The New Statesman Interview - Alan Duncan

One of Hague's closest allies admits it: the Tories are incoherent and have to get back to the drawi

"Our challenge can be summed up by one question: What do we do for an encore?"Alan Duncan, an old friend of William Hague's and shadow health spokesman, is reflecting on the Tories' recent turmoil. The party that won four successive elections is not at all sure how it will ever win another.

Duncan was one of those who persuaded Hague to stand for the leadership in 1997 and then became his closest adviser - Hague's equivalent to Peter Mandelson. Although his formal influence has waned, he remains closely in touch with Hague. Indeed, Duncan was one of the few who were consulted about last year's shadow cabinet reshuffle in advance. Duncan himself is likely to be in the shadow cabinet this summer. So as an ally of Hague's his words carry some weight, and his message is brutal and blunt. "We've got to go back to the drawing-board and no longer just scrabble around in the hope of winning short-term engagements and battles."

Duncan knows he is not liked by some of his parliamentary colleagues. Profiles usually portray him as a spiv-like figure who failed totally to deliver for Hague in his early days as leader. In reality, he is a much more rounded politician, gripped by ideas as well as tactics. He is one of the few frontbenchers on either side who writes stimulating books and pamphlets.

"We've got to go out and win the battle of ideas," he says, "and yet it's difficult to see how we join battle. In opposition in the 1970s it was much easier, as the enemies were clearer. There was communism abroad, strikes at home and economic decline against which we could define ourselves. We won. But what do we do now in an age of ideological convergence? We've yet to come to terms about how to confront a Labour Party which has moved much closer to us and is seen by and large as decent, economically competent and sane. We've got to go away and do a lot of thinking, not in a climate of apology and contrition, but in a climate of some satisfaction that everything we said turned out to be true."

But hasn't Hague told his troops to apologise at every available opportunity in order to distance the party from the one which was booted out of office two years ago? Duncan believes contrition is necessary in only one area. Indeed, he offered the same advice to John Major, a premier with whom he became hugely disillusioned after being active in his leadership campaign.

"I went to see Major for the best part of an hour in 1993 after we had left the ERM. I said to him that what you should do over the next six months is a lot of Japanese bowing, and purge the discontent over the ERM, or else you will never recover. He didn't take kindly to this, but we have to show we understand we made a mistake. Apart from the ERM, we deserve credit that our principles have become common ground. Thatcher's legacy has not been division, but political and ideological union."

Which takes us back to Duncan's persistent theme. What do the Tories do now that Labour has taken on board some elements of Thatcherism? The debacle over the Peter Lilley speech seemed to be a misguided attempt at repositioning. Lilley stressed that the Tories recognised the limits of the markets in delivering services, especially the NHS. The official leadership line is that it was all a fuss about nothing. This is Duncan's view.

"It became a confusion of tactics, strategy and belief, none of which appeared to be coherent, which is why we've got to go back to the drawing-board and work out our articles of faith. You can't build a strategy on unclear thinking: that's the cart before the horse. We need clear thinking, and then we can work out a strategy for selling it."

Was the Lilley speech an example of trying to be strategic without getting the ideas right first? "Yes. It was a short-term tactic. It was reading that people don't trust us on public services, and then saying the way to overcome that is to say that we recognise you don't trust us, but we think you should trust us. That's not the best way to meet your objective. It was an experimental foray into presentation which didn't work."

The speech and the advance publicity appeared to repudiate the support from Duncan and his boss Ann Widdecombe for greater private-sector involvement in the NHS. Indeed, only a fortnight earlier Duncan had delivered a long speech on the importance of the market's role. He is unrepentant. "The Labour government is reducing the NHS to a core service. They are dogmatically hateful of anything which might supplement the NHS. Ann and I have a vision for a larger healthcare sector, where you have public and private medicine working in a mutually supportive way, perhaps with the private sector taking in a lot of non-urgent operations for which otherwise people would have to wait two or three years. This is a great vision. It's our vision because Labour hates the private sector."

So is that Conservative Party policy on the NHS? "Yes, this is party policy. It will become more detailed, but that is the policy."

I suggest Labour will portray this as another Tory privatisation, precisely the fear which supposedly prompted the Lilley speech. "Peter Lilley and I agree about the NHS. Indeed, I have a chum who's a Europhile, but gung-ho on the health service. We're ready to roll on this."

He is ready to roll more widely. He would like the state to do less across the board. "People should do more for themselves because they are freer, richer and better provided for in such circumstances. It's a socialist delusion that people get more out of the pool than the total amount they put into it. The question we should be asking ourselves is whether the state should be a supplier of services or just guarantee access to them, in areas such as health and education." Duncan is keener on the latter. "I think smaller units, more accountable to people using them, are better units."

To lend credence to his radicalism, he cites a Demos pamphlet he wrote in 1993, in which he outlined policies for ending "boom and bust". They included granting independence to the Bank of England and abolishing mortgage tax relief. He has a point. His problem is that Blair has adopted the polices. How do you oppose a government that happily picks the best policies from right and left?

"Rational thought is disappearing from British politics. We're living in an anti- political age. In many ways, Blair is a remarkable political figure, but one day he will be like Ceausescu on the balcony, and the cheers will turn to jeers. He's trying to create an omnibus political movement going in no particular direction. This can't go on forever."

But while Duncan seeks solace on the drawing-board, time is running out for the Tories. After all, we are in the mid-term of this parliament. The Conservatives show few signs of learning the art of opposition, though Hague has recruited several experienced journalists to present the party in a more positive light. Oppositions cannot be judged by the implementation of policy, so voters' impressions are formed almost exclusively through the media.

Does Duncan think the party is any good at spinning policies and images? "No. And we might be able to make a virtue out of not doing so. People will tire of the gloss in new Labour."

I point out that there is one Tory whose media image has actually improved since the election: Michael Portillo. There has been speculation that Hague might appoint him as chairman, to bring fresh impetus to Central Office and to ally him more closely to the Hague cause. Duncan insists this won't happen.

"I'm a great Portillo fan, but I'm not sure it's possible to be party chairman when you're looking for a seat and then having to fight to win it once you've got one."

So in Duncan's view, there will be no high-profile role for the charismatic Portillo and no guarantee of great spinning being weaved by the Tory emulators of Alastair Campbell and Peter Mandelson. Duncan's faith is in the power of ideas. But he would place his party firmly on the right at a time when he himself says there has been an ideological convergence. If he and those who think like him are going to redraw the entire terrain on which British politics is currently being fought, he had better hurry up. There will be an election in a couple of years' time.

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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.