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It’s time for pundits to put some skin in the prediction game

Ed Smith's "Left Field" column.

You would expect a column called “Left Field” to challenge conventional wisdom. So let’s say goodbye to 2012 by recalling some moments – of wildly diverging importance, drawn from politics, sport and health – when we’ve been misled by the mainstream.

First, on the evidence of the US presidential election, it is time to ditch the pundits and follow the bookies. Right up until polling day, there was bizarre agreement across the mainstream media that the election was “too close to call”. Paddy Power, Europe’s largest bookmaker, knew better. It paid out on a win for Barack Obama two days before polling.

It would be easy to list all the Republican shock jocks whose electoral college projections missed the dartboard, let alone the bull’s eye. Yet in this instance, we might absolve right-wing ideologues from blame. At least they can blame woeful analysis on wishful thinking. When Karl Rove was holding out for a Mitt Romney win, the Fox News anchor Megyn Kelly asked him (with more honesty than she had perhaps intended), “Is this just math you do as a Republican to make yourself feel better or is it real?”

Crying wolf

It wasn’t just the Republicans. How can we explain the determination of the allegedly nonaligned mainstream media, in Britain as well as in the US, to pretend that the election was close, even in the last couple of days? Why were the experts, even those who didn’t like Romney, so reluctant to acknowledge what state-by-state polls had told us for weeks?

Partly, it was because pundits are reluctant to admit that opinions polls are now much more accurate and reliable than they were before. Mistakes such as what happened in the 1992 British general election, when polls predicted a Labour victory, are far rarer. Second, the narrative of electoral reporting relies on the elevation of inside sources. If a prediction, even a wildly inaccurate one, comes from “inside” the Obama or Romney camp, it gains specious respectability – the problem being that both camps had reasons to argue that the election was close. Romney’s people preferred the idea that it was close to the idea that it was over. The Obama camp, meanwhile, was worried that complacency might lead to a low turnout. So the “inside view”, from both sides, was credulously (and wrongly) passed on as revealed truth.

However, the strongest factor is the love of drama. It is hard to avoid the conclusion that the media pretended the election was close to make it more “interesting”. That is a risky strategy, to say the least. It is short-term attention-grabbing at the expense of long-term trust. It is a form of crying wolf. It leaves viewers and readers that little bit less likely to pay attention next time.

There is a further irony about the election. The accurate predictions of the statistician Nate Silver on his New York Times blog FiveThirtyEight were hailed as a victory for scientific rigour over gut instinct and hunches. It is true that Silver had a great election. Around polling day, “FiveThirtyEight” was the most searched-for term that led people to the New York Times website. I, too, was part of the crowd: all my visits to the site were to access Silver’s blog.

For all their sophistication, Silver’s projections merely reflected the odds widely on offer from bookmakers. The lesson to draw fromthe woeful analysis of the election is not that “science works”. It is that we shouldn’t listen to people without skin in the game. If they’d been forced to bet on their projections, how many pundits would still have insisted that the election was too close to call? Maybe a journalistic warning should appear alongside every “predictive” column or piece of television punditry: “Do not trust my words: I have nothing at stake.” Conversely, those who are prepared to stake, say, £500 on their predictions would be rewarded with a special asterisk. Perhaps this skin-in-the-game asterisk could replace the much discussed “Leveson Kitemark” as proof of respectable journalism.

Silver learned his trade analysing baseball statistics before transferring his skills into the political arena. Not all sports punditry is prepared to join the real world. London hosted a wonderful Olympics this summer but it is in danger of being interpreted into absurdity. According to the Guardian, the shortlist for the BBC’s Sports Personality of the Year, which inevitably had a strong Olympic flavour, showed “a depth of excellence that is emphasised by the meritocratic diversity on show”. Put differently: we ought to love the Olympics and hate football because it is tainted by big business and commercialism.

Fat chance

Being uncommercial does not make a sport meritocratic. Quite the reverse. Thirty-seven per cent of Team GB medallists were privately educated. If there was a country called “British independent schools”, it would have come 12th in the overall medal table.

You might prefer sailing to football. You may prefer the way less flashy athletes conduct themselves; you may celebrate their restraint and dignity. But don’t pretend 2012 was the year when elite sport was finally opened up to the masses. If you really like the idea of sporting meritocracy – a broad talent base narrowing to an open elite – then I have bad news for you: it’s time to celebrate the Premier League.

Finally, as you reach for another mince pie this Christmas, spare a thought for Denmark’s legislators. They have had to make a U-turn and scrap the tax on fatty foods that they introduced in 2011. The problem was that Danes, desperate for a sudden injection of lard, were going on fat cruises to Germany, just as English drinkers used to cross the Channel Tunnel on booze cruises to France.

There is, sadly, a simpler problem with taxing fat. Fat doesn’t make you fat. Sugar does. The word “fat” has a PR problem. It needs a new spin doctor. Unfortunately, fat (the food type) has to share a linguistic term with fat (the body shape). There is little correlation between the two. Sugar, on the other hand, certainly does make people fat, as well as causing diabetes and a daily cycle of energy booms and busts.

So leave the skin on the turkey but pass on the Quality Street. Happy Christmas.

Ed Smith is a journalist and author, most recently of Luck. He is a former professional cricketer and played for both Middlesex and England.

This article first appeared in the 24 December 2012 issue of the New Statesman, Brian Cox and Robin Ince guest edit

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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.