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Lessons for Labour from Obama’s midterm defeat

Is Ed Miliband as vulnerable as Obama has been to disillusionment?

On 30 October, Barack Obama addressed a rally of 30,000 people in Chicago, as part of a last-ditch attempt to save his own former Senate seat of Illinois. It was his first public appearance in his hometown since his 2008 election-night victory rally. "In three days, you have the chance to once again say what?" Obama shouted into the microphone, cupping his hand around his ear and leaning forward. "Yes, we can!" the crowd shouted back.

On 2 November, the voters delivered a different answer to the president's question: "No, you can't." In one of their worst election defeats in a generation, the Democrats lost control of the House of Representatives to a resurgent and reactionary Republican Party and only narrowly retained control of the Senate. Humiliatingly, the president was unable to save his own former seat.

Much ink has been spilled over the reasons for Obama's decline. The list is as long as it is depressing: the ongoing economic downturn and the administration's failure to protect jobs; a relentlessly negative and uncompromising opposition; a hostile and often hysterical media; the surprising inability of Obama himself to communicate his message to the voters.

He's not the messiah

Above all else, Obama raised expectations to unprecedented levels. The messianic "Yes, we can!" candidate of the 2008 campaign trail became in office a cautious and overly deliberative pragmatist. Despite being denounced by opponents as a "socialist", Obama failed to offer a convincing, left-wing economic populism to counter the right-wing, anti-state populism of the Tea Party. He couldn't mobilise the 13 million "virtual" activists on his much-vaunted email list to take to the streets against the opponents of health-care reform. In the words of a Labour strategist who has worked with the Obama White House: "He was expected to stand up for the little guy against the vested interests. He didn't."

Instead, Obama and his aides trained much of their verbal firepower on their own supporters. The president's former chief of staff, Rahm Emanuel, dismissed liberals concerned about the administration's health-care bill as "fucking retarded"; the White House press secretary, Robert Gibbs, said left-wing critics of the president "ought to be drug-tested". Obama did not just neglect his base; he abused it. Is it any wonder the Democrats didn't turn out for him in as huge numbers on 2 November as they had only two years before? Or that 47 per cent of them say Obama should face a primary challenge for the presidential nomination in 2012?

So what lessons are there, if any, for Ed Miliband? Labour strategists, as well as shadow ministers, are analysing the US midterm results. Like the American president, the Labour leader ran as an insurgent, an outsider, against his party's establishment candidate, inspiring younger activists to join his campaign and raising money via online donations. He advocated a much tougher stance on the banks, distanced himself from the Iraq war and spoke incessantly of the need for "change".

So is he as vulnerable as Obama has been to disillusionment and cries of "betrayal" from his own centre-left base? "If you run a sort of pseudo-Bobby Kennedy campaign of hope and change, you're going to encounter disenchantment," says a former Downing Street aide, who has worked closely with Miliband in the past. "Ed is going to have to show people he is an idealist as well as a pragmatist. If he can't do it, he's not the right guy." He adds: "I'm worried about how quickly a sense of real drift will set in unless he starts to interest people."

Obama, says a shadow cabinet minister, allowed himself to be cut off from the "netroots" style network of volunteers, activists and community organisers that he had helped to create as a candidate. Miliband cannot make the same mistake. "Obama failed to sustain himself in office by continuing to build and inspire a radical, progressive movement - and so the movement atrophied," he tells me. "Ed has to build a mass movement with a very clear vision for changing Britain.

Supporters of the Labour leader claim his radicalism is undimmed; "our agenda," argues one, "is "Thatcher-esque in its ambition". Tackling inequality and low pay, as well as exploring the limits of financial markets and the City of London, are themes that the Labour leader rightly intends to revisit in the coming months. Others point to Miliband's impassioned critique of the coalition's proposed cap on housing benefit. "There aren't any votes in defending people wrongly described as 'scroungers' in the Daily Mail," says a source.

Meanwhile, inside Miliband's offices in parliament's Norman Shaw South building, his aides are in constant discussions over how to renew and rebuild what their leader referred to as a "hollowed out" party during his election campaign. References to "community-organising" and "reaching out" to NGOs abound. "We have a party, with members. Obama doesn't," I was told. "That's what we're going to build on and transform."

Voice of the little man

But is the leader's inner circle, as it is currently constituted, up to the task? I sense some may be more cautious than Miliband himself wants to be. "He has a very small team, some of them quite junior, all of them working 18-hour days," says a friend of the Labour leader. "Ed's team had a plan to win the leadership election but they didn't really have a plan for what they would do if they won. David [Miliband] and his people had a much more developed plan for the party. I'm not saying it was the right plan but they had one."

It would be a mistake, however, for Miliband's opponents to underestimate him. His decision to challenge and defeat his elder brother and then deny the jobs of chief whip and shadow chancellor to Nick Brown and Ed Balls, respectively, shows that he can be bold and decisive.

Nonetheless, Miliband has to speak out more often and be unafraid of expressing anger or outrage about vested interests - be they financial or political. "There has been a diffidence to his start," says a friend. "He has to change gears and get going." The lesson from the United States is that this is not a time for diffidence; in a period of economic dislocation, the left cannot afford to let the right surf the inevitable wave of anger, insecurity and discontent. Miliband must become the voice of the "little guy". And so, for that matter, should Obama.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 08 November 2010 issue of the New Statesman, Israel divided

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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.