Show Hide image

The hard reality of power

The Liberal Democrats are now the constructive party of progressive politics, writes Simon Hughes, a

For liberals, there are good reasons to be cheerful. For the first time in more than 60 years, a new year breaks with the proud and progressive Liberal Democrat successors to William Beveridge and Jo Grimond in the government of the United Kingdom. Although the electorate (and, to a lesser extent, senior people in the Labour Party) did not give us the chance to form a coalition of the centre left, which many of us had hoped for, we rose to last year's challenge and did not run away either from practising what we preach about pluralist politics or from taking responsibility at one of the most challenging economic and political times for this country since the Second World War.

We start the year not just in government but ensuring every week that progressive policy is agreed upon and implemented. Not every policy that we would wish to implement - nor for which we have fought - can be delivered. Not getting your own way on everything is the inevitable consequence of coalition.

Opportunity knocks

There are battles to fight and hard concessions to make - on areas such as schools, immigration caps and, above all, tax and spend. These issues can lead to intellectual and political struggles of conscience. But this is the hard reality of power, not the easier world of opposition. And even when we are not able to deliver the policies on which we campaigned, Liberal Democrats are perpetually striving to make new laws as progressive as possible.

The most recent example is higher education. The proposal put forward by the coalition government is a huge improvement on the recommendations made in Lord Browne's review, commissioned by Labour with support from the Conservatives. By our introducing a system in which both the total amount and the monthly contribution paid are entirely dependent on the level of earnings after graduation, university remains affordable. This is why, despite not being a supporter of tuition fees, I am happy to take a role in working to broaden access. Labour's reaction to a scheme that, in terms of repayment, is almost the same as the graduate tax it says it now supports is hypocritical and demonstrates why the responsibility of being the constructive party of progressive politics in Britain has moved from Labour to us.

In other areas, there are still huge opportunities to implement a liberal agenda in every year of this parliament. The opportunity will come this year to win the referendum for a fairer parliamentary voting system - a huge and important prize not delivered by Labour during its 13 years in power, despite manifesto pledges, and now resiled from by many Labour MPs who were elected on this very commitment only months ago. There is the referendum in March on further powers for devolved government in Wales, as well as the significant transfer of powers to local government in England contained in the recently published Localism Bill. Above all, there are the plans - never delivered by a Labour or Conservative administration in the past 100 years - for a predominantly elected second chamber of parliament. Liberals are delivering urgently on a progressive agenda where Labour has consistently failed.

Economic and social liberalism remains as important as constitutional and political reform. I believe in reversing the gap between the rich and the poor: economic fairness should not just be a mantra or an election slogan. In my constituency of "two cities" - which has a greater percentage of council property than any other in England and some of the most expensive riverside homes - restoring the earnings link between state pensions and average earnings matters (a link broken by Margaret Thatcher and not restored by Messrs Major, Blair or Brown). Taking people earning less than £10,000 a year out of tax altogether matters, as does ensuring that richer people pay higher capital gains tax. All three are now government policy. None would have happened without progressive Liberals in this government.

Coming of age

In education and health, there are undoubtedly changes proposed or under way that do not form part of a traditional Liberal Democratic prospectus but, as the chair of governors at an outstanding inner-city primary school with a new nursery class, I know the importance of investing in children under five and between five and 11 and we are doing that. I know, too, the importance of investing in further education and non-university training and apprenticeships and we are doing that. And as a civil liberties lawyer, I know the importance of abolishing identity cards, reducing detention without trial and having an independent inquiry into allegations of torture.

The huge Budget deficit means that we cannot do all that we would wish. But budget reductions nationally or locally are not ideological: they are a response to the legacy created by the international economic crisis, the greed of the banks and the decisions of the last government. So, ahead of the Oldham East and Saddleworth by-election and two referendums and elections in the spring, liberals and Liberal Democrats must never waiver in our commitment to a fairer and more liberal Britain - something not delivered by the Labour and Conservative governments of my lifetime.

It will be a five-year job. And we will be able to go to the next election proud of what we have achieved. The alternative to coalition was a single-party Conservative government. I have no doubt about which I prefer. And no progressive British voter should be in any doubt about which is preferable for Britain. This is the coming of age for Liberal Democrats. The coming of age has its challenges - but we will deliver.

Simon Hughes is deputy leader of the Liberal Democrat Party and MP for Bermondsey and Old Southwark

This article first appeared in the 10 January 2011 issue of the New Statesman, Here comes the squeeze

Show Hide image

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.