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Why Ed Miliband should be grateful to the Lib Dems

Clegg has hemmed the Tories into an ideological corner from where they will struggle to reach a majority.

Few sentiments pollute political judgement like the feeling of having been betrayed. Most Tory MPs worry about losing the next election but the level-headed ones recognise that David Cameron remains the strongest available candidate to lead them into that battle. For the minority that want an immediate change of leader, electoral calculation is subordinate to rage against the Prime Minister for conspiring to snuff out the flame of true Conservatism. Most voters have no idea what that means, just as they have no attachment to a venerable “Labour tradition” that Ed Miliband is always liable to be accused of traducing.

It is Liberal Democrat MPs who seem the least driven by puritanical notions of what their party is supposed to represent. Labour and Tories say that proves an innate lack of principle. Lib Dems prefer to see it as pragmatism, born of the obligation on a small party to compromise if it wants to see its policies enacted.

That could be an attractive trait. The public warms to a non-partisan spirit, as the coalition’s rose-scented honeymoon showed. Compromise looks less appealing when cast as stitch-up or sell-out, which is what political tribalists smell in cross-party collaboration. Nick Clegg’s misfortune is to have partnered with a party that is hostile to the idea that coalition should form part of the standard repertoire of British politics. Tories see it as a distasteful one-off episode; a toilet break at the policy service station on the road to Conservative hegemony.

Mutant cousin

The same problem would arise in an alliance with Labour. There is a strong feeling in the opposition ranks that Clegg’s outfit, carrying both liberal and social-democrat DNA, is a mutant cousin of the real left. By installing Cameron in Downing Street, the Lib Dems completed, in Labour eyes, an arc of historical treachery.

The Labour leadership, calculating the probability that the next parliament will again be hung, takes a more nuanced view. In recent months, fragments of complicity with Vince Cable, Lib Dem Business Secretary, have surfaced: some text-message exchanges with Ed Miliband; a hint of tax policy proximity from Ed Balls. These overtures are tolerated by the Labour faithful only on the assumption that the motive is mischievous – to undermine Clegg and destabilise the coalition. (That is the interpretation in the Deputy Prime Minister’s office. Clegg loyalists deride Cable’s micro-flirtation with Labour and dismiss chatter about his leadership ambitions as naivety amplified by vanity.)

Labour has to hate the coalition for locking it out of power but the arrangement has not been wholly disastrous for a party crawling unsteadily back from electoral mauling. It awarded Miliband a monopoly on opposition in Westminster. At first, shadow cabinet ministers belittled that boon, complaining that a media obsession with the novelty of coalition deprived them of an audience. Given how slow Miliband’s policy formation has been, a lack of public scrutiny was not such a hindrance. No one was listening to Labour at the point when they had nothing much to say.

Then, as coalition relations soured and the intimacy of the early months threatened to dissolve Lib Dem identity, the party embarked on a strategy of “differentiation” that abetted Labour’s attacks on Cameron. Clegg’s implicit message has been that Conservative instincts are as sour as they were when the “nasty party” label hung around their necks. Coalition is meant to sweeten the mix.

Labour dismisses the Lib Dems’ policy contribution to government but they cannot deny that the junior partner’s assertiveness has provoked the Tory right and undermined Cameron’s authority. It has forced the Prime Minister to neglect the already atrophied liberal wing of his own party, meaning the project to modernise and “decontaminate” the Tory brand has stalled.

Senior Lib Dems cite backbench Conservative fury as a measure of their impact on policy and so a refutation of Labour’s assertion that Clegg’s role is negligible. The Deputy Prime Minister is presented as the voice of moderation at the centre of a hysterical, partisan fray. “When left and right are both screaming with the volume turned up to 11, with contradictory stories, it would suggest that we are doing something right,” says one senior Clegg aide.

Downing Street depicts Lib Dem identity-hunting as nostalgia for the kinds of soft left positions that many voters hate: pro-Europeanism; squeamishness about welfare cuts; tolerance of immigration. “The things they can differentiate on are issues where the public are somewhere else,” says one senior Tory source.

Unarmed sentry

Mindful of that hazard, the Lib Dems are making “fairer tax in tough times” the theme of their annual conference. They hope to remind the country that they own the only popular policy from an otherwise disastrous Budget – raising the income-tax threshold for low earners – and plan more in the same vein. The Tories are then left holding toxic tax cuts for the rich.

Labour will continue to heap personal scorn on Clegg as an unarmed Cameron sentry. Even loyal Lib Dems accept that their leader’s image as a serial breaker of promises is proving hard to shift. But the challenge of restoring confidence in Clegg, they insist, is inseparable from the task of showcasing coalition as an attractive model of government. The hope is that, over time, some of the choices currently seen as betrayals can be presented as compromises made necessary by the pursuit of nobler ends. Regicidal rumblings are cast as a temporary wavering of nerve.

It is a long shot. But there is sure to be a slice of the electorate that will have more sympathy for the dilemmas the Lib Dems have faced than is felt in the tribal Labour and Tory camps; enough, perhaps, to save the third party from destruction at the next election. If that poll does indeed produce another hung parliament and Ed Miliband is in a position to form a government, it will be in no small measure because Clegg has hemmed the Tories into an ideological corner from where, history suggests, they struggle to reach a majority. That isn’t the reason most Conservative MPs, obsessed with the contamination of their purest policy ambitions, are angry with the Lib Dems. It is a reason why they should be.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

This article first appeared in the 24 September 2012 issue of the New Statesman, Lib Dem special

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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.