Clacton is likely to deliver Ukip its first elected MP. Photo: Getty
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How do we breathe new life into our coastal towns, which are now key Ukip targets?

 Ukip will throw the kitchen sink at coastal towns next year, such as South Thanet, Folkestone and Skegness. How to dodge the purple rosette?

Britain’s economy is recovering faster than any other developed country. These are not the words of George Osborne but analysis from the International Monetary Fund. Unemployment is at its lowest level since 2008, small businesses are set to create nearly 2m new jobs by the end of the year and even housing starts are at their highest number for seven years (albeit from a very low base).

Yet, many people across the country are not feeling the benefits of economic recovery in their back pockets. Polling carried out by Lord Ashcroft in May and September this year found an increase in the number of people saying the economy is recovering from recession (up from 58 per cent to 62 per cent). However, the number saying they feel better off as a result was unchanged at 12 per cent. Interestingly Ukip voters were the most likely to say they thought the economy was still not recovering.

The rise of the purple rosette is of particular concern for Conservative MPs and strategists. The by-election in Clacton may well lead to their first member of parliament since Bob Spink defected from the Tories in 2008, giving the party greater credibility among the voting public. Ukip has stated that they will throw the kitchen sink at specific constituencies next year, notably coastal towns such as South Thanet, Folkestone and Skegness. Labour is also under threat with the party losing its incumbency factor in Grimsby when Austin Mitchell steps down in May. The question for the main political parties is how to prevent a repeat of the anti Westminster/anti Establishment rhetoric that characterised the SNP’s campaign in Scotland. Believe me, Nigel Farage will have been taking notes.

One of the key issues that has to be addressed is the feeling of isolation that many people in these once vibrant towns are feeling. We live in an increasingly interconnected world. Low cost air travel, a globalised workforce and the success of the UK economy has led to a surge of people from across the wold coming to these shores to seek a better life for themselves and their families. According to figures from the Office of National Statistics, net migration into the UK increased by more than 38 per cent to 243,000 in 2013-14. This leads to fears that Britain public services will be overstretched and that ‘British workers’ will be unable to compete with foreign arrivals. Immigration is cited by voters as one of their key concerns and UKIP has played on people’s fears of globalisation. Nigel Farage’s argument that Britain is losing control of its borders resonates with large swathes of people who feel they and their children do not have the skills to compete for local jobs.

Politicians do need to address the elephant in the room. However, instead of talking about limiting the number of people coming to this country (almost impossible to do while being part of the EU), the focus should be on understanding people’s legitimate concerns and addressing them through a focus on training, jobs and wages. This is especially true when it comes to vocational qualifications, an issue that Policy Exchange will be discussing on the Monday morning of Conservative party conference at an event with Skills Minister, Nicholas Boles, the Mayor’s economic adviser, Dr Gerard Lyons and the CEO of Travelodge, Peter Gowers. Attending university was seen as a panacea under the Blair government and whilst it was right to encourage people from all backgrounds to consider the academic route, the focus on university led to technical courses being seen as inferior.

It is encouraging to see this government recognise the important of vocational qualifications through the introduction of the TechBacc, something incidentally Policy Exchange called for at the start of 2013. The government needs to further encourage employers to work closely with FE colleges and Technical Colleges – as well as school leavers and the long term unemployed – to develop training programmes that provide long term career opportunities for young men and women who do not want, or are not suited, to an academic higher education. In areas of the country that feel particularly isolated by the growth of London and other major cities, sectors like tourism, catering and hospitality can provide life changing opportunities for people who don’t feel they have a stake in what the Prime Minister refers to as the ‘global race’.

The economic recovery is something that Britain should be proud of but it is critical that as many people as possible, wherever they live, are given the chance to feel the effects of an outward looking, free market economy through training, jobs and ultimately a secure future. If the Conservatives are able to show people in coastal towns that there is light at the end of the tunnel for themselves and their families, they should be rewarded at the ballot box.

Nick Faith is Director of Communications at Policy Exchange. Policy Exchange and Travelodge will be hosting their fringe event, ‘Unlocking the skills and growth potential of unexploited sectors in the UK economy’, at 10am on Monday 29th September in the Novotel, Birmingham.

Nick Faith is Director of Communications at Policy Exchange

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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.