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Leader: Liberalism now feels inadequate in this new age of insecurity

The stakes could not be higher.

Ever since the Thatcher era, British politics has been defined by forms of economic and social liberalism. The right won the argument for the former and the left the argument for the latter, or so it is said. Yet in the post-crash era, this ideological settlement is beginning to fracture. The right is re-examining its crude economic liberalism and the left its social liberalism. This shift is characterised neither by a revival of socialist economics, nor by one of reactionary conservatism. Rather, it is defined by a mutual recognition that liberalism, at least in some of its guises, does not provide all the answers to Britain’s most entrenched problems: its imbalanced economy, its atomised society, its lack of common identity.

Two thinkers, Phillip Blond and Maurice Glasman, and their respective factions – the Red Tories and Blue Labour – were quicker to recognise this than most. Mr Blond may no longer have the ear of the Prime Minister, if he ever did, but since the appointment of Jon Cruddas as the head of Labour’s policy review, the Blue Labour faction has emerged as the dominant intellectual influence on the Labour Party.

With his support for a technical baccalaureate, employee representation on remuneration committees and a new network of regional banks, the Labour leader, Ed Miliband, has embraced elements of the German social-market model long championed by Lord Glasman. At the same time, Blue Labour has encouraged the party to begin to articulate concerns on social issues that have long been neglected by the left and to speak about culture as well as economics. In a recent speech to the Fabian Women’s Network, Diane Abbott, the shadow public health minister and once on the hard left of the party, spoke out against the “sexualisation” of childhood. “For so long,” she said, “it’s been argued that overt, public displays of sexuality are an enlightened liberation. But I believe that for many, the pressure of conforming to hyper-sexualisation and its pitfalls is a prison.” Ms Abbott concluded: “We’ve got to build a society based on open-minded family values and not ‘anything-goes’ market values.”

More contentiously, in the case of immigration, Blue Labour has provided Mr Miliband with a language in which to engage with what went wrong under New Labour. According to Tony Blair’s globalist narrative, an open immigration policy was an unalloyed good. The interests of workers who saw their wages undercut and who felt confused and left behind by the pace of change were subordinate to those of the corporations that benefited from a larger and more flexible labour pool. Mr Miliband appears to have accepted the argument of Lord Glasman, Mr Cruddas and others that the Labour Party was too slow to respond to such anxieties among its natural supporters in working-class communities. He has argued that Labour was wrong not to impose transitional controls on migration from accession states such as Poland, as other members of the EU had done. He has pledged to ban recruitment agencies that operate exclusively by bringing in foreign workers to Britain without trying to fill vacancies locally. If it is true that immigration has had a generally beneficial effect on aggregate output, it is also true, as Mr Miliband has observed, that: “People don’t live their lives in the aggregate.”

This insight is also shaping the Labour leader’s approach to welfare and his call for a reassertion of the “contributory” principle. By remodelling the benefits system so that there is a clearer link between what people put in and what they receive, Labour seeks to restore public confidence. The view of the welfare state as a pot from which all draw as much as they can is being rejected in favour of one that emphasises reciprocity. This is necessary if the welfare state is to survive and to continue to enjoy majority support.

On the right of British politics, there is a similar willingness to question the free-market dogmas that, as David Selbourne argues in his essay beginning on page 28, the modern Conservative Party under David Cameron has embraced. “The inability of today’s Conservative Party to fashion an identity for itself is a matter for incredulity,” he writes. “If you think like the classical Conservative used to think, you would be seething at the ‘moral condition’ of the country . . . Old-style Tory utilitarians would have been rolling up their political sleeves to tackle today’s indecent levels of social and economic inequity, housing shortage, declining standards of health provision, rural impoverishment and soaring public transport costs.” Instead, the party is suspended uneasily between tradition and “modernisation”.

Yet there is good thinking occurring on the right. The Tory MP Jesse Norman and the conservative commentator Ferdinand Mount recognise that Britain’s lightly regulated model of financial capitalism has undermined the conservative goal of a stable and orderly society. Mr Norman, who will shortly publish a book about Edmund Burke, has written of how markets should not be idolised, but “treated as cultural artefacts mediated by trust and tradition”.

Nearly three years after the general election, British politics remains hung. There is increasing disdain for the coalition but as yet little genuine enthusiasm for the Labour alternative. The events in Cyprus remind us that, five years after the greatest financial crash in history, Europe remains in crisis and the banking system is largely unreformed. In Britain, where the banks were bailed out at a great cost to the nation, wages are flat or falling, unemployment remains very high, and the old welfare model is unravelling. Institutional trust is at an all-time low. So peculiar is our situation that an unelected monarch, the embodiment of the old class-based hierarchical system, is perhaps the nation’s most trusted and respected individual.

With its emphasis on abstract individualism, liberalism, the great driver of social emancipation and economic prosperity, now feels inadequate to this new age of insecurity. In his recent “Earning and Belonging” speech, Mr Cruddas said: “Simply opposing the cuts without an alternative is no good. It fails to offer reasonable hope. The stakes are high because when hope is not reasonable despair becomes real.” He is right: the stakes could not be higher but who is best positioned to lead Britain out of despair and create a new sense of purpose and belonging?


This article first appeared in the 01 April 2013 issue of the New Statesman, Easter Special Issue

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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.