David Cameron and Angela Merkel at the EU Council building in Brussels on October 25, 2013. Photograph: Getty Images.
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Cameron only has himself to blame for the Tories' alliance with Merkel's enemy

The PM's decision to withdraw the Tories from the mainstream European People's Party made it inevitable that his party would form eurosceptic partnerships. 

David Cameron fought hard to stop the eurosceptic Germany party Alternative für Deutschland (AfD) from being admitted to the Tory-led European Conservatives and Reformists group. The PM's hopes of a successful EU renegotiation depend on Angela Merkel and the German Chancellor was understandably appalled by the possibility of the Tories teaming up with a right-wing rival to the Christian Democrats (the closest thing Germany has to Ukip). 

But in defiance of Cameron's wishes, the group has voted to admit them, with some Conservative MEPs supporting the move. The latest arrival means that the ECR is now the third-largest bloc in the European Parliament, but that will be of no consolation to Cameron. His MEPs have shamlessly defied his authority and further weakened his standing with Merkel (already dented by his "threats" over Jean-Claude Juncker's bid to become EU commission president).

The line from Conservative HQ is that they are "very disappointed" that AfD (which opposes the euro and the US-EU free trade agreement) have been admitted against their wishes and that "the CDU/CSU remains our only sister party in Germany". But while that may be true, Merkel would be within her rights to conclude that she can't do business with a man who can't control his party. 

It's a point that Labour has been quick to make, with shadow Europe minister Gareth Thomas commenting:

This shows just how far David Cameron is being pushed around by his own party when it comes to Europe. We know he can’t control his Eurosceptic backbenchers on Europe, and now it seems he’s lost control of his MEPs too.

Just when the Prime Minister needs to maximise British influence in Europe, his MEPs have instead chosen to isolate themselves to the fringes of Europe and alienate our allies.

What started as a political management problem for David Cameron risks turning into a crisis between Britain and one of our most crucial European allies.

David Cameron can’t control his party over Europe, and now it is Britain’s influence and standing in Europe that is at risk of being undermined as a result. 

But while Cameron will do all he can to distance himself from the results, the truth is that he only has himself to blame (as Nick Tyrone has previously argued on The Staggers). His decision to withdraw the Conservatives from the mainstream European People's Party in 2009 made it inevitable that his MEPs and others would seek partnership with eurosceptic fringe parties (some, such as the xenophobic Danish People's Party, well to the right of the AfD). 

That move was the fulfilment of a pledge made by Cameron during the 2005 Conservative leadership election to appease eurosceptic MPs. But as so often, concessions designed to strengthen his hand have only succeeded in weakening it. 

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.