Osborne is unafraid of the "nasty party" label. Is he right?

The Chancellor works on the assumption that voters have a boundless appetite for ever tighter welfare limits.

Is there a limit to how hard the coalition can be on people who depend on unemployment benefit? George Osborne clearly calculates that there isn't. Among the announcements in today’s spending review was a further tightening of the conditions to be imposed on people signing on when they lose their jobs. They are:

Introducing upfront work search, requiring all claimants to prepare for work and search for jobs right from the start of their claim;

Introducing weekly rather than fortnightly visits to Jobcentres for half of all jobseekers;

Requiring all unemployed claimants, and those earning less than the Government expects them to, to wait seven days before becoming eligible for financial support;

 Requiring all claimants who are subject to conditionality to verify their claim every year;

 Requiring all claimants whose poor spoken English is a barrier to work to improve their  English language skills; and

 Requiring lone parents who are not working to prepare for work once the youngest child turns three.

According to the Treasury, this will save the taxpayer £350m per year. (See page 7 here.) Hidden in that dry bureaucratic language are measures whose net effect will be to increase the likelihood of people with no money finding themselves without help.

Especially harsh is the obligation to wait seven days before making a claim. This, said the Chancellor, was to make sure people start their job search immediately and don’t just roll up to a Job Centre on day one of their unemployment. What they are expected to do on days 2-6 if their job search isn’t immediately successful isn’t explained.

Besides, the presumption here is that the DWP is a well-oiled machine that efficiently processes benefit claims and disburses money like some social action ATM. That plainly isn’t the case, as anyone who has claimed benefits - or even just met someone who has claimed benefits - would know. The main effect of introducing an arbitrary delay in eligibility will be a hike in rent arrears and a surge in visits to loan sharks.

The stipulation that non-English speakers improve their language skills before claiming is a pretty crude device to show that the government doesn’t like paying benefits to immigrants. How that will be assessed should be interesting to watch. Maybe a private sector provider could be awarded a contract to hurl difficult spellings at people with funny sounding names? The evidence shows that immigrants are proportionately less likely than other sections of the population to claim benefits but that isn’t really the point. It doesn’t take a huge leap of the political imagination to see why the Chancellor came up with this particular wheeze. It is a dash of Ukip-lite in the spending review.

Overall the welfare debate in Britain has become dismal and sterile. Supporters of the Chancellor will today say there is nothing inherently unjust about the new measures – they simply ask that people make the appropriate effort to find work before taking cash from the taxpayer. The left will point out that every increase in “conditionality” amounts to a new hole in the safety net through which vulnerable people fall, leading to deeper poverty, social problems and  – if you want to be all utilitarian about it – higher costs to the taxpayer in the long run.

The opposition will denounce the measures and then refuse to say whether or not it would reverse them. The Tories will jeer. Labour will tie itself in little angsty knots trying to work out whether it is supposed to be channeling the anger of voters against a faulty benefits system it generally failed to reform during 13 years in power or debunking welfare myths and reversing prejudices against benefit claimants.

Immigrants, the unemployed and single mums will drop another rung down the social hierarchy as the supposed authors of their own immiseration. I have asked very well-placed Tories if they are ever worried that at some point this strategy – mining ever deeper into people’s resentment of the way their neighbours appear to game the benefits system  - will backfire. Is there a compassion threshold beyond which voters will recoil from the harsh language and the social consequences of a brutal welfare settlement. (The myth that there is anything generous about the UK’s provision is well addressed here.) The answer from Treasury sources is “no”. I have been told by one senior  advisor that, having looked at opinion polls, the Chancellor has concluded that he would struggle to meet the public’s appetite for welfare crackdowns. Some Conservatives are more cautious, insisting that the party has to be very careful about the language it uses in this context – no explicit references to “scroungers”. “More in sorrow than in anger” is the guidance from one Tory strategist on the tone MPs should take when talking about benefit cuts.

Still, I find it hard to believe that the Tory party, given the whole legacy of brand toxicity from the 1980s and 1990s – the “nasty party” image – won’t eventually suffer some kind of backlash in connection with this stuff. As I’ve written before, voters are capable of holding two contradictory thoughts in their heads at the same time: first, yes we wanted you to cut the benefits bill but, second, in so doing you have reinforced every suspicion we had that you are mean at heart.

Maybe Osborne is right. Perhaps there is no bottom – the axe can go ever deeper, the sanctions can get tougher, the dividing lines with Labour can grow wider. Cracking down on welfare could be the political gift that keeps on giving for the Tories. But there are also swing voters who struggle to put their cross in the Conservative box on polling day because they feel that, ultimately, it is a party that has it in for foreigners, single mums, disabled people, the sick, the poor. Today the Chancellor didn’t do much to persuade them otherwise.

George Osborne leaves 11 Downing Street on August 11, 2011 (Getty Images)

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

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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.