Labour is the only party that can be trusted to strengthen the minimum wage

The Tories and the Lib Dems' past opposition to the minimum wage shows why we should be sceptical of their warms words on low pay.

One of the questions I like to ask when I'm interviewing candidates to work in my office is what they think is Labour's greatest achievement. The answer I most often get is the National Minimum Wage.
We are right to be proud of it. When Labour introduced the minimum wage in 1999, it made an immediate difference to workers on the lowest pay. Women in particular benefited. And thousands of decent employers all over the country were pleased too; it tackled exploitative and unscrupulous competitors using low pay to undercut costs.

It's easy to forget, now that all the main political parties claim to support it, just how bold and radical the introduction of the minimum wage was. But when it was introduced by Labour, the Tories were outright opposed. They said that it would cripple business, and would destroy thousands of jobs.
Of course, that simply wasn't the case. Our careful approach when in government, working in partnership with employers and employees, maintaining the right balance between wage growth and the impact on employment, ensured its success.

The Lib Dems, too, are Jonny-come-lately's to the value of the minimum wage. In 2003, Vince Cable said increases in its level set "a dangerous precedent". So why would we believe his warm words about it last week? But perhaps the most convincing proof of the Cameron government's lack of enthusiasm is that the real value of the minimum wage has declined by 5% since 2010.

Labour is the only party with a track record of bold action on low pay, the only party that can be trusted to boost and strengthen the minimum wage. And it's action that is desperately needed. In 38 out of the 39 months that David Cameron's been in Downing Street, average wages have fallen; people are on average £1,500 worse off. Low pay is contributing to the crisis in living standards facing Britain.

So, building on the successful approach we used in government, Ed's commitment today is that Labour will strengthen the minimum wage. Fair pay is central to Ed's vision of a different kind of economy, one in which both workers and business play their part. The only way we're going to build a strong economy is to make sure it works for working people. That means competing on high skill, high wage jobs.

The minimum wage needs to rise faster than it has in recent years so that it catches up to where it was in 2010. There is also evidence that the minimum wage puts very little pressure on employers in sectors that could afford to pay more. Analysis by IPPR and the Resolution Foundation has shown that increasing the minimum wage to the level of the living wage would cost large employers in sectors like finance, construction and computing less than one half of one per cent of their total wage bill. Around one million workers would see their pay rise.

Of course, it's right that we work closely with business to ensure we get the detail right. I'm pleased that Alan Buckle, Deputy Chair of KPMG International, has agreed to lead a review to look at how to strengthen the powers of the Low Pay Commission. We must also have effective enforcement - that is why Labour has committed to increasing the fines for non-payment of the minimum wage and to giving local authorities a role in enforcement alongside HMRC.

We're right to take pride that it was a Labour government that introduced the minimum wage. We are right to be proud of the difference it's made. The next Labour government will strengthen the minimum wage.

I'm proud Ed has promised today that we will take action. It is Labour policies that will tackle the low pay that is driving the cost of living crisis and holding back growth.

Kate Green is Labour MP for Stretford and Umston and shadow equalities minister
The real-terms value of the minimum wage has declined by 5% since 2010. Photograph: Getty Images.

Kate Green is Labour MP for Stretford and Umston and shadow minister for disabled people

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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.