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Labour's critical mess

The leader of the Communications Worker Union, Billy Hayes, explains why he believes privatising Roy

In December last year, the Government announced its proposal to privatise Royal Mail, with up to 50 per cent being sold to a “strategic partner”.

This policy flew in the face of the 2005 General Election Manifesto, the Second Warwick Agreement, and the decisions of the 2008 Labour Party Conference. But apparently Royal Mail was in such frail health that private sector surgery was required.

This week, first quarter results were published by a number of European privatised postal operators. TNT saw a year on year drop of 58 per cent in operating profits. Posten (Sweden) suffered a drop of nearly 50 per cent in operating earnings. Post Danmark saw its profits drop by 52 per cent. Deutsche Post has yet to publish its first quarter results, but in the last quarter of 2008 it reported a 3.16 billion Euro loss.

By comparison, Royal Mail has increased its profits in both quarters and is expected to roughly double its profits for the full year.

At the moment, the Government appears ready to brazen out the counter-evidence and critics. The House of Commons cross party Business and Enterprise Committee published its verdict on the Postal Services Bill on 1st April. They wrote “We agree with two key aspects of the proposals. First, that the Government should take responsibility for the historic pensions deficit. Most of its liabilities stem from Royal Mail’s time as a monopoly provider. It needs to be freed from them, as many of its European counterparts have already been freed. Moreover pension fund members deserve to know that their pensions are secure. Second, we also agree that a new regulatory framework, in which postal services are viewed as part of a wider communications market, is entirely appropriate.

"However, we do not consider either the independent review or the Government has properly made the case that these two reforms, about which there is a broad consensus, can only be made as part of a package which includes the third reform – the involvement of a private sector equity partner in Royal Mail. Similarly we are not persuaded that the provisions contained in the Bill allowing such a partnership are necessary or desirable.”

To date the Government has not responded to this report.

The situation is becoming critical. The Bill will come back to Parliament some time after 1 June. Strength of opposition in the PLP is great enough to force the Government into reliance on Tory votes to get the Bill carried.

So far the Tories have played ball, supporting the Bill and seeking to push it faster and further. But it must be very tempting to create a defeat for the Government by turning a vote against the Conservative amendment into an excuse to vote down the Bill. Either of these scenarios spells catastrophe for the Labour movement and the Government.

Fortunately, there is a way out for the Government. The publication of Compass’ pamphlet “Modernisation by Consent” raises the possibility of transforming Royal Mail in the public sector. The pamphlet examines a number of “not-for-profit” options for the company. Any one of these could solve the Government’s problems.

Certainly there is no financial need to privatise Royal Mail. The Government is committed to removing its pensions deficit. That gives Royal Mail an additional £280 million capital per year for the next 15 years. Further, if the Regulator ends the subsidy Royal Mail has given to private competitors in access arrangements then a further £100 million capital per year is available. Such figures would allow Royal Mail to offer the most up to date range of services to customers.

An agreement was reached within 24 hours between Royal Mail and the CWU on the delivery of government leaflets on swine flu to every household in the UK. TNT are not able to do this.

It is not too late for the Government to amend the Postal Services Bill into a progressive Act. Those of us who want a fourth term for Labour must act now.

Billy Hayes is general secretary of the CWU

Billy Hayes became General Secretary of the Communication Workers Union in July 2001. He is vice chair of Labour’s national policy forum and holds positions in the international trade union movement. Billy is married to Diane and has two young children, Melissa and Niall
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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.