Show Hide image

OK, so Ed made a good speech. What next?

A few successive quarters of steady growth will show Labour what a real political game-changer looks like.

Labour may not be a divided party but it’s a disconnected one. The activists, certain that the path to victory lies open before them, are excited and upbeat. The MPs and shadow cabinet, nervous that defeat awaits them, are fractious and edgy. And then there’s Ed Miliband, floating serenely above the fray like a Buddhist on Mogadon.

The general perception as Labour drags itself wearily home from another conference is that it was a successful week. Miliband’s speech was well received, there were no significant banana skins and there is a sense of another hurdle surmounted in the 2015 election steeplechase. Job done.

That, however, is Labour’s problem. The job isn’t done. It’s not even half done. Labour hasn’t got as far as loading the tools into the back of the van, setting the satnav and practising a few quick renditions of: “Oh, I haven’t seen one of those before.”

In denial

The party can certainly take a number of positives from its week in Manchester. The first is that, contrary to popular wisdom, Miliband has got what it takes to be a retail politician. He is confident in himself, confident in his role as leader and increasingly effective at communicating that to audiences big and small.

Second, any internal leadership issues have firmly and finally been put to bed. Miliband will lead Labour into the next election, regardless of how much Conservative Party strategists view him as an asset and some members of his party see him as liability. That has implications for him, in terms of how he engages with and shapes his shadow cabinet, and for some of Labour’s bigger beasts. Conference week saw the end of Yvette Cooper’s and David Miliband’s leadership ambitions and, by extension, the mantle of heir-apparent transferring to Chuka Umunna and Rachel Reeves.

In strategic terms, this conference surely also marked the conclusion of Labour’s long march leftwards. For his “one nation” narrative to work, Miliband must begin the tortuous process of herding his party back towards the political centre. Len McCluskey praising the speech must provide a clue to Miliband that he has reached the limit of his flirtation with progressive radicalism.

If there were positives, there were also several negatives. And they are potentially fatal for Labour’s chances of forming the next government.

First, there was Miliband’s obstinate refusal to move out of his – and his party’s – comfort zone. Despite all the plaudits about the vision of one nation under Ed, the reality is that, once again, he bottled out of addressing policy areas that will determine the outcome of the election: immigration, welfare, public-service reform, the economy and long-term deficit reduction.

The line from Miliband’s supporters is that it would be foolish to start mapping out specifics on such contentious issues so far in advance of polling day. Yet one presumes the strategy isn’t to drop the hard detail of issues such as a public-sector pay freeze in the unions’ laps during Labour’s final pre-election conference. The bulk of these issues will need to be fleshed out in 2013, which means that Miliband is storing up the mother of all party management headaches for 12 months’ time.

Another issue is Labour’s lack of urgency. Miliband and his team seem unable (or unwilling) to appreciate the political danger posed by the upcoming launch of the Tories’ economic recovery narrative. Labour generally seems to believe that the economy has gone to hell in a handcart and won’t be reappearing this side of May 2015. If it does, then forget the optics of a leader with the ability to walk, chew gum and talk about his son’s dinosaurs at the same time. A few successive quarters of steady growth will show Labour what a real political game-changer looks like.

Then there is the denial surrounding Miliband. Labour is still waiting for the British people to recognise just how lucky they are to have him as leader of the opposition. And they think that, after his speech, a grateful electorate finally gets it.

We were told this when he seized the agenda on phone-hacking. And the banks. And producers and predators. And the 50p tax cut. And the NHS reforms. And the summer omnishambles. And LIBOR.

Yet we still arrived at conference with between two-thirds and three-quarters of the electorate stating that they cannot entertain, nor do they particularly wish to entertain, the prospect of him residing in Downing Street. Labour has to realise the doubts surrounding its leader are substantial. And if it wants to address them, it must at least entertain the notion that when people tell pollsters they cannot see Ed Miliband as their prime minister, they may be telling the truth.

We’re toast

At the start of the week, the Labour Party’s biggest enemy was complacency. And in the hours after the great address, the party faithful weren’t shaking it off – they were toasting it. Once again, Labour has convinced itself that there is an easy route to power. The difficult decisions can be ducked, the process of policy development deferred.

Yes, there is time for a full policy development process to be launched, conducted and finalised. A window remains open for internal debate and discussion over the hard choices that Labour must face if it wants to be taken seriously as a party of government.

However, after this conference week, that window is closing. And as we pass the halfway point of the parliament, it is closing quickly.

This article first appeared in the 08 October 2012 issue of the New Statesman, Conservative conference special

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.