Local Government Finance Bill

Lord Beecham Excerpts

Tuesday 12th June 2012 Lords Chamber

[Lord Beecham]

My Lords, like other noble Lords I have to declare an interest as a vice-president of the Local Government Association, although whether I will be able to do so in future depends on the reaction to some rather critical remarks which I may make later. Along with other noble Lords, I also have to declare an interest as a member of a city council—in my case, Newcastle City Council. Like the noble Lord, Lord Shipley, I suspect, I am grateful for the extensive briefing we received from the very respected treasurer of that authority.

I suppose that local government finance is the political equivalent of the Schleswig-Holstein question, which perhaps accounts for the fact that there are only 17 speakers in this debate. The paucity of numbers, however, does not reflect the quality of the contributions from all sides of the House. Indeed, I echo the compliments paid to the Minister for the way in which she introduced it. Whether I will be able to compliment her on her reply remains to be seen, but I am sure that she will endeavour to meet the various points that have been raised.

The Government claim that the Bill decentralises control over finance, gives local authorities a strong financial incentive to promote local economic growth and, with the localisation of council tax benefit, gives councils increased financial autonomy while providing continued council tax support for the most vulnerable, including pensioners. Taken together, this prospectus is about as inflated as that which saw Facebook’s shares tumble on the closer inspection which followed that celebrated flotation a few weeks ago. To begin with, as the noble Lord, Lord Shipley, pointed out, it completely ignores the savage cuts in financial support for local councils willingly proferred to the Treasury by the Secretary of State, on which the funding baseline which will govern the progress of implementation of the Bill depends, and the full effects of which have still to be seen. For example, I cite the apparent recent decision of the Department for Education to cut children’s social care needs assessment by a third, or about £1.3 billion, plus funding for youth and community services, while, incidentally, protecting its own central departmental budget. There was also the Department for Transport’s decision to cut its contribution to concessionary travel by a fifth. Both those decisions will impact further on local council expenditure and require money to be found elsewhere, and there is much more to come—even without taking into account the consequences of demographic change and the rising tide of adult social care, which, as my noble friend Lord Warner reminded us, threatens within a decade to swamp the entire territory of local government services. Costs are not likely simply to reflect increases in the RPI, to which the business rate will be linked.

As my noble friend Lord McKenzie and others have pointed out, the proposals for business rates do not match the Government’s claims. What they actually mean is that government grant is effectively to be wholly replaced by business rates, localised only to the extent that part of what is raised locally will be retained locally but with a complex system of tariffs and top-ups. Moreover, the basis on which business rates will be distributed, as we have heard, will be fixed initially for seven years, and eventually for 10 years, with little flexibility for adjustment if circumstances should change in the mean time, save that the Secretary of State—and this particular Secretary of State is not known for his flexibility—can make changes, but with no apparent requirement for any objective assessment or review. I agree with the views of the noble Lord, Lord Shipley, on this; there should be more regular reviews to reflect changing circumstances.

There is also an issue around the relationship of enterprise zones and the new business rate provisions. Businesses in enterprise zones will not initially have to pay business rates. Eventually, when they are paid, my understanding is that they will go not to councils but to local enterprise partnerships. There is a potential conflict at the outset in local authorities promoting new business, because if a business is within an enterprise zone there will be no financial benefit to the authority initially, or perhaps at all, whereas if a business is not in an enterprise zone, there would be at least some additional funding. I invite the Minister, not necessarily today, to look further into this issue of the relationship between enterprise zones and the general operation of the business rate scheme.

Further, the assumption that economic growth can be incentivised simply by local councils is flawed. In the 1980s the converse argument was put—that business rates were impeding economic growth and development. The Cambridge studies of that era demonstrated that that was not the case. I do not know on what basis it can be said that local councils in particular can be made responsible for economic growth. Most local councils, as we have heard, already do their best to work with and promote local business. Under this scheme, however, there might be a temptation to enhance business rate income by encouraging retail or service sector development, because that sector produces eight times as much in the way of rates as manufacturing does, whereas manufacturing is the very sector that we as a nation need to encourage most. The whole thrust of the new system pays little attention to needs—the needs basis for formula grant effectively disappears—as opposed simply to crude numbers, and it builds on a substantial shift of resources away from the less well-off areas to the better-off areas over the past two years.

However, it is in the area of council tax benefit that the crudity of the Government’s approach is best seen. It is some 45 years since, as a newly selected young candidate in the council election in Newcastle, in the ward that I continue to represent, I put out a leaflet promoting the then Wilson Government’s rate rebate scheme. It was the ancestor of council tax benefit and to a degree, therefore, of the council tax support that the Bill adumbrates. The rate rebate scheme was an innovation and brought considerable help to many people. As we have heard, that help has grown over the years. The take-up is far from complete but, nevertheless, in recent years in particular, the amounts paid out have been considerable. However, the Government are now not only slashing central government funding in this area by £500 million or 10%, they are confining that expenