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After the massacre

With Brown’s chances of survival “less than 50-50”, a reform agenda with the Lib Dems may be Labour’

When the history books are written, will they say that two prominent women brought down Gordon Brown? Jacqui Smith’s confirmation on 2 June that she would resign as Home Secretary in the imminent cabinet reshuffle was bad enough. Hazel Blears’s resignation on 3 June was much more explosive, a declaration of war by someone whose loyalty to her party is beyond doubt.

The timing could hardly have been worse, coming on the eve of Thursday’s local and European Parliament elections, in which Labour already faced a rout in the wake of the scandal over MPs’ expenses.

The reshuffle, a “national plan” for economic recovery and a raft of constitutional reforms to revive a discredited political system, were the three elements in the fightback Brown knew he would need to make after the elections. But his strategy lay in ruins as ministers announced their resignations before he could decide his cabinet shake-up.

It was the expenses affair that triggered the reshuffle chaos. Smith was the first victim of the leaked disk containing the claims by all 646 MPs. Blears was another casualty; she was forced by Brown to pay £13,000 to cover capital gains tax on the sale of her London flat, and he alienated her by condemning her actions as “totally un­acceptable”. Alistair Darling’s chances of remaining as Chancellor were thrown into doubt when he repaid £700 of allowances claimed for his London flat.

Brownites insist that Blears’s remarkable act was an isolated move and not part of a co-ordinated plot to unseat the Prime Minister. There are claims that Smith refused to join Blears in an orchestrated double resignation. Brown allies are adamant that he will not be pushed out, and will fight to keep his job.

The crucial question now is whether other Blairites will back Blears by refusing to serve in the new-look cabinet planned by Brown or by joining the inevitable backbench moves to oust him. Ironically, the pivotal figure could be Lord Mandelson, whose long feud with Brown ended last October when he was recalled to the cabinet: younger Blairite Turks may take their lead from the Business Secretary.

Even if Brown manages to hold the line in the cabinet and “lock in” potential critics, the Prime Minister faces a campaign of insurrection from demoralised Labour backbenchers, many of whom now believe they have nothing to lose by kicking Brown out and replacing him with Alan Johnson, the Health Secretary, in the hope of averting a general election massacre. “There could be organised chaos,” one Brown critic warned darkly. A former cabinet minister put Brown’s survival chances at “less than 50-50” after Blears’s resignation.

Apart from Mandelson, Johnson is the man to watch. He does not want blood on his hands. But he has just raised his profile at a critical moment and in a revealing way, by announcing his conversion to proportional representation (PR) at general elections. He backs the Alternative Vote Plus system recommended by the Jenkins Commission in 1998. There is no cabinet agreement on this and it is unlikely to feature in Labour’s manifesto, although there is a growing consensus for a simple Alternative Vote (AV) system. This would retain the link between all MPs and their constituencies, without the proportional top-ups proposed by Jenkins.

The Health Secretary’s move delighted con­stitutional reformers, who sense an unexpected opportunity to revive many of the ideas for which they have campaigned for years. It also increases the prospect of a deal between Labour and the Liberal Democrats to keep the Tories out in the event of a hung parliament. Privately, senior Lib Dems believe that Johnson is not a contaminated brand like Brown. Some Lib Dems even think such an agreement might be possible with Brown if he survives the current storm, and uses the green shoots of economic recovery to avoid
a general election defeat.

Labour optimists – and there are not many in these dark days for the party – also see scope for a post-election deal with the Lib Dems. They accept the general election will be fought on the economy rather than MPs’ expenses or cons­titutional reform. But in a hung parliament, the prominence of reform on the agenda could bring Labour and the Lib Dems together. Although Nick Clegg will keep his options open, he is seen by colleagues as a man unlikely to link up with the Tories because of fundamental differences with them over the economy, public services and Europe.

There will be no talk of a Lib-Lab pact before an election. The Lib Dems will not cosy up to Labour in the way that Paddy Ashdown and Tony Blair did before 1997. Clegg’s party is wary of another betrayal. And it would be counter-productive to get close to a Labour government when it seems to be heading fast towards the exit door. Far better to be insurgents and capture Labour seats in the north of England to offset possible losses to the Tories in the south.

A formal coalition is unlikely; more realistic would be an arrangement under which the Lib Dems support Labour in key votes in return for progress on reform. They would probably settle for AV as a first step, coupled with a review into making the voting system proportional at a later stage.

There is another scenario, which at present looks much more plausible: Labour suffers a crushing general election defeat and the remaining rump has nowhere else to go but to link up with the Lib Dems (possibly without a union-funded, left-wing breakaway). The Blair-Ashdown project to realign the two centre-left parties would be achieved, albeit in the wilderness of opposition.

The credibility hurdle Labour must jump is high. In media interviews this week, Brown reassured us that he had always been interested in a written constitution – an idea now very much on the agenda of the cabinet, whose meeting last Tuesday was dominated by how to take forward the reform programme. It is true that Brown floated such changes while he was Chancellor. But when he became Prime Minister, he lacked the drive needed to force them through a sceptical cabinet, several of whom warned him there were “no votes” in constitutional change.

It was Brown, along with John Prescott, who blocked Blair’s attempt to press ahead with a close alliance with the Lib Dems, based on a joint programme of reform, even after winning his 1997 landslide. In his recently published memoirs, Ashdown recalls that Brown and Prescott “had made clear their virulent opposition” to a coalition, with senior Lib Dems sitting in the cabinet. Instead, Blair was forced to adopt a looser relationship through a joint cabinet committee, which fizzled out.

Although it has the power to act, Labour will not have a free run on the reform agenda. The Tories may oppose electoral reform and have little intention of implementing their policy of a mainly elected second chamber if they win power. But David Cameron knows how to grab a headline and has appeared to keep one step ahead of Brown over both expenses and constitutional reform.
The Lib Dems are the genuine article on reform; they are united in support of it. Change you can believe in has more credibility than the frantic scramble by the two biggest parties to champion ideas they would simply not be talking about without today’s febrile atmosphere. We are all reformers now.

It will certainly not feel like it for the Prime Minister this weekend as he faces an uphill struggle to survive, but the volatility of politics offers opportunities as well as threats. The game now seems more unpredictable than ever.

“We have been given one more chance to get it right on constitutional reform,” says one Brown aide. “This time, we have got to take it.”

Andrew Grice is political editor of the Independent

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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.