Leader: Miliband could win the argument but lose the political battle

The Labour leader has struggled to animate and convince voters.

Maurice Glasman's column in last week's New Statesman, in which he declared that Ed Miliband had "no strategy, no narrative and little energy", prompted an extraor­dinary media response. It did so because the freethinking Labour peer articulated the concerns that many in the party have about Mr Miliband's leadership. In the 15 months since he was elected, Mr Miliband has struggled to animate and convince voters, and his personal ratings have slumped to new lows. A recent YouGov poll found that just 20 per cent think he is doing well as Labour leader, and 66 per cent think he is doing a bad job. His aides are fond of repeating the mantra "This is a marathon, not a sprint", but although the next election is more than three years away, experience shows that once the voters have made up their mind about a leader of the opposition it is very difficult to shift them.

At times, Mr Miliband has been bold, such as in his attack on Rupert Murdoch and News International, his considered response to the English riots and his decision to abolish shadow cabinet elections. But these interventions have been all too rare. When he speaks of himself as a man of "steel and grit", one is reminded of the reply of an old Teamsters union leader in the US who, when asked if his outfit held much power in the transport industry, said: "Being powerful is like being ladylike. If you have to say you are, then you probably ain't."

Where he has been impressive is in recognising before many others the appeal of such themes as the "squeezed middle" and "responsible capitalism". In these straitened times, the question of how to distribute scarce resources is more important than ever. Having initially mocked the Labour leader, both David Cameron and Nick Clegg now speak as he does about the excesses and failures of "crony capitalism".

Mr Miliband's speech on 10 January to London Citizens confirmed that his economic analysis is broadly correct. He argued persuasively that Labour's failure to reform British capitalism left it too reliant on redistribution to achieve fairer outcomes. As he put it: "Sometimes in government it felt like, instead of building a new economy, we were spending money to patch up the failures of the economy we inherited." He believes the state, rather than compensating for unequal wages, should do more to achieve just rewards to begin with. Indeed, the failure of George Osborne's deficit-reduction plan has left Labour with no choice but to rely less on tax and spend to reduce inequality. Judging by Office for Budget Responsibility forecasts, the next government will inherit a deficit of £79bn.

However, while advancing fairness in austere times is a worthy aim, it is far from clear how Mr Miliband intends to fulfil it. He has repeatedly praised the Living Wage Campaign but still refuses to commit to the policy at a national level, citing the "financial implications". Ideas such as forcing energy companies to put elderly customers on their cheapest tariffs and capping rail price increases are commendable, but are hardly likely to bring about the huge shift that he seeks.

More promising is Labour's pledge to accept the full recommendations of the High Pay Commission, including the publication of pay ratios,
employee representation on remuneration committees and simplified pay packages. The issue of executive pay provides Labour with an
opportunity to make common cause with the Business Secretary, Vince Cable, who pursued this agenda outside government and will shortly publish his own detailed proposals.

Aware that Labour can no longer use the proceeds of growth to spend its way to social democracy, Mr Miliband faces hard choices on how to raise revenue and how to use it. He is right to pledge to keep the 50p rate of income tax for those earning more than £150,000 a year, which, contrary
to the expectations of the Lafferite right, looks as if it will raise a significant amount; but he should think much more imaginatively about how to shift the overall tax burden away from income and consumption to wealth, which is even more unequally distributed. So far, it is the Liberal Democrats, in the person of Mr Cable, who have led the way in this defining debate.

After a troubled start to the year, Mr Miliband has shown he will not allow gossip and political machinations to distract him from his ambitious agenda. Yet there are many inside his party who are against him, and the media are largely hostile. Until he finds a way of connecting with voters - of "breaking through", as Lord Glasman put it - Labour might win the intellectual arguments, but lose the long political battle.

This article first appeared in the 16 January 2012 issue of the New Statesman, The battle for Britain

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.