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Change is needed in Europe, but David Cameron’s posturing is not the way to bring it about

The Prime Minister may encourage Tory Europhobes to believe he can change the shape of the EU — but, as our history shows, he can’t.


David Cameron’s Bloomberg address was one of the most vacuous speeches ever heralded as a major policy statement. In between the sub-Churchillian rhetoric about our “island story”, it made three points. We already knew that the Prime Minister wants to renegotiate the terms of Britain’s membership of the European Union and that he intends to follow the renegotiation with a national referendum. He promised that the long-anticipated test of public opinion would ask the question: “In or out?” Tory Europhobes – who resent J S Mill’s description of the Conservatives “as by the law of their existence the stupidest party” – might suggest what other question a referendum on the EU could possibly ask.

They should also consider why the Prime Minister’s aims were described in windy generalities. The audience at which the speech was aimed knows exactly what it wants. So does Cameron. Douglas Carswell, Bill Cash and Mark Reckless tell him with tireless regularity. They share his view that the “rules restricting our labour markets are not some naturally recurring phenomenon”. But they go on to give the platitude meaning by demanding the repeal, or emasculation, of the Working Time Directive that, in Britain’s case, allows a working week of more than 48 hours only if the employee freely agrees.

Nor did Cameron have anything to say about “benefit tourism”, a topic that induces near hysteria at Conservative conferences, even though its opponents base their case on a misinterpretation of reciprocal welfare rights that is as grotesque as their claims about net migration from the EU. The Prime Minister knows that the Europhobes want repeal, and yet he did not promise to demand even a revision of the treaty article that established the free movement of labour. Cameron was strong on generalities but weak on particulars.

The reason for his reticence is clear. He knows that the Europhobes’ demands are unattainable but he lacks the courage to say so. As a result, he has encouraged the belief that he proposes to embark on a renegotiation that he knows would be doomed before it began. It is the price he pays for security of tenure. Flexible Tory moderates such as Malcolm Rifkind (my Scottish organiser whenI was director of the Campaign for a European Political Community) have congratulated the Prime Minister on uniting his party. That unity will not survive the realisation that the Bloomberg address was less a policy statement than advertising copy, intended to deceive without actually lying.

Yet there are changes – budget reform, dem­ocratic accountability and energy policy – that need to be made within the Union. Cameron’s political posturing has reduced his prospects of playing a meaningful part in bringing them about. No doubt he would claim, if asked, that he will be far more successful in changing Europe’s direction than we were in 1974, when – in Jim Callaghan’s words – he (the foreign secretary) made the big speeches and I (his minister of state) stayed up all night to argue about them. Yet there are valuable lessons to be learned from the experience of almost 40 years ago.

Then, as now, the rest of what we once called the European Economic Community (EEC) wanted the UK to remain a member. Had Britain left in 1974, Denmark and Ireland would have gone, too, leaving only the original six signatories to the Treaty of Rome struggling to establish a collective identity. Despite the troubles of the eurozone, Europe is more self-confident than it was then. There is now a higher price to be paid for exhibiting insular superiority. Callaghan’s objection to Gaston Thorn, the prime minister of Lux­embourg and president of the Council of Ministers, representing oil-rich Britain at an international energy conference set the renegotiation back by weeks. Cameron’s arrogant assumption that he can change the Union guarantees a bumpy ride.

The decidedly limited achievements of the Callaghan renegotiation were in areas where one of three rules applied: consistency with the idea on which the EEC was built, the avoidance of material damage to other member nations and postponement of extra cost until some long-distant date. There was also the occasional willingness to indulge a harmless British foible. The principle of a budget rebate – implemented at Margaret Thatcher’s insistence in 1984, but negotiated by Calla­ghan – was accepted under the “long-distance rule”. The importing of New Zealand butter was agreed as a concession to Britain’s imperial nostalgia.

Unfortunately for Cameron and his Europhobic backbenchers, none of the changes that have been bruited about can be justified under any of the definitions of acceptability that will be criteria for change in Europe in 2015, as they were in 1974. The notion that they could is as much the result of ignorance as arrogance. The Working Time Directive, like so much of the despised “regulation”, is essential to the single market that Thatcher agreed with Jacques Delors in 1992, and that most Tories still want to preserve. If the employers in one country could undercut the costs of employers in another by sweating their workers, competition would become no more than a race to the bottom of the social responsibility league.

Cameron cannot – however craven his instincts – negotiate the new European deal that he has encouraged the Europhobes to expect. So, in 2015, given the chance, he is bound to fail the men and women whose support he hoped the Bloomberg address would buy. Happily, the British voters are going to deny him the opportunity. All the more pity that, in order to gain a brief political respite, he should prejudice inward investment to Britain and reduce our influence in the world. 

Roy Hattersley was deputy leader of the Labour Party from 1983-92

This article first appeared in the 04 February 2013 issue of the New Statesman, The Intervention Trap

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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.