Why Miliband's position on the EU is stronger than it appears

Tory unity will prove shortlived and the Labour leader could execute a relatively painless U-turn on a referendum.

For a day when the Prime Minister and the leader of the opposition said exactly what they had been expected to say, there was rather a lot of excitement.

David Cameron yesterday promised to attempt a renegotiation of Britain’s membership of the European Union (EU) and, having secured a better deal (as he sees it) invite the British people to back the arrangement or walk away. This position had already been advertised in advance, albeit after much behind-the-scenes haggling and Downing Street floor-pacing.

Ed Miliband, meanwhile, said he thought it was not a good idea to pledge a referendum now and that the whole thing was a reckless gamble with Britain’s future driven only by the need to quell brewing rebellion on the Tory benches. This position, also produced after much haggling in the shadow cabinet, was known in advance too.

And yet, somehow, when it actually happened it was still big news. That is partly because all the pent-up journalistic energy that had gone into the pre-speech reporting had to be released and partly because the two positions got a good theatrical airing in Prime Minister’s Questions in the Commons. Besides, thinking something is very likely to happen and it actually happening are different things.

So where does the land lie now? There was a strong feeling around Westminster yesterday that Cameron had played a tough hand well and that Miliband had thrown away a bunch of good cards. The justification for that view is that the Tories seemed uncannily united, cheering the PM lustily on an issue that is famously divisive in the Conservative Party. The Labour leader, meanwhile, looked trapped in a contradictory position. The essence of his argument is that Cameron’s pledge offers dangerous uncertainty, yet Miliband seemed uncertain as to what precisely he wanted.

That is because there are enough people on the Labour side who think a referendum is inevitable and so consider it madness to rule one out. That leaves Miliband in the position of partially closing the door, which is never as dramatic as slamming it shut (or flinging it open).

The concern for the Labour referendum advocates is that Miliband is stuck now in a position of perpetually explaining why he doesn’t "trust the people", when Cameron can say he has a perfectly clear policy of democratic renewal for the EU and wants to get on with the job of making it happen. Cameron’s position is indeed clear. It is also unrealistic - the renegotiation that the Tory benches envisage will never happen to their satisfaction. By contrast, Miliband’s position is realistic and unclear. He is right to question the wisdom of starting a phoney referendum war on issues that are plainly a distraction from what the UK government and EU leaders should be doing. But to people who don’t follow these things obsessively, Miliband's argument is not a quick sell.

In the first phase of the news cycle, Cameron’s gimmicky clarity trumps Miliband’s technical realism. But will that continue to be the case? It is certainly true that Labour will find it hard to get through the next two years, let alone an election campaign, without a better answer to the “trust the people” question.

At the moment, Miliband has cover from the Liberal Democrats who share his view of the issue and use pretty much the same language. But it is not at all guaranteed that this tacit alliance will hold. The situation is even trickier for the Lib Dems than for Labour to the extent that they have bandied around the idea of an in/out referendum before. So refusing to back one when it actually comes up as a serious prospect risks reinforcing all the worst aspects of Nick Clegg’s tarnished brand – pledge-busting, slippery, gutless etc. All the mean things the focus groups have been saying about him since the whole tuition fees debacle will be rehearsed again.

There is a strong chance the Lib Dems will go into the next election with an EU referendum pledge. One senior Clegg advisor, conceding the point that it would be agony to fight a campaign on a platform ostensibly denying the nation a choice, recently told me: “the best way to take the issue and nullify it is to match the Tories’ commitment.” This advisor also expected Labour to come to the same conclusion. The best way to stop referendum questions dominating a campaign would be for everyone to have one in their manifesto. For the time being that doesn’t appear to be Clegg’s formal position, but the option is plainly being kept open.

If the Lib Dems fold on the referendum point, Labour will look very exposed. (It also matters because it will be one of those issues that gets kicked around in discussions of who could more easily form a coalition with whom in the event of another hung parliament.)

Interestingly, one of the key reasons Miliband doesn’t think it is a good idea to pledge a plebiscite is that he thinks he has a decent chance of actually becoming Prime Minister after the next election. He doesn’t fancy spending the first 18 months of his term in office on the campaign trail against Ukip and what would by then be a hysterically anti-EU opposition Tory party. It is a fair point. If David Cameron needs to fiddle around the policy margins pretending the biggest issue in the world right now is repatriating the right to scrap paid holiday and maternity leave to stop his backbenchers hating him for a couple of days, well, that’s his problem. Why should that set Labour’s agenda for government?

But that’s not an argument that Miliband or his allies can easily make in public. It doubles down on the risk of looking arrogant: "We think we’re going to win and when we do, we’ll have better things to do than ask the people if they want to stay in the EU" is not what you might call a populist narrative.

Still, there are at least two reasons why I think Miliband’s position is better than it looks right now.

First, the Tories are united only in relief that they have a clear position and in joy that their leader has done something unabashedly, uncompromisingly true blue Conservative. Neither of those conditions can stay in place for long. The renegotiation will not happen quickly enough for the hardline sceptics and whatever concessions Cameron extracts from fellow EU leaders will have to be matched with compromises elsewhere. Tory MPs are allergic to EU compromise.

There will be European Council meetings at least every six months between now and the election and in the run-up to each one, Conservatives will expect the Prime Minister to show progress in his grand repatriation project. Even if there is a modicum of willingness to accommodate British demands in Brussels, it won’t be on a timetable that satisfies the sceptics.

Meanwhile, Cameron is still in coalition with the Lib Dems. What Tory MPs were cheering yesterday was a great emancipation. They felt liberated. But they aren’t and when they realise it, they’ll be cross. They think they have won a right to dictate policy to Downing Street and will only get more assertive and impatient as a result. Yet the Lib Dems will also now have to become more assertive to prove that Clegg has more say over what goes on than some Euro-bashing Conservative backbencher. The potential for that dynamic to cause havoc and undermine Cameron’s position is immense.

The second reason Miliband’s position isn’t quite so bad is that he has a clearer escape route than is generally realised. In the run-up to the big Cameron speech, the Labour leader made an important policy concession: he said he would not repeal the European Union Bill. This is the piece of coalition legislation that provides for a referendum in the event of any new treaty transferring powers to Brussels. (Labour abstained when parliament voted on it.)

If there is a new EU treaty in train at some point over the next two years – which is very possible, but not certain – Miliband can say that he would, in government, honour the provisions of the act. If pressed he could even say that, yes, this new treaty looks likely to substantially alter the terms of Britain’s relations with the EU and so, yes, he would call a referendum. If he really wanted to, he could say the treaty is so substantial that the question on the ballot should be endorsement of the new arrangement or exit – thereby essentially matching Cameron’s pledge from yesterday. I don’t say this is a likely scenario, simply that the space for a relatively painless U-turn for the Labour leader may well be there should he need it.

By far the greater threat to Miliband is the prospect of his party generally lacking patience and confidence in his judgment. If opinion polls show a referendum pledge bounce for Cameron – as a few Ukip considerers slip back to the Tories – Labour’s lead could shrivel into the margin of error. At that point there is bound to be a revival of chatter about the inadequacy of the Labour leader’s performance, his perceived lack of policy clarity and want of strategic direction. Those anxieties are never far below the surface of Labour’s veneer of unity. Miliband must now hope that the even more superficial, brittle unity that David Cameron achieved in his own party yesterday ruptures first.

Ed Miliband delivers a speech on the EU at the CBI last year. Photograph: Getty Images.

Rafael Behr is political columnist at the Guardian and former 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.