The battle on aid is not won: NGOs shouldn't be soft on Cameron

If a law enshrining the 0.7 per cent aid target isn't in the Queen's Speech, development charities won’t be able to have their cake and eat it.

The Guardian’s economics editor Larry Elliot has had enough. In his latest column, he takes a pop at both David Cameron and UK development charities. Britain’s Prime Minister, he argues, sees economic growth as a panacea but Cameron, he claims, "has been treated with kid gloves by most of the UK development charities."

Elliot remembers Make Poverty History, Blair, Brown and Bono with nostalgic fondness but his current pessimism is clear in his latest column. G8 countries, who are struggling to kick start their own economic growth and are imposing austerity at home, are looking jealously at the growth rates of developing countries, and are questioning why they should do more to help.
This is a crucial year for the global development agenda and as a global player, Cameron is key. As well as hosting the G8 summit in the UK in July, the Prime Minister is representing the G8 on the panel advising the UN on the next set of global development goals. The 'High Level Panel' that he co-chairs is due to report at the end of May and some kind of growth target looks like it is firmly on the agenda.
But inequality is not, and that’s mainly because of Cameron. The case for making inequality an explicit target is eloquently argued by the new head of the Overseas Development Institute, Kevin Watkins. Another of the ODI’s experts, Claire Melamed explains how difficult Cameron’s job is going to be, but she too concludes that a focus on jobs and unemployment, might be more productive than on national GDP.
There are two new facts in the post-Make Poverty History world: the majority of poor people no longer live in poor countries, while the majority of poor people that do live in poor countries, live in conflict affected states. Cameron seems to acknowledge the second fact but not the first. None of the conflict affected states are going to meet any of the Millennium Development Goals, something which is not lost on a Prime Minister looking for stable trading partners. The New Deal seems to have firmly established its peace-building agenda and some kind of goal in this area looks certain.
But a fourth agenda, highlighted this week by the launch of the State of Civil Society report, is also crucial. "The freedom from want is nothing without the freedom from fear," writes the Secretary General the global federation of civil society organisations, Civicus. His report suggests that a third of the world’s internet users have experienced restrictions on the information they can access and the social media they can use to mobilise activists and hold governments to account.
The new development goals are intended both to guide the investment of aid by rich countries and focus the development efforts of countries and charities alike. But as yet another ODI expert, Romilly Greenhill argued this week, the UK development community has been far more focused on the amount of aid, rather than the direction of development.
And yet, the battle on aid is not yet won. The Queen’s Speech is a week on Wednesday and it is the deadline set by UK NGOs leading the ‘IF’ campaign for the coalition government to commit to legislate to enshrine 0.7 per cent into domestic law. When Osborne confirmed the DfID budget, NGOs celebrated with cake, despite a historic underspend by DIFD last year. If a law on 0.7 per cent isn’t in the Queen’s Speech, the UK NGOs won’t be able to have their cake and eat it. They need to once again wield a 'stick', as well as celebrate with the 'carrot' of a cake.
Richard Darlington was special adviser at the Department for International Development from 2009-2010 and is now head of news at IPPR. Follow him on Twitter: @RDarlo


Liberian president Ellen Johnson Sirleaf and David Cameron co-chair a United Nations meeting on tackling global poverty in Monrovia on February 1, 2013. Photograph: Getty Images.

Richard Darlington is Head of News at IPPR. Follow him on Twitter @RDarlo.

Show Hide image

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.