European MPs attend a debate on the future of European Union at the European Parliament in Strasbourg on January 15, 2013 during a plenary session. Photo: Getty Images
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An EU explainer for the easily bored: the cost to the UK

Frances Robinson continues her series on what we really need to know about the EU. This week: migration and the money.

OK. I know what the institutions are, get the whole free trade bloc thing, and I totally appreciate maternity leave. How much does this actually cost? The EU budget is the one subject guaranteed to leave even the most hardened Brussels correspondent cry-laughing hysterically while downing La Chouffe in the Hairy Canary* at 2am. 

Back of an envelope? If you want a lot of figures from a wide range of sources, Europe: In or Out? Everything you need to know by David Charter of the Times is a good read. He did his fair share of late-night summits and it's stuffed with interesting numbers. If you want to poke the figures around yourself, they're on the commission website here. Keep a Belgian beer on standby. 

Lies, damned lies and statistics? And then some. One thing to think about at all times: the UK net contribution to the EU budget is less than 0.5 per cent of British GDP. Other things: The figures involved are very volatile (check out page 14 of this treasury report). And money that goes from the EU to non-government organizations - like scientific research - isn't in the main figures. Of course there's the rebate, on top of all of that. Oh, and pound-euro currency fluctuation.

*glug glug glug* Mmmmm, Chouffe. Alright. The UK's annual net contribution to the EU in 2013, according to Mr Charter's book and Fullfact, basically works out somewhere around £8.6bn. Mr. Dixon reckons it's very slightly lower at £8.3bn - or around half a per cent of our GDP.  

Mmmmhmmm. The EU Commission's office in the UK puts the Operating Budgetary Balance - the gross sum the UK puts into the EU budget, minus the money that flows back to the UK, whether via government bodies or directly to beneficiaries - at £6.7bn. They also point out that on a per capita basis, we contribute less than Germany, Sweden, the Netherlands, Austria, Finland and Belgium.

Still sounds like a lot... Well, the Confederation of British Industry - hardly a fluffy bunch of Bruges graduates - suggests the direct net economic benefits of membership to the UK are between £62bn and £78bn every year.

What's Colin Farrell got to do with it? Not In Bruges. It's handy Brussels shorthand for the College of Europe, the Bruges-based institute where graduates go to study the EU and forge the power couples of tomorrow: Helle Thorning-Schmidt, the Danish PM who took that selfie with Barack Obama, met her husband - Neil Kinnock's son - there. Other alumni include Finnish PM and triathlon machine Alex Stubb... and Nick Clegg.

Sounds fancy. One degree from Oxford is enough. What are some things David Cameron could ask for in this renegotiation? He said he'd talk about migration? Free movement of people is of one of the four pillars of the single market. So asking to remove it is like saying you want to join the meat pie appreciation club, but you're vegetarian and want appropriate catering.

But I've got a senstitive stomach! Not everyone has: according to these figures from Hansard, there are 2.2 million Brits living in other EU countries, which more or less balances the 2.4 million EU citizens living the UK. The Brits mainly went to Spain and Ireland, while the two biggest groups coming here are Polish and Irish.

Happy St Patrick's Day! Dziękuję. According to the University of Oxford’s Migration Observatory, less than 5 per cent of EU migrants are claiming jobseekers allowance, while less than 10 per cent are claiming other DWP working age benefits. 

But this guy down the pub said... The commission asked the UK for years to provide figures, rather than anecdotes, on EU migrants claiming benefits – and it didn'tThe UK can change welfare rules if it wants, and of course they vary between the different EU member states. Likewise, EU rules allow countries to put temporary brakes on migration - the UK didn't in the early 2000s, while others did, and more people came than forecast. So maybe that flexibility could be increased.

What does the EU say? Separately, the European Commission is working on a new package of rules this year, which would enable countries to tackle abuse by better coordination of national social security systems. Commission President Jean-Claude Juncker said of course he wants the UK to stay in, but that freedom of movement for workers is non-negociable. "There are red lines... You can't change the treaty." 

OMG Treaties! What does Merkel think, everyone knows Ange is the real boss? In fact, Germany has faced the same issue: last year, an ECJ Advocate-General said Germany could refuse to pay unemployment benefits to an EU migrant who hadn't tried to find work. And anyone who's been to Mallorca will have noticed there are even more German than Brits living there. Just don't test the limits of free movement in the bar queues on Paseo Maritimo.

I'm detecting a theme. Yes. Another one is we're annoying the hell out of people by not actually saying what we want. German Deputy Foreign Minister Michael Roth told Bloomberg: "We would welcome it if difficulties with the EU were to be identified concretely - and it was made clear what the UK's expectations of the EU are."

It's all good, David Cameron's on BuzzFeed! It's a great time to be easily bored. Bet he cleared it up. He took a question on the EU renegotiation. The very last one. From the audience, after he'd discussed Aston Villa.

Did he talk about treaties? He did. "If you get me, you get a renegotiation and a referendum," he told the comedy genius listicle factory-slash-politics powerhouse. "We never wanted the ever-closer union that was written into the treaty, and I want it written out of our part of the Treaty."

The treaties that everyone says it would be a complete nightmare to renegotiate? Coming soon: "Faces of 27 European leaders who can't even with Dave right now." 

(*An Irish bar within sprinting distance of Justus Lipsius Building, where EU summits are held.)

Frances Robinson has been covering the EU since 2006. Previously a staffer at the Wall Street Journal, she returned to the UK after a decade abroad to talk and write about the UK-EU relationship. 

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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.