The Scottish Parliament at Holyrood. Whatever the referendum results, more powers will be devolved to the government. Photo: Getty
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Leader: The United Kingdom in its current form is unacceptable

Whatever the outcome of the referendum the status quo should not endure. Constitutional change is coming to Scotland and the rest of the UK, and we are all the better for it.

There are now fewer than 100 days remaining until the Scottish independence referendum. As Alistair Darling says in our interview this week: “This is a vote that’s not like a normal general election. This is something the nationalists have to win only once, by one vote. It is irrevocable. You would never come back.”

Despite the criticism of Mr Darling’s performance as head of the No campaign, the polls suggest that the unionist side remains on course for victory. But whatever the outcome of the referendum – and it could be very close – the status quo cannot and should not endure. Constitutional change is coming to Scotland and the rest of the UK, and we are all the better for it.

Before the creation of the Scottish Parliament in 1999, it was predicted, in the words of the former Labour cabinet minister George Robertson, that devolution would “kill nationalism stone dead”. Yet it was those who argued that devolution was “a process, not an event” who were correct.

Under the terms of the Scotland Act 2012, Holyrood will win the right to vary the country’s income-tax rate by up to 10p, as well as gaining complete control of stamp duty and landfill tax and new powers to borrow for capital expenditure. All three of the main Westminster parties have vowed to go further than this, with the Scottish Conservatives pledging on 2 June to devolve income tax in full to Holyrood.

That the party that campaigned against devolution for so long (albeit on the grounds that it would serve to encourage nationalism) has changed its stance is evidence that the UK political establishment has belatedly accepted the long-held desire among Scots for greater autonomy, whether for full independence or so-called Devo Plus or Devo Max. However, Tories’ hopes of a revival in Scotland, where they have only one MP (out of 59), will be disappointed. The Conservative and Unionist Party has been decisively defeated north of the border.

Perhaps, of the three main parties, it is only Labour that can win a fair hearing in Scotland, if indeed it deserves to. It is regrettable, therefore, that its proposals for further devolution have been so timid. Unlike the Conservatives, Scottish Labour is proposing only to allow Holyrood to vary income-tax rates by up to 15p on the grounds that going any further would risk triggering a “race to the bottom” and undermine the ability of the UK to redistribute across the nations. Neither argument bears scrutiny. Income tax represents just 23 per cent of UK tax revenue, leaving much to redistribute, and it is up to Labour to win the argument for progressive taxation, not to maintain control for fear that it will lose. Such caution validates Alex Salmond’s argument that only by voting for independence will Scots win the new powers they both want and deserve.

Further devolution is also necessary to address the grievance felt among English voters that Holyrood is able to spend money – on free university education, free prescriptions and free social care for the elderly – without having the responsibility of raising it.

Where Labour has an advantage over its rivals is in recognising that new powers for Scotland must be coupled with greater autonomy for England and for its cities. Labour has pledged to devolve at least £20bn of funding to the regions, a figure that should increase once Andrew Adonis’s growth review is published in full. It is hoped that, by ensuring decisions are made closer to those they affect, trust can begin to be restored in a discredited and overly centralised political system.

Beyond the important but technocratic arguments over the currency, North Sea oil and EU membership, the case for the Union is ultimately emotional: what unites the people of these islands is surely more important than what divides them. The possibility that the most successful multinational state in modern history could soon be broken up is cause for regret. For now, the Union might yet endure. But unless the grievances that have led to our present constitutional crisis, in Scotland and in England, are resolved, the ties that bind us will become ever more frayed. One day, quite soon, they might well snap.

This article first appeared in the 04 June 2014 issue of the New Statesman, 100 days to save Great Britain

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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.