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Vernon Bogdanor: The Margaret economy

"Making Thatcher’s Britain" and "The Conservatives Since 1945" reviewed.

Making Thatcher’s Britain
Ben Jackson and Robert Saunders
Cambridge University Press, 345pp, £19.99

The Conservatives Since 1945
Tim Bale
Oxford University Press, 360pp, £55

Making Thatcher’s Britain comprises a perceptive collection of essays, primarily by a younger generation of historians and political scientists. Many of them make use of the massive cache of original material available on the Margaret Thatcher Foundation website and in the Thatcher papers at the Churchill Archives Centre, Cambridge. The book provides what is probably the best available introduction to the historiographical problems of the Thatcher era, and it can be read both with profit and with pleasure. But it also casts considerable light on the politics of today.

The central theme permeating the essays is that Thatcherism was not primarily an economic doctrine but a moral creed. “The real case against socialism,” Thatcher insisted in 1977, “is not its economic inefficiency. Much more fundamental is its basic immorality.” “Economics are the method,” she told the Sunday Times in 1981. “The object is to change the soul.” This moral dimension to Thatcherism was first understood by contributors to the journal Marxism Today such as Stuart Hall, Martin Jacques and Andrew Gamble (also a contributor to Making Thatcher’s Britain). It was Hall who coined the term “Thatcherism” as early as January 1979. Yet there is a paradox at the heart of Thatcherism, as John Campbell, Thatcher’s biographer, has pointed out. It is that, although her values were “conservative, old-fashioned and puritanical”, she presided, not over the restoration of a traditional moral order, but its opposite, “a culture of rampant materialism”. During the years of Thatcher’s political career, Britain passed, with great rapidity, from the world of Alfred Roberts to that of Mark Thatcher.

The film The Iron Lady shows Thatcher in the twilight of her life. But, even though she departed the political scene some time ago, she remains a powerful living presence in British politics. It is hardly possible to understand the financial crisis of 2008 and the events that followed without considering her legacy.

The central tenet of Thatcherism was that if the state stopped interfering with the processes of money-making, all would benefit; since, as the rich got richer, so would the poor. That is the philosophy that led to the crash. It held New Labour in thrall as well as the Conservatives. Peter Mandelson notoriously told a gathering of Californian computer executives in 1998 that “We are intensely relaxed about people getting filthy rich, as long as they pay their taxes”; and in 2008, John Hutton, Gordon Brown’s business and enterprise secretary, sought to reassure those worried about growing inequality by saying, “Rather than questioning whether huge salaries are morally justified, we should celebrate the fact that people can be enormously successful in this country.”

But, as Ferdinand Mount, a former head of Thatcher’s policy unit, comments in his recent book, The New Few,“Mandelson and his friends weren’t relaxed at all; they were obsessively tense about the danger of being mistaken for old-fashioned squeeze-the-rich socialists. Even the mildest suggestion that some modest reduction in inequality might be a good thing would be erased from the text of any important speech from the leadership.”

Only recently has Labour begun to make its break with the Thatcherite consensus. In June 2011, Ed Miliband told Labour supporters, “My party must change. We were intensely relaxed about what happened at the top of society. I say, no more. Every time a chief executive gives himself a massive pay rise – more than he deserves or his company can bear – it undermines trust at every level of society. We cannot and we must not be relaxed about that.”

In their valuable introductory essay, the editors of Making Thatcher’s Britain notice the sharp rise in economic inequality during Thatcher’s premiership. “The incomes of the poorest fifth of the British population rose by between 6 and 13 per cent between 1979 to 1993, while the incomes of the richest fifth rose by more than 60 per cent.” New Labour was far too insouciant about rising inequality, which served to undermine the contract on which society is based. It has become clear that neither the very rich nor the excluded feel much obligation to society. That is understandable in the case of the excluded, less so on the part of those more fortunate. Keith Joseph, Thatcher’s guru, understood that a market economy could only work effectively if it was underpinned by a moral framework. But he forgot to explain how this framework could be created in the unregulated economy that the Conservatives were creating. Perhaps he did not know. He was, Michael Foot declared, like the conjuror in the fair who takes your watch, wraps it in a handkerchief, smashes it with a hammer, and then says, “Oh dear, I’ve forgotten the second half of the trick.”

Thatcherism, despite its potency, was nevertheless an aberration. Conservatism in Britain has generally been a matter of instinct rather than ideology. The Conservative Party’s instinct has been self-preservation. Tim Bale, in The Conservatives Since 1945, seeks to explain this and is only partially successful. He has allowed himself to become imprisoned by models derived from political science, analysing changes in the Conservative Party in terms of various “drivers”, and evaluating their effects in accordance of whether they were “low”, “medium” or “high”. Such an approach is fatal for the historian, who must always be wary of generalisations and alert for what is concrete and exceptional. As in Bale’s previous book, The Conservative Party from Thatcher to Cameron, there is a disinclination to distinguish large matters from small, and at the end the reader is not much wiser than when he began. Bale’s conceptual scheme has little explanatory power since Conservative electoral success in the post-war years has been due as much to Labour failings as to anything that the Conservatives have done.

Since the end of Thatcher’s government in 1990, conservatism has reverted to type. The likes of Fred Goodwin and Andy Hornby can hardly be lauded as exemplars of a new moral order. So the Conservatives have become once again, as they were in the time of Harold Macmillan, the party of sound management, though this claim looks a little shaky at the moment. Still, at the next election their appeal is likely to be that they can run things better than their opponents. It is perhaps a somewhat limited appeal. When Baldwin proposed the slogan “Safety First” in the election of 1929, which the Conservatives lost, Keynes satirised it: “We will not promise more than we can perform. Therefore we will promise nothing at all.”

Vernon Bogdanor is professor of government at King’s College, London

This article first appeared in the 03 December 2012 issue of the New Statesman, The family in peril

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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.