A week to remember?

Faced with an almost unprecedented drop in popularity, some in the Labour Party are starting to thin

So, how bad is it for Gordon Brown? The polls are obviously terrible, with one showing the biggest drop in a prime minister's approval rating since 1940, when Neville Chamberlain lost the nation's confidence after the German invasion of Norway. Since the March Budget the Conservatives have consistently polled above the 40 per cent mark needed to win power. In YouGov's latest respected snapshot, Labour was trailing 16 points behind the Tories, who scored 43 per cent - their most popular rating since before Black Wednesday. The voters, who gave Gordon Brown the benefit of considerable doubt when he took over, seem to have turned away.

The commentariat, even some of the friendlier columnists, are coming to a similar conclusion. The Commons rebellion over 42-day detention without trial for terror suspects is growing. Anger about the abolition of the 10p tax band is rising. Most worrying of all is the effect on the nerve and discipline of the Parliamentary Labour Party. Graham Stringer MP explained that "it's sorrow, more than anger, with Gordon". Ian Gibson MP described his Prime Minister as being "a bit like a scared rabbit in the headlights". An unnamed former cabinet minister chose to sum up the position thus: "We're f***ed." Some MPs have switched from plotting against Blair to plotting against Brown with barely a pause for breath. The Prime Minister may be the architect of his own misfortune, but the spinelessness of his MPs is still shocking.

The loyal Hazel Blears took to the airwaves to defend the PM as "a pretty serious person who thinks very deeply about decisions and is also a man of conviction". Few would challenge the first claim: but if anything Brown has been hobbled by lack of confidence. The paradox is that he almost certainly does have a vision of a more communitarian, more equal nation. But if this is Brown's real agenda, he seems to have been persuaded that it would alienate voters. Having tucked away his own moral compass, he appears directionless. It is difficult for him to appear as the friend of business, following the capital gains tax reforms which - on the upside - seem poised to push Digby Jones out of government. Yet it has also become harder for Brown to be seen as a staunch ally of the poor after the 10p tax band blunder. He has tacked on public service reform, trimmed on tax and triangulated on China.

It is nonsense, however, to suggest that he will be replaced before the next general election. Things might yet get better. The snazzy new communications team might get a grip. The PLP might find their cojones. Anxious voters might begin to worry about handing power to the sixth-form prefect duo of George Osborne and David Cameron. The downturn might be shallower than feared, and Brown credited as the one who kept his head. There is always a fight to be had.

But the only hope for Brown is to be Brown. He should launch a passionate, outright campaign for a fairer and more democratic Britain; rein in the Blairite marketisation of public services; raise taxes on inheritance and high incomes to fund more aggressive redistribution; and introduce much tougher regulation for the financial markets. He needs to persuade the voters that an unashamedly social-democratic government is the only one that can really be On Your Side. Even if he loses, at least he will do so on his own terms.

Bad news, good news

The hard truth, however, is that everything now has to go right for Brown - and Brown has to get everything right - to save Labour's chances. "We have to be thinking about opposition now," admitted one level-headed senior adviser, indicating that the smart money is not on a fourth term. In this case, the party would also be electing a new leader.

The bad news is that there is no superstar candidate, no Blair or Clinton, waiting in Labour's next generation. The good news is that this means the next leader will have to set out a compelling direction for Labour and its path to reconnection with the British people. The most likely contest would be between David Miliband and Ed Balls. This would present the party with a real choice, not only between two very different personalities, but between two distinct philosophies.

Balls has declared himself, on these pages, to be uncomfortable with the label "social democrat", because it reminds him of the treacherous SDP. He prefers the term "socialist", he said: "Socialism, as represented by the Labour Party, the Fabian Society, the Co-operative movement, is a tradition I can be proud of." Balls is Fabian to his fingertips. He is the guardian of the government's pledge to abolish child poverty. He may not have said "So what?" in response to Conservative claims that Labour had ratcheted up the tax burden, but it is the sort of thing he might say. Balls is a passionate advocate of Sure Start and a national strategy for play. Confronted with evidence that poor children are more likely to suffer death or injury in the home, his Fabian instinct was to put £18m into a fund for domestic safety equipment for low-income families.

Miliband's nascent philosophy has a different starting point. As a backbencher, he told an audience in Berlin that Labour "needed to reach back into the history of progressive thought in Britain to develop a 'liberal socialism'" and he argued for not only "regeneration of local government", but a wider agenda that would "include issues of ownership and control of local public services". By 2005 he was suggesting "liberal social democracy" as an alternative label, but the import was the same: power should go to patients, parents, local citizens.

He has been a consistent, if cautious, advocate of greater devolution to local government and an enthusiast for citizen-focused public service reforms. In an article in the Times a fortnight ago, Miliband insisted that a "successful ideology for the 21st century" would be built on "two rich intellectual traditions": state-focused social democracy and the "radical liberal" tradition, whose "goal was the freedom and flourishing of the individual".

Balls the Fabian socialist wants to use central power for progressive ends; Miliband the radical liberal thinks those ends require the devolution of power. This critical battle, not yet joined, would be for the very soul of the Labour Party.

Martin Bright is away

This article first appeared in the 21 April 2008 issue of the New Statesman, Food crisis

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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.