Andy Burnham addresses the Labour conference in Manchester in 2012. Photograph: Getty Images.
Show Hide image

Social care reform will be a big vote winner for Labour

Burnham’s plan shows the party grappling with the kind of real world problems it would face in office. 

Labour’s big challenge ahead of its National Policy Forum meeting next month is to distil four years’ of abstract theorising, and often worthy but complex ideas, into a clear quality of life prospectus, the so-called "retail offer" for voters.

A classic example is access to childcare. This is a nightmarish issue for millions of parents, fusing together worries over affordability and quality of provision for a service that now counts as a cornerstone of a modern welfare state. But at the other end of the age spectrum – and equally worthy of being counted as a retail issue for voters – is the cost, quality and accessibility of social care for adults.

The public is already convinced it’s an issue. According to a 2012 poll by Carers UK, nearly half of adults in England (46 per cent) knew someone in their family who needed care and support with basic everyday tasks like eating, washing and dressing. In addition, 89 per of voters didn’t think it was fair that older and disabled people paid for the costs of their care.

Yet a recent report by the King’s Fund, led by economist Kate Barker, found that patients with different conditions like cancer and dementia ending up "making very different contributions to the cost" because the free entitlements of NHS care clash with the means-testing of the social care system. In a telling phrase, she found that the mismatched relationship between the NHS and local authorities, who are responsible for social care, means that the current systems "rub up against each other like bones in a fracture." She recommended a single, ring-fenced health and social care budget, ending the current salami-slicing of care provision.

And sliced it is. Age UK’s recent Care in Crisis report found that since 2010, spending on social care has dropped by £1.2bn (or 15.4 per cent). This squeeze on the finances of the social care system leaves "hundreds of thousands" of older people who have "moderate" needs, like help with getting dressed, without any assistance from their local council. The charity reckons that nearly nine out of ten local authorities have now limited their threshold for supporting elderly adults to those with "substantial" needs.

The current system is a complete mess, resulting in a postcode lottery of provision, with all the associated worry this causes. The belief is that integration will iron-out differential performance and entitlements in the care sector and help to reduce costs, with a recent survey by accountants PWC finding that 85 per cent of council leaders and chief executives agreed that integration would improve care outcomes.

This is shadow health secretary Andy Burnham’s big idea. He has long championed greater integration, indeed, one of the high points of the 2010 Labour leadership campaign, (amid the bromides and false bonhomie) was Burnham putting this idea into the mix. Although largely a technical change, Burnham’s plan speaks to voters’ fears about the standards of care their elderly relatives will receive - and whether or not their savings will be spent paying for it - classic retail politics territory.

But Burnham’s plan is also important because it shows Labour grappling with the kind of real world problems it will have to face up to if the party wins next year’s general election. Governing effectively after 2015 depends on being clear about priorities, being willing to innovate in the way services are provided and make less money stretch further. And nowhere is this more pressing than in dealing with the future of social care.

Kevin Meagher is associate editor of Labour Uncut.

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.