The past is never where you left it: Labour's "big four" of Gordon Brown, John Prescott, Tony Blair and Robin Cook in 1995. Photo:Getty
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From the Archive: Blair Triumphant

On the 20th anniversary of the passing of the new Clause Four, we republish our leader from that fateful week.

This weekend, the Labour Party’s special conference in London will give a ringing endorsement to Tony Blair’s new statement of aims and values to replace Cluase Four of the party constitution.

That much has been certain since long before the Labour leader unveiled the new statement last month.

Indeed, the only real question ever since Blair announced his intention of replacing Clause Four at Labour conference last year has been the margin of his eventual victory. Even before anyone, apart from Blair, had an inkling of the contents of the new statement, the overwhelming majority of Labour Party members at every level knew that defeat for the leader would be the sort of humiliation that could lose Labour the next election. If few would have predicted that the most substantial opposition to change would come not from the constituency Labour parties, but from the executive committees of trade unions, few believed that the outcome was in doubt.

Despite this predictability, it would be wrong to play down the significance of the exercise. Getting rid of Clause Four is extraordinarily important symbolically. Although it has never accurately described Labour’s programme for government – even in 1945 the party stood for a mixed economy – for most of its life it has represented the long-term aspirations of many if not most Labour members. After Hugh Gaitskell’s botched attempt to get shot of it in 1959-60, moreover, Clause Four became a symbol of the party rank-and-file’s ability to resist the attempts of opportunistic leaders to ditch principles in the pursuit of power. It was accepted as untouchable by both leaders and led. Right up to last autumn, the received wisdom in Labour’s upper echelons was that meddling with Clause Four was guaranteed to stir up a hornet’s nest. Hence the sharp intakes of breath when Blair announced his plan for change – even from those who, as they inhaled, realized that the received wisdom was nonsense and that Blair would get his way simply because the alternative was too dreadful to contemplate.

Seven months on from Blair’s declaration that the emperor has no clothes, his transgression of Labour’s unwritten law that no one touches Clause Four has been completely vindicated. No matter, as the NS said after the publication of his new draft, that the new wording is inelegant and uninspiring: some 85 per cent of Labour Party members prefer it to the old. There’s no arguing with the results of the constituency ballots: those on the left who reckon that the absence of the old clause from the ballot papers made any significant difference to the result are insulting the intelligence of the electorate. Everyone who voted knew what was at stake – and the brutal reality is that the scale of support for Blair in the constituencies is a massive humiliation for the hard left, worse even than the defeat of Tony Benn and Eric Heffer when they challenged Neil Kinnock and Roy Hattersley for the leadership and deputy leadership in 1988.

Then at least the hard left had the consolation of being on the winning side at party conference, as the leadership’s plans to ditch unilateral nuclear disarmament were unceremoniously dumped by the party. Now, the hard left has nothing. It has been stuffed by Blair, who can now argue, with reason, that his modernising project has complete democratic legitimacy in the Labour Party. He can do just about what he likes. No Labour leader before has ever had the authority that Blair now has.

Of course, this does not mean that Blair ought to behave as dictator, riding roughshod over all criticism: it would make more sense for him to be magnanimous in victory – and indeed he insists that he intends to encourage debate and pluralism inside Labour. But it does mean that he can simply ignore the left if it responds to defeat by moping in a corner, waiting sullenly for its chance to get its own back. If the left is to have any influence at all, it must engage constructively with the modernisers who are now in command. That does imply stinting on criticism when criticism is justified, nor does it necessitate hero-worship. Still less does it mean embracing the strategy of caution, inherited from John Smith, to which Blair clings when it comes to specific policies. After Clause Four, however, anyone in the Labour Party who refuses to recognise that, for the foreseeable future, Blair is the only show in town, is living in a dream world.

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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.