Miliband uses new year message to counter the Tories' welfare myths

Labour leader's message challenges the stereotype of the welfare 'scrounger'.

The first big political event of the new year will be the Commons vote on the Welfare Uprating Bill, which will enshrine in law George Osborne's plan to increase benefits by just 1 per cent per annum for the next three years (well below the rate of inflation). Ed Miliband's new year message, which you can watch above, offers further evidence of how he intends to challenge the Conservatives' welfare myths. 

The Labour leader draws on a recent visit to a food bank to reject the stereotype of the welfare 'scrounger' presented by the Tories' recent campaign ads. He says: 

I also met some of the people using the food bank, some of them out of work and some of them in work.

The story that stuck with me the most was a man who told me his story he said: “I walked eleven miles to a job interview because I couldn’t afford the bus fare, I got the job then I walked eleven miles back," he was still looking for somewhere to live because he hadn’t got his first pay cheque and he was using the food bank.

Such a long way away from the normal stereotype you’d have about the people using food banks.

When Miliband raised the subject of food banks at the final PMQs of the year, some Conservatives accused him of painting an implausible picture of a Dickensian Britain of poverty and woe. But the Labour leader's decision to return to the subject shows that he believes the growth of food banks, which have increased six-fold in the last three years, is emblematic of all that has gone wrong with the UK economy. 

Perhaps the most striking line in Miliband's message is his assertion that "They want you to believe that we have a good government being let down by bad people. We don’t. We've got a bad government that is letting down the good people of this country." Given the propensity of some Tories (most notably the Britannia Unchained group of MPs) to blame Britain's declining economic fortunes on the indolence of its people, it's an argument that could begin to resonate. 

As the leader of a party which holds just 10 out of a possible 197 seats in the south outside of London, Miliband also repeats his declaration that one nation Labour is "a party of the private sector as well as the public sector, a party of south as well as north". But don't be surprised if you no longer hear the Labour leader refer to the "north-south divide". As today's Times (£) reports, a review of the party's performance in the south of England by former cabinet minister John Denham, who now serves as Miliband's PPS (and who recently blogged for The Staggers on Labour-Lib Dem relations), and Labour general secretary Iain McNicol has found that the phrase alienates southern voters.

Denham explains: "It used to be quite common to hear people talk about the north-south divide. If you think about that, the message is that everybody in the southern part is doing okay. If you use that language, it sounds as though you represent the northern bit. 

A classic mistake for the party for a long time was using that sort of language — and then wondering why people in the south didn’t think we were talking about them."

The phrase "one nation" appears no fewer than nine times in the five minute message. With an eye to the charge that his party's policy agenda remains ill-defined, Miliband promises "concrete" announcements in 2013 on areas "from business to education to welfare". If the Labour leader is to offer more than what David Miliband, writing in the New Statesman earlier this year, described as "defensive social democracy", he will need to fulfil that pledge in full.

Ed Miliband used the phrase "one nation" nine times in his new year message. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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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.