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“I’ve got a pretty thick skin”

Danny Alexander has been called the coalition’s axeman,
Nick Clegg’s bag-carrier and a “ginger rod

When the Chief Secretary to the Treasury chuckles, it is striking how unfamiliar a sound it is. Danny Alexander's usual voice is instantly recognisable from scores of humourless television interviews. The compact Highlands accent emerges in well-ordered lines. Each phrase is like an airline passenger that must be patted down for suspicious devices before being allowed to pass through the security gates of his mouth.

Safety comes first for a reason. As the cabinet minister responsible for public spending, Alexander routinely appears as the salesman for painful budget cuts. Levity would be inappropriate. Unblinking advocacy of a Conservative Chancellor's austerity plan is also one reason the Lib Dems have lost roughly half of the votes they won in last year's general election. Serving as the party's public-sector axeman was never going to be a fast track to popularity. It is a question about the personal abuse Alexander has suffered that prompts the rare laugh, a vocal security breach, quickly contained.

Was he offended when Harriet Harman, deputy leader of the Labour Party, called him a "ginger rodent"? "I thought it was hilarious," he says. Really? "She phoned me to apologise, and I've got a pretty thick skin. I said: 'Don't worry about me, this is politics. But there are hundreds of thousands of other ginger-haired people out there who you've probably mortally offended that you should be worrying about.'"

We are drinking tea in Alexander's Treasury office - white-walled, high-ceilinged, desk at one end. It is one of many sparse, rectangular rooms around Whitehall that feels institutionally joyless, like an empty classroom. The only colour comes from a mosaic of fluorescent scribbles taped to one wall. Highlighter pen on printer paper - the usual medium of the infant required to play quietly in a corner of Daddy's office. The mosaic went up one day when childcare arrangements went awry.

Alexander is married with two daughters. The younger one was born just days before he was promoted from Scotland Secretary to the Treasury. An emergency Budget was three weeks away. Paternity leave was abandoned. It is a sore point in the Alexander household. "It's definitely true that there is a deficit at home . . . it's not going to be paid down for a while."

That statement of grim professional determination takes us back to the subject that consumes Alexander's days: controlling the public finances. He makes the case for the government's austerity agenda in full airline security mode, repeating well-rehearsed arguments - the state of the public finances bequeathed by Labour left no alternative; on the eve of the election, the markets were poised to hammer the UK, just as they have battered other debt-laden European nations.

“That would have been us." That is disputable, I interrupt. "That is not disputable," he counters, but then stops himself mid-sentence. "That is my belief." But can he appreciate that people will look at the stagnant economy and conclude that the plan isn't working? "I totally understand that people feel uncertain about our economy and about the world economy. I also think that people have a stronger sense now than perhaps they did before about the benefits we get from having taken the judgements that we did." Or they might think it's time for a change of course. Christine Lagarde, managing director of the IMF, recently warned of the dangers posed to the global recovery of a collective rush to austerity. She cautioned against "slamming on the brakes" - and Alexander is the man with his foot on the pedal.

“I'm quite certain that those comments were not addressed to the UK," he says. "The important thing is to work with other countries to make sure that internationally we're taking the right judgements." For Britain, that means, above all, engaging with the crisis in the single European currency - a problematic issue for the coalition, with the Lib Dems still officially enthusiastic about the EU (though no longer intent on joining the euro) and the Tories increasingly hostile to the whole project.

George Osborne has suggested that Britain would accept a division of Europe into two tiers: a close-knit single-currency zone and a baggier outer layer, containing the UK. Does Alexander share this vision of the Chancellor's? "We've accepted that the eurozone is going to have to go for greater fiscal integration. That doesn't mean that Britain hangs back from its role as a leading member of the wider EU."

This is not the view on the Tory back benches, where pressure is mounting to use the crisis on the Continent as a pretext for wholesale renegotiation of Britain's settlement with Brussels. Alexander says firmly that his Tory ministerial colleagues will not acquiesce to the hardline sceptics' demands. "I haven't heard anyone within government express that view and I think it's completely wrong."

The statement of difference between the two governing parties is uncharacteristically robust, and will confirm the feeling on the Tory right that the Lib Dems are thwarting long-cherished hopes of engineering a Euro divorce. "We should be redoubling our effort, not looking at this as an excuse to further an agenda of weakening our ties," he says.

Pro-Europeanism might be a distinctively Lib Dem position, but it is hardly populist. This takes us back to the problem of Alexander's party being so perilously unloved. "This country has been badly served over the past decade or two by politicians who spend all their time looking at opinion polls and tacking to the wind," he says. "We're taking difficult decisions; they are not popular in many quarters. I believe they are the right decisions."

Quad squad

Raw belief is a theme in Alexander's arguments, whether he is talking up the Lib Dems' election prospects or defending the government's economic plans. It is communicated as much in his steely grey-green stare as through his words. Satirists have interpreted this demeanour as boyish alarm. Alexander's only work experience outside politics has been in public relations. He is caricatured as the young bag-carrier to Nick Clegg, thrust into the political limelight by accident when David Laws, the Lib Dem first appointed as chief secretary in the coalition, crashed out of the newly formed government in a tawdry expenses scandal.

That, Alexander's allies insist, is a misreading of the ambition and resolve of the man who led the Lib Dem team in coalition negotiations and who sits with Clegg, David Cameron and George Osborne in the so-called "quad" - the super-committee that manages relations between the two governing parties. Alexander is the only quad member not to have been to an elite public school. At 39, he is also the youngest member of the cabinet and one of the few who is not very wealthy. He went to the local comprehensive in Fort William in the Highlands, and was one of the first students from the school to go to Oxford.

