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Blairism now seems a spent force – the new battle is between Blue and Brown Labour

The tension is between the need to defend Labour’s legacy of public service investment and the impulse to imagine different methods of change.

Labour’s response to coalition policy sometimes reminds me of the old Jewish joke about two elderly diners in a restaurant: “The food here is terrible,” says one. “Yes,” the other agrees. “And such small portions!”

It isn’t always clear whether the opposition hates the ingredients of Tory reform – free schools, elected police commissioners, universal credit – or is just recoiling from the whole spectacle of government on a shoestring; is it the flavour of the dish that is the issue, or the meagre ration? Often it is both but the message is confused.

Britain is getting used to tight budgets. That doesn’t mean people are happy but they do seem grimly reconciled to the idea that politics, which used to be about favours bestowed from the Exchequer, is now about pain selectively inflicted.

National stoicism poses a threat to Ed Miliband, separate from the question of who is responsible for the scarcity in the first place. Many people still think the problem is that Labour spent all of the money but time and the accumulation of coalition blunders will see blame shift to incumbent parties. That won’t automatically ease pressure on the opposition.

Party kvetching

George Osborne may have failed to grow the economy but he has set the terms of debate for what constitutes responsible spending. Every time shadow ministers attack a benefit cut, for example, the Chancellor chalks it up as an item of unfunded expenditure in Ed Balls’s plans. Osborne wants Labour to digitself a budget “black hole” for him to attack at the next election.

Balls can see the danger and tries to impose as much fiscal discipline as he can without endorsing specific coalition measures. It is not an easy balance. Labour is neither acquiescing to austerity nor fighting hard against it. So what the opposition ends up doing is something those old Jewish diners at the restaurant would recognise as kvetching. That is the splendid Yiddish word for complaining about a burden in a way that seems also resigned to it as a curse of fate. Labour is grumbling about the food when it should be writing a different menu for a new restaurant.

That caution expresses an intellectual dilemma for Labour that runs deeper than its quandaries about fiscal policy. Miliband has to decide how good he thinks the state is at fixing society before he can reject (or accept) what the Tories are doing to public services. He doesn’t want to endorse the Conservative argument that centralised services designed in Whitehall can be part of the problem as much as the solution. But nor does he want to play up to the accusation that the only method Labour knows for solving problems is to spray them with other people’s money.

The Tories have the opposite problem. No one doubts their readiness to cut spending, only their motive. David Cameron’s “big society” – charities promoted as nimbler alternatives to state intervention – failed to persuade people that he wasn’t pursuing a vendetta against the public sector. Even many Tories dismissed it as a wheeze to modernise the party’s image.

Yet there are senior Labour figures who think Cameron’s bungling of the big society is a lucky escape. They feel a more credible Tory leader with a stronger grip on his MPs might have succeeded in depicting the Tories as the party of community activism, leaving Labour on the side of the faceless state.

That concern reflects the continuing influence of Blue Labour, the movement that enjoyed something like cult status in the first year of Miliband’s leadership. The group’s profile was forcibly downgraded after incautious comments by Maurice Glasman, one of its founding luminaries, on matters ranging from immigration to Miliband’s strategy (or apparent lack thereof). But the Blue Labour analysis – that the party has historically placed too much confidence in bureaucracy to improve people’s lives and that grass-roots organisation is the antidote to sterile Westminster politics – is still influential. It gets a receptive hearing, if not a whole-hearted endorsement, from Jon Cruddas, the head of Miliband’s policy review. Marc Stears, an old university friend who has helped Miliband develop his “one-nation Labour” thesis, is an alumnus of the Blue school.

Fiscally sustainable

The more sceptical view, held by MPs from across the party and some Miliband advisers, is that too much Blue-note busking by unworldly professors helps the Tories trash the principle of universal services funded by the state. Miliband is instinctively cautious on public-sector reform and not just for fear of souring trade-union relations. There are political dividends for Labour in promises of stability when the coalition offers rolling mayhem. Why, for instance, would the shadow health secretary, Andy Burnham, get bogged down in tricky questions of how to make the NHS more responsive to patients when he can just point at what the Tories are doing and cry: “Oh, the horror!”?

Meanwhile, Ed Balls is reluctant to concede the point that much of Gordon Brown’s spending in the New Labour years failed to achieve the desired social outcomes regardless of whether it was fiscally sustainable.

There is a caricature of Labour’s public-sector debate that pits the frugal, reforming idolators of Tony Blair against spendthrift, reactionary disciples of Brown. The distinction is increasingly meaningless. Orthodox Blairites are a rare and neutered breed and even they accept that Balls, for all that the Tories paint him as Brownism incarnate, is wedded to budget discipline.

The real tension is both subtler and more profound. It is between the need to defend Labour’s legacy of investment in public services and the impulse to imagine different ways of effecting social change. It is the dilemma of how to rehabilitate the abstract principle that government can be the citizen’s friend while also attacking the current government as a menace to society. It is the battle between Brown and Blue shades of Labour which remains unresolved, because Ed Miliband is personally steeped in both.

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

This article first appeared in the 21 January 2013 issue of the New Statesman, The A-Z of Israel

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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.