Cameron's wobble

The Tories are ahead in the polls but remain unpopular. And there are divisions behind the scenes.

With Labour’s leadership crisis apparently resolved, finally, until after next year’s general election, the spotlight switches to the Conservatives. David Cameron has had much to smile about: his party enjoys a 39-27 lead over Labour in the latest ICM poll, and he suffers none of the abuse levelled daily at Gordon Brown. Beneath the surface, however, Tory unity and public support for the party are thinly spread.

On 10 June, Andrew Lansley, shadow health secretary, declared on the Today programme that a Tory government would slash spending by 10 per cent across the board (except for health and overseas aid) from 2011. Though Labour strategists seized on the remarks, using them to reiterate Brown’s preferred “investment v cuts” dividing lines, Lansley quickly backtracked and calm appeared to descend again on the Tories.

However, behind the scenes there was absolute panic. “It was a meltdown – not a Brown-style meltdown but a real meltdown nonetheless,” one insider said. “[Conservative] HQ went into panic stations. Lansley was phoned and told: ‘One more strike and you’re out.’”

According to shadow cabinet sources, there was a major “wobble” on the front bench as to where the party is heading on the issue of public services and spending cuts. Some shadow ministers, such as Liam Fox at Defence, were angered by the prospect of having their budgets cut should they win the next general election. But there was also palpable fear among some of the more thoughtful party strategists that they were playing into Labour’s hands; some with longer memories are aware that even Margaret Thatcher never explicitly talked about “cuts” in this way in advance of an election.

Adding to the sense of division is a letter being circulated among “up to a hundred” dissatisfied MPs following the expenses scandal. The letter, printed on Commons notepaper, complains that “the party in parliament has ceased to be a team effort and is now just run and dictated to for the personal advantage of David Cameron and George Osborne. We are concerned that the parliamentary party is just being used and abused by the leader and his inner circle.”

A further “wobble” came with the characteristically honest admission by Kenneth Clarke, the shadow business secretary, that the populist Tory pledge for a retrospective referendum on the EU would be meaningless if the Irish vote Yes in their plebiscite on the Lisbon Treaty which will take place by November this year. In that scenario, he said: “Our settled policy is quite clear – that the treaty will not be reopened.”

Clarke is proving to be a worryingly outspoken colleague for Cameron. Only a week before his return to the front bench in January, the former chancellor said that any party calling for tax cuts going into the next general election would be “asking for trouble”. Then, in March, he said the pro-rich pledge to abolish inheritance tax for estates worth up to £1m was not a high priority. “We will have to consider when we can afford to do that,” he said, before being yanked back into line by Conservative high command.

Now, once again, Cameron was said to be “furious” at Clarke’s remarks. Tory officials briefed that they represented a “gaffe”. But the Conservative leader knows he cannot go too far in alienating his popular frontbencher: in the unlikely event that Clarke were to resign, he would cause untold damage to Cameron’s campaign to become prime minister. Indeed, it is said that Clarke has told friends he would be forced to step down if the party remains committed to a referendum after a Yes vote in Ireland.

Although the pro-European wing of the party is in the minority, it is also, in private, increasingly angry at Cameron’s policies on the EU. Chief among complaints is his pledge to leave the mainstream, centre-right grouping in the European Parliament, the EPP. This, after all, puts his “progressive” Tories in alliance with extreme-right parties such as Poland’s Law and Justice, one of whose MPs, Artur Górski, once described Barack Obama’s election as “a disaster” and “the end of the civilisation of the white man”.

It is not as if Cameron wasn’t warned. In 2006, the pro-European Conservative Group for Europe circulated a series of internal memos about “the potential reputational damage” that would hit the party over such an alliance. “The key problem for David Cameron,” said one of the documents seen by the New Statesman, “is that [Law and Justice] is a deeply unattractive ally – and a quite unnatural bedfellow for the sort of ‘progressive Conservatism’ that the Tory leader seeks to present.”

The fear, pro-European Tory sources say, is that in the end the party will have to abandon its plan to leave the EPP. “There is a real prospect that, after this attempt to appease the Eurosceptics, we will actually end up going back to the EPP on bended knee,” an insider says. “Only this time, the terms and conditions of our re-entry will be much tougher.”

The British Conservative Party is rapidly losing friends and alienating people on the Continent. Back home, meanwhile, there is the issue of the Tories’ precarious electoral position. Privately, strategists concede that Cameron has good reason to echo Tony Blair’s warning against “complacency”. This is not just because they are aware that their 28.6 per cent share of the vote at the local and European elections amounted only to a one-point gain on the 2004 result, which was followed by defeat at a general election the following year. Nor is it simply because it is below William Hague’s 35.77 per cent, which also preceded a (landslide) defeat at the 2001 election. Instead, it is that the Conservatives are polling 10 points less on average than New Labour did under Tony Blair in the run-up to the 1997 election.

In 1996, Ipsos MORI showed that Labour consistently polled above 50 per cent – often in the high fifties – while the Tories languished in the early twenties. Today, David Cameron may be popular, but his party remains relatively unpopular in the country at large. Prior to the 1997 landslide, New Labour’s popularity outstripped even Blair’s – the party polled 54 per cent, its leader 48 per cent. Over the past 12 months, however, the Conservative Party has polled roughly 7 per cent below its leader – 40 per cent compared to Cameron’s own 47 per cent average approval rating. Cameron has failed to “decontaminate” the Tory “brand”.

Meanwhile, there is excitement at No 10 about a potential Labour revival, however remote. Party strategists are pinning all their electoral hopes on an economic upturn. It is worth noting that the respected National Institute of Economic and Social Research in effect declared the recession over this past week.

If, as we wrote last week, the Brown government can concentrate the country’s attention on public services and public spending, Labour may well still stand a fighting chance of a hung parliament at next year’s general election.

“We have private polling showing the Tory lead is wide but thin, and the gap is narrower than in the papers,” says a Downing Street aide. “But part of the problem is the marginals; [Lord] Ashcroft has been channelling funds into them and they are not specifically recorded by the companies. The Tory lead there will be strong.”

Suddenly, it appears that a kind of normality has returned to British politics. The Tories are firmly in the lead (for now) but divisions over public service investment and Europe continue to simmer. Cameron is troubled by a gaffe-prone shadow health secretary and a loose-tongued (but unsackable) business secretary. The Tories’ poll ratings are soft and the economy is improving even though unemployment, a lagging indicator, continues to rise.

In the mid-1990s, the late Roy Jenkins compared Tony Blair’s mission in leading New Labour to victory to that of an elderly and frail butler carrying a priceless vase from one side of a room to another. Today, Labour is down but not out. And it should be repeated: the Tories have yet to seal the deal with the British electorate. David Cameron must hope that his fragile party doesn’t slip and stumble before election day.

Additional research by James Cave

This article first appeared in the 22 June 2009 issue of the New Statesman, Iran

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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.