Nigel Farage and Nick Clegg during first of the two debates on Europe. Photo: Getty
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Why does Nigel Farage want us to follow the lead of countries that are smaller than Bristol?

Eurosceptics harp on about the need for democracy. But the Swiss, like the Norwegians and the Icelanders, choose to eat food from a table at which they have no seat.

“If it is good enough for Iceland to do it,” Nigel Farage remarked in the first of his two televised debates with Nick Clegg, “I’m damned certain the British with 64 million can do even better.” The Ukip leader was referring to a free trade agreement that the Icelandic government signed with China in April 2013, despite the tiny Nordic country not being a member of the EU. Is this what proud British Euroscepticism has been reduced to – comparisons with Iceland? Together with Norway (population: five million) and Liechtenstein (population: 36,000) – those two powerhouses of the global economy – Iceland (population: 326,000) is a member of the snazzily named European Economic Area. The EEA is, in essence, the faux-EU, the geopolitical equivalent of a knock-off Gucci handbag. Rather than having all of the pros of EU membership with none of the cons – as some British Eurosceptics disingenuously suggest – EEA membership guarantees some of the pros and most of the cons.

Take Norway, often cited by the anti-EU brigade as a possible model for Britain. Despite being outside the EU, Norway has had to implement 75 per cent of its laws – 6,000 pieces of legislation. “We have been more compliant than many EU member countries,” the premier Erna Solberg, leader of the Conservative Party, has confessed. (In the 1990s, Norway was known as the “fax democracy”, with Brussels simply faxing new directives for the Norwegians to follow.)

It’s not a cheap deal, either. Norway’s total financial contribution to the EU each year is about €340m – which, per capita, works out to be slightly higher than the UK’s.

As for the “free movement” of workers that so upsets Tory backbenchers, the non-EU Norway, like the non-EU Iceland, is a signatory of the Schengen Agreement, which scrapped internal borders – unlike the UK, an EU member, which opted out. Is it any wonder that a government-commissioned report concluded in 2012 that Norway had seen “extensive Europeanisation” over the past two decades and that it was an “illusion” to believe it was outside of the EU?

Forget Norway, then. How about the wealthy, dynamic, free-market Switzerland (population: eight million), which arranges its own bilateral deals with all its trading partners, including the EU? The Swiss negotiate on an individual, case-by-case basis and are under no obligation to implement all of the EU’s internal market legislation. What’s not to like? Boris Johnson is so keen on the so-called Swiss model that he coined the term “Britzerland”.

But wait. First, Switzerland has a free trade agreement in goods with the EU but no agreement on services – including, astonishingly, on financial services. Remember that the UK accounts for a third of the EU’s wholesale finance industry. Want to try selling the Swiss option to the City of London now? No? I didn’t think so.

In 2009, the Swiss government ack­nowledged: “The existing [EU] barriers to market access place Switzerland at an economic disadvantage.” It added: “Switzerland loses out in terms of jobs, value creation and tax receipts.”

Second, whatever happened to no taxation without representation? Although it is outside the EU and outside the EEA, too, Switzerland contributes about €450m a year to the EU budget.

Third, Swiss sovereignty is overrated. The country relies on roughly 120 separate bilateral agreements with the EU and it is expected to adopt every single EU regulation in each of those areas – again, without any say on their shape, structure or content.

Eurosceptics harp on about the need for democracy. But the Swiss, like the Norwegians and the Icelanders, choose to eat food from a table at which they have no seat. They have no spots on the European Commission, no members of the European Parliament, no invitations to the Council of Ministers, no judges on the European Court of Justice. Yet, to varying degrees, they submit to EU legislation over which they have no votes, no vetoes and very little influence.

The simple truth is that whether the UK is inside the EU or out, we’ll have to follow EU rules and regulations. Eurosceptics say they like the EU’s single market but don’t like the EU’s regulations. What they seem unable – or unwilling – to understand is that there is no single market without regulations; it is the regulations that make it a single market, rather than a continent-wide free-for-all.

And it is the single market that gives EU member states power, clout and influence on a global scale. Do we want to negotiate with the Chinas and Russias of the world as part of a 28-member bloc of 500 million people? Or quit the biggest single market in human history in order to emulate Iceland, a country with a population smaller than Bristol? Eurosceptics bridle at being called “Little Englanders”. Yet their obsession with the likes of Norway, Iceland and Switzerland suggests the label may be an understatement. Tiny Englanders, perhaps?

The EU is far from perfect. It does need to change – to become less austerity-focused and neoliberal, for a start. The EU’s Common Agricultural Policy needs reforming and the Transatlantic Trade and Investment Partnership agreement with the US, which will empower unelected corporations at the expense of elected governments, needs rewriting. But you don’t win a fight by leaving the ring. You get in, stay in and keep fighting your corner.

Mehdi Hasan is a contributing writer to the New Statesman and the political director of the Huffington Post UK, where this article is crossposted

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 10 April 2014 issue of the New Statesman, Tech Issue

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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.