He refuses to trade on this relatively modest background to score political points against his privileged colleagues, but the speed of his ascent suggests to some of Westminster's shrewder people-watchers that he is not to be underestimated. "You don't come from where Danny's come from and end up as Chief Secretary to the Treasury without having something special," a senior Tory MP tells me.

Alexander is generally well liked by the Conservatives. As a result, many in his own party accuse him of having gone native in Osborne's Treasury. "They've got Danny," was the repeated lament of Lib Dem ministers during arguments last year over departmental budgets. How does he feel about being the Tories' favourite Lib Dem? "I find that deeply odd and not entirely welcome, to be honest," he says. "A lot of Lib Dems recognise that this has to be done, and it was very much part of the Coalition Agreement that this party signed up to enthusiastically. But they don't like it. I don't like it . . .

“We're taking decisions that affect people. It's not something that I relish. Quite the opposite." He fiercely resists the charge of capitulation to a Tory agenda for the obvious reason that it poses an existential threat to the Lib Dems. If voters settle on the view that Clegg donated his MPs to support David Cameron in power without gaining anything substantial in return, the party will surely be annihilated.

Besides his Treasury duties, Alexander is Clegg's election strategist, which makes it his job to persuade the nation that we are better off for having Lib Dems in government. The plan at present is to chart a kind of "third way", claiming greater rigour on the deficit than Labour and more social compassion than the Tories. "There is a strong appeal in British politics for a progressive party that can be trusted to handle the economy and Labour has thrown the second half of that equation away," he says. "We have an opportunity to adopt that position and be right in the centre ground of British politics." It is a pretty ambitious pitch, given the party's woeful poll ratings. And yet being unpopular today, in Alexander's "fundamentally optimistic" view, can be turned into an electoral advantage, signalling "resilience". "We've stuck to our guns and we're delivering large swaths of our policy."

The flaw in this argument - and Alexander recognises the problem - is that the party is best known not for delivering its policies, but for reneging on a big one. There is the awkward matter of the pledge, signed in the full glare of the cameras by the party leader, not to raise university tuition fees. If the Lib Dems want voters to listen again, might the starting point not be an apology for this egregious breach of electoral contract? There is a long pause, followed by a deliberative hum, indicating that the answer is being subjected to extra vetting. "I'm not sure there has to be that kind of moment. What we actually have to do is work really, really hard to deliver all of the other things that we set out."

From the Treasury perspective, the main Lib Dem contribution to government has been the plan to raise the income-tax threshold to £10,000 by the end of the parliament. Alexander is very attached to this policy as a way of compensating people on low incomes for the cuts. "I think it's a direction that we will want to push further," he says. How much further? "I don't see why, in the next parliament, we shouldn't be trying to get to a situation where people in a full-time job on the minimum wage are paying no income tax at all. That, to me, is a higher priority than reducing the overall tax burden on the wealthy." I take this to mean that he rejects the aim, supported by many Conservatives and endorsed by a group of 20 economists in a public letter to the Financial Times, of abandoning the 50p top rate of income tax. "At a time when the whole country is facing serious financial challenges, the priority needs to be people on low and middle incomes."

What about the Lib Dems' manifesto pledge of a "mansion tax" on high-value properties? "A lot of people thought it was a sensible idea, but it's much more about what is possible to do." In other words, Osborne won't wear it. The two men have one of Westminster's more mysterious friendships. The day before our interview they had a genial lunch together in the Treasury canteen and generally enjoy, Alexander says, a rapport. "It doesn't mean we agree on everything," he adds quickly.

Odd couple

This odd coupling intrigues me. How does the friendship with Osborne work? He is the Tories' electoral strategist, and therefore motivated by the need one day to destroy his coalition partners in electoral combat. "The truth is, so am I, from the Liberal Democrat point of view," comes Alexander's explanation. "It makes for a good relationship in a way."

This cross-party loyalty frustrates many Lib Dem activists and MPs on the left of the party. It is, however, about more than political strategy; it shows a kind of Highland austerity in public morals that sees loose talk and the airing of dirty coalition laundry as distasteful. "I'm someone who thinks those disagreements should stay behind closed doors," the Chief Secretary says. "I'm old-fashioned."

Those who know him well say he has a very different persona in private - witty and sociable. Jim Wallace, the former Lib Dem leader in Scotland and mentor to Alexander, insists that the dour mask is worn out of a sense of respect for the pain he must inflict as part of the job. No one wants the Chief Secretary to the Treasury to be a funny man. "Danny is a fully paid-up member of the human race," Wallace says.

I put that suggestion directly to Alexander and he briefly allows another muffled laugh through the security gates. "I was more conscious than anybody that, on every page, on every line of the Spending Review, there are numbers that represent someone's job or a service that's relied upon . . . I didn't come into politics to be the person who does all this - but I genuinely believe it has to be done right now."

As I am leaving, we stop at the fluorescent mosaic. An early attempt at Treasury charts, Alexander jokes, pointing to one set of diagonal streaks. An aide points at a flat line and says: "The growth figures." The Chief Secretary to the Treasury isn't laughing.

Rafael Behr is chief political commentator of the New Statesman

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

This article first appeared in the 12 September 2011 issue of the New Statesman, Cameron vs the shires

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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.