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Pity David Cameron: the Tory back benches are doing Ed Miliband’s job for him

For Tory MPs, the Prime Minister’s bungled euro negotiations feel like treason.

David Cameron does not have an ideology, nor does he feel the need for one. The Prime Minister comes from a Tory tradition of elite prag­matists, instinctively suspicious of intellectual enthusiasm, regarding it as a gateway to immoderate dogmas. He recoils at the notion that there should be such a thing as Cameronism. He claims not to believe in "isms" of any kind.

That outlook has served him well, speaking as it does to a healthy British scepticism towards zealotry. It has made it hard for Labour to attack the government's austerity agenda as a wild-eyed crusade against public services. Early attempts by Ed Miliband to portray the Tory leader as a fanatical disciple of Margaret Thatcher failed partly because many voters still admire the Iron Lady and partly because the label doesn't stick.

Cameron has persuaded enough people that he is making cuts not because he wants to, but because he has to. The Labour leadership is now acutely aware that the public sees spending restraint as the hallmark of economic credibility. Ed Balls, the shadow chancellor, has committed a future Labour government to fiscal rules policed by the Office for Budget Responsibility – an innovation by George Osborne – and to making further cuts if necessary.

Miliband's hope is that, once it is established that Labour is serious about dealing with the deficit, the argument can be turned to the questions of how this is done and, crucially, as a member of Miliband's inner circle puts it: "Who pays?" The Labour leader believes that Cameron is vulnerable to the charge that he is making the wrong people foot the bill for the financial crisis – the young, families on low incomes, dinner ladies, nurses.

Threats by savages

The Tories want voters to ask themselves whether Labour knows how to govern without spending. Miliband wants them to ponder instead whose side Cameron is on. The Tory attack hinges on competence, the Labour one on values. So far, the Tories have been winning. Labour insists the public hasn't yet realised how badly Osborne's economic plans have failed and that, when it does, Cameron will struggle to mount a campaign based on a promise of more affable managerial pragmatism.

When it comes to turning the tide of opinion against Cameron, Miliband is greatly helped by Eurosceptic Tory backbenchers, whose mounting dismay at the Prime Minister's handling of the eurozone crisis is provoking dangerous questions about their leader's integrity.

Cameron professes to be a true Eurosceptic, held back from expressing his faith by two practical considerations. First, he must govern with the consent of Europhile Liberal Democrats. Second, an existential crisis in the eurozone is not the moment to present fellow EU leaders with a wish-list of powers for "repatriation". His position is to support efforts to save the euro while vigorously protecting UK interests in the wider single market. He has threatened to veto a treaty that does not meet that standard.

Yet Britain doesn't have the diplomatic clout to insert many provisos into a euro deal that will be designed by Germany and France. Bumptious backbench Europhobia is partly to blame for that weakness. Diplomats (and Lib Dems) complain that it is hard to make friends with fellow non-euro states – vital if single-market rules are not to be rewritten by a euro clique – when UK membership of the EU is openly regretted inside the Prime Minister's party. Ministers are forced to apologise for domestic Euro-bashing to their wounded Continental peers. As one Tory cabinet minister puts it: "Our national political culture can appear somewhat uncouth, even savage."

Britain has already been marginalised in Europe. The French and German model for rescuing the single currency envisages a new pact, hammered out in meetings of the 17 heads of eurozone member states, with wider economic reforms also on the agenda. Such a treaty might still include the ten non-euro states, but Cameron's promise to "safeguard" British interests will be hard to fulfil if he isn't in the room. That means any treaty encompassing all 27 EU members is bound to contain something that Tory backbenchers feel should be put to the country in a referendum – an outcome the government is determined to avoid. If Britain tries to veto such a deal, the 17 eurozone members can proceed without it.

In opposition, Cameron persuaded the Tories not to "bang on" about Europe because voters thought it an eccentric obsession unbefitting a reasonable party of government. The sceptics no longer feel bound by that deal, partly because Cameron failed to uphold his end of the bargain and win the general election, but mostly because they judge that Europe is no longer a fringe pursuit. They see it as central to the argument about how to revive the economy.

End of the beauty contest

The view on the right is that growth will be restored only with "supply-side" reform, cutting regulations and labour protections that are blamed for companies' reluctance to hire new staff. The ability to dump European employee rights is top of the Tory list of powers to be re­patriated. As one Eurosceptic MP puts it: "You can't have a supply-side revolution if everything has to be approved by the [EU] commissariat." Brussels bureaucrats are alleged to have strangled the economy in red tape.

Cameron might not possess an ideology, but many Tories do and hostility to Brussels is at its core. For them, the Prime Minister's bungled euro negotiations feel like treason. That isn't a view that Miliband shares, but it serves his strategy anyway. Cameron has thrived in an era when politics has been a beauty contest between leaders promising modified variations of the status quo. He needs to fight the next election offering steady-as-she-goes, pragmatic leadership, claiming that Labour has no realistic solutions to Britain's economic troubles.

Miliband's counter-attack will be that Cameron has made things worse and that he has no fixed values to guide the country in tempestuous times. He will say, in other words, that the Prime Minister is both incompetent and unprincipled. The Tory leader will be in trouble if his own party, feeling betrayed over Europe, starts saying the same thing.

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

This article first appeared in the 12 December 2011 issue of the New Statesman, Unholy war

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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.