let alone her suggestion that if I had any sense I would have chosen not to breed.

For a moment, I wonder if she’s right: would life be easier if I gave up work and signed on? I’d have to cut back on the lattes but at least I’d get my rent paid and get to stay at home watching CBeebies full-time. It doesn’t sound so bad . . .

No, no, no! I banish the thought from my mind and immediately feel dirty, like some kind of flasher with a copy of the Daily Mail hidden under her tasteful John Lewis trench coat. I value my independence, economic and professional. And anyway, who am I kidding? I’ve only been on maternity leave for three months and I already wish Bob the Builder would die in a horrible workplace accident.

Nevertheless, it is with some relief that I bid Zeynab goodbye. Sometimes this reaching out business doesn’t quite go the way you expect.

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 28 January 2013 issue of the New Statesman, After Chavez

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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.