Blair is dead, long live Blair

Having defined himself against his predecessor, is Gordon Brown now embracing Blair's vision for pub

Plus ça change. Just seven months on from the promise of change, change and more change, an embattled Downing Street endorses James Purnell's claim that Gordon Brown is "clearly the heir to Blair". Meanwhile, dismayed at inheritance tax cuts and the refusal to nationalise Northern Rock, the left commentariat boils with impotent rage.

The reorganisation of No 10 is the institutional symbol of Brown's journey. It turns out that running a government isn't easy, even with the benefit of a compliant Treasury. An important task for Jeremy Heywood, permanent secretary, and Stephen Carter, head of strategy, is effective gatekeeping. For Heywood, a career civil servant, this is about teaching officials and advisers to use their power across Whitehall sparingly - a discipline he strictly applied under Tony Blair. Carter's job must be to ensure that advice generated inside Downing Street synthesises the perspectives of the various policy experts, political strategists and media managers. Brown often works 16-hour days, voraciously consuming briefings on every policy topic under the sun. Heywood and Carter will need to persuade their boss to be managed.

Aneurin Bevan said "the language of priorities is the religion of socialism". Given the inevitable buffeting of events, it is also the secret to an effective centre of government. If Downing Street doesn't decide where to focus its power it ends up mired in detail, unable to provide strategic direction. This, combined with Brown's renowned cautiousness, gives rise to the repeated charge that his project lacks purpose and vision.

In his third term, finally facing a credible opposition, Tony Blair argued that if the next election was a battle between Labour's big state and a Conservative small state, Labour could lose. In a choice between an enabling state and a minimal state, however, Labour should win.

The Conservatives know how important it is to frame this debate. As a Tory strategist put it to me: "While Thatcherites said roll back the state and the market will fill the gap, we say build up civil society so the state can withdraw without leaving people high and dry." As I write, David Cameron is making a speech at the RSA on the topic of the "social enterprise state". Labour needs to be fighting hard for this territory, but instead of a clear argument, its approach can seem opaque.

With the complexity and scale of modern government, the press and opposition will never be short of specific examples of service failure, however much the general picture shows improvement. What gives these stories more power is a sense among the public that the state is unable to address the issues it most cares about - immigration, hospital infection, overcrowded trains - even as it seeks to expand its influence in other areas, from children's play to obesity plans, that used to be seen as the responsibility of the individual.

Brown's cabinet inherited a public-service reform model that emphasised the value of diversity and competition in delivery. James Purnell, the new Work and Pensions Secretary, signalled a new frontier, opening up welfare-to-work to the private and voluntary sectors. However, officials and pro viders in the National Health Service, local government and elsewhere say they are becoming frustrated at ministers' cooling on the principle of competition, or what is known in Whitehall jargon as contestability. The public-sector default is reasserting itself.

Confusion abounds. In one of his bolder moments, Brown recently welcomed the advent of individual, self-directed budgets in social care, and said the idea should be explored for patients with long-term health conditions. Yet there has also been a spate of stories about cancer patients (itself increasingly a long-term condition) who not only lack control over their own treatment but are denied NHS care because they are using their own money to buy additional drugs.

Personal power

At the weekend, two of Labour's most outspoken centrists, Frank Field and Alan Milburn, said that the future of the welfare state lay in extending the idea of individual budgets into more policy areas, from social care into the heart of welfare - education and health.

In the hands of a right-of-centre project, individualisation could lead to fragmented services, casualised public-sector employment and major inequalities at the point of public- service delivery. A progressive, personalised welfare state, however, would foster new forms of collective provision, combining the pursuit of social justice with strategies for personal, community and employee empowerment.

Philosophically, this approach fuses social-democratic and radical liberal traditions. It speaks to the politics of Brown's talented cabinet young guns.

Not that change is easy. Many social workers, originally hostile to individual budgets, now say they have more job satisfaction helping clients manage their own care. This doesn't stop trade unions being deeply suspicious of the concept, even in its current form. But opposition gives policy political bite, an opportunity for Downing Street to be seen to be taking on an argument even at the risk of upsetting Whitehall and Labour's historical allies.

Public services differ one from another. The case for social care payments, for example, is clearer than any made for school vouchers. In driving change, Downing Street should not abandon its commitment to decentralising power to localities. But someone needs to set out the big picture of a modern state that does well what it alone can do, while helping individuals, families and communities take control of their own lives. This argument cannot be won with one speech or announcement. It will demand determination, good policy and brave politics. But it would certainly make for a more edifying and engaging topic of political conversation than Alan Johnson's campaign accounts.

Matthew Taylor is the chief executive of the Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA)

Matthew Taylor became Chief Executive of the RSA in November 2006. Prior to this appointment, he was Chief Adviser on Political Strategy to the Prime Minister.

This article first appeared in the 04 February 2008 issue of the New Statesman, God

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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.