The Lib Dems' attack on workers' rights is a betrayal of their history

The tragic irony of Lloyd George’s successors pushing through regressive Conservative legislation.

You don’t have to look too hard at the record of this Conservative-led government to find examples where right-wing ideology and purblind prejudice have trumped reason and evidence in the formation of policy. Dismantling our National Health Service through financial competition, when all experts favour closer integration and collaboration, is one glaring and destructive example. Another is the crumbling foundation stone on which the government’s failing economic strategy is based: that public sector cuts will incentivise investment by the private sector. Seven hundred billion pounds of capital and assets hoarded in banks and corporate balance sheets is one evidence-based yardstick by which we might measure the margin of error of that call, though a more human scale might index the months of misery endured by the young unemployed of Britain as they wait for an upturn in our economic fortunes. However, I’m tempted to suggest that the most egregious example came yesterday, when Jo Swinson, the Liberal Democrat minister for employment relations, announced that she was cutting the minimum notice period employers have to give before making large-scale job cuts from 90 to 45 days.

This idea was first floated earlier in the year by Conservative donor Adrian Beecroft, in his slash and burn report on employment law. Beecroft infamously concluded that "employment law and regulation impedes the search for efficiency and competitiveness" and suggested that long established protections against unfair dismissal should be scrapped, parental leave and flexible working curtailed, pension rights reduced or removed altogether for employees in firms with just five workers, gangmaster licensing repealed, TUPE rules hobbled and the Agency Workers Directive dumped. Rather than recoiling from this shameful list, Tory minister Mark Prisk boasted that 17 of the 23 recommendations were already being implemented, though Vince Cable sounded a note of sanity in declaring it "complete nonsense to think that if labour rights were stripped down to the most basic minimum, employers would start hiring and the economy would soar again."

The Business Secretary pointed to evidence that Britain already has one of the most flexible labour markets in the developed world, a fact borne out by the OECD’s assessment of employment protection, which shows that British workers enjoy significantly fewer rights and statutory protections than their international counterparts.

Employment Protection in 2008 in OECD and selected non-OECD countries*

Scale from 0 (least stringent) to 6 (most restrictive)

And perhaps the Business Secretary’s influence can be seen in today’s decision to implement Beecroft’s recommendation on cutting the 90 day rule, insofar as the BIS Impact Assessment does concede that Britain has "one of the most flexible labour markets in the world according to the OECD’s employment protection index." However, Cable’s writ clearly doesn’t run too far, certainly not far enough to head off Tory-led determination to curtail workers’ rights. And thus the same Impact Assessment finds a way past the evidence to conclude (without supporting data of any kind) that "the UK performs relatively less well on the component of that (OECD) index that relates to collective redundancies and there may be room for greater flexibility here."

That greater flexibility entails making it easier and cheaper for employers to sack workers in batches of a hundred or more, by reducing the notice period, and thus the amount of time employers have to pay workers whom they intend to fire, to 45 days. This, like Beecroft’s other recommendations, is meant to "promote growth". But read the report in fine detail and you will struggle to find any empiric or even consistent anecdotal evidence to support this conclusion, as even BIS concludes the data is mixed:

Some UK employers have argued that the current regime for collective redundancy consultation is harming their competitiveness on a global level. They state that it is much quicker to restructure in other, competitor, nations, both within the EU and beyond. However, further discussion in focus groups with employers suggests this is not a universal view, and that in fact many view the process as easier in the UK than the rest of the EU.

Er, so which is it? They don’t say. But as someone who has worked for multinational companies with operations in counties across the world, I can tell them for free that everyone knows it’s far easier to lay people off here than it is in France or Germany, Belgium or Italy. In fact, as the OECD says, it’s easier here than just about anywhere apart from the US. And thus the only thing than can explain this change is not evidence, but ignorant prejudice: they think they know in their guts that British workers are a drag on our economy – amongst the most idle in the world, as another Tory publication recently described them – and that transferring yet more powers from labour to capital, from workers to corporations, will shake them up and render more dynamic our failing economy.

So, there you have it: another triumph of ideology over evidence for Tories who are determined to drive through every last post-Thatcherite prejudice they stored up and brooded on during their time out of office. For me, as a Welshman, the tragic irony of Lloyd George’s successors pushing through such regressive Tory legislation is rich indeed. Do Swinson and Cable not recall with pride that theirs was the party that first introduced unemployment insurance or the Whitley Councils on employment relations? Can they really say they are equally proud, almost a century later, to now be reducing workers' rights? The Welsh Wizard must be spinning in his Gwynedd grave.

Business Secretary Vince Cable with employment relations minister Jo Swinson. Photograph: Getty Images.

Owen Smith is shadow welsh secretary and Labour MP for Pontypridd.

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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.