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Time for an honest appraisal

The former Labour MP and minister responds to a <a href="

Let me begin with the areas of common ground. Like Neal and John, I want to see a future world that is more equal, sustainable and democratic. I agree the current economic crisis represents an appalling market failure and that new approaches are needed both nationally and globally.

Like them I believe in decentralisation so that citizens and local communities can exert more control over their own lives. And I, too, am a pluralist who believes that Labour can learn from – and should work with - other progressive forces on the big challenges we face.

My disagreement with John and Neal arises from our different analyses of the past 12 years.

This is not to say that I think everything that has happened since 1997 has been perfect – of course not.

I wish we had been bolder in seeking to close the gap between rich and poor. I wish we had made housing a priority from day one. And I wish we had built on our excellent first term democratic reforms to decentralise power in a more thorough and comprehensive fashion. Indeed recent events once again make the case for a different way of doing politics.

Neal and John’s NS article devotes a paltry 37 words to the advances and achievements of the past 12 years and dismisses Labour’s response to the current economic crisis as “business as usual”.

Since 1997 we have seen a sustained strategy to tackle poverty especially in childhood and old age.

As they acknowledge, we have seen massive additional public investment in schools and the NHS. The UK is now a beacon of best practice in international aid and development. Labour has challenged prejudice and discrimination – with a string of progressive legal changes including Civil Partnerships. I could go on.

The terms of political debate have been shifted leftwards so that even the Tories now feel they have to say they will match Labour’s spending plans on schools and the NHS and that they support achieving the UN 0.7 per cent aid target.

Measures to promote equal opportunity and challenge prejudice have been consistently opposed by the Tories – yet now diversity is seen as a test of being a “Cameron Conservative”. Progressives should surely celebrate this as a real achievement.

This brings me to my second fundamental disagreement with John and Neal. I do believe that Labour’s policies are very different to the Tories’. Take the present crisis – had the UK followed George Osborne’s advice we would be in a far worse position than we are and it would be the poorest, most vulnerable communities that would suffer the most.

Clearly, there is massive public disenchantment with party politics and politicians and the renewal of progressive politics is not only about what happens to the Labour Party. However, reform and renewal of the party itself is as important as engaging with social movements - events of the past few days demonstrate this very powerfully. Labour ignores the need for renewal at its peril.

I am a big fan of social movements and have always been involved in them alongside my Labour activism.

People involved in parties often underestimate the importance of civil society – but there is a danger of going too far the other way.

NGOs rightly take on governments and political parties but their solutions need to be subject to challenge too.

There are difficult and complex policy challenges – take the example of Energy Policy. Social movements like Greenpeace and Friends of the Earth have long campaigned against nuclear energy. Like many others I have changed my mind on this and see nuclear alongside renewables as an important part of the solution to our long term energy needs.

A vibrant progressive politics has to have the ability to engage with these important issues. Yes, let’s celebrate mass participation in NGOs but let’s also engage, argue and challenge.

An oft-repeated charge made again by Neal and John is that New Labour is “market fundamentalist”. I think this is over the top and does not bear close scrutiny.

There are fair criticisms – for example that New Labour allowed City excess to get out of hand or that public service reforms have relied too much on choice as a lever for improvement.

It is a big leap from here to the charge of market fundamentalism. Yes, New Labour has always supported a dynamic private sector and will continue to do so. However, since 1997 Labour has rightly intervened in the market across a wide range of social and economic issues including the minimum wage, maternity & paternity rights, trade union recognition and tougher equalities legislation.

In the public services there has been a mix of approaches – for example Foundation Hospitals and Trust Schools draw upon the mutualism of the Co Op movement.

As we approach the next General Election it is crucial that Labour has a mature, constructive debate about what we can offer in our next manifesto. A starting point must surely be an honest appraisal of the past 12 years. That means people like me acknowledging the failures and the weaknesses alongside the achievements and successes. I hope Neal and John will feel able to be more positive about what has been achieved. I suspect that when it comes to the policies needed to address the challenges of tomorrow we may well agree more than we disagree!

Stephen Twigg is shadow minister for constitutional reform and MP for Liverpool West Derby

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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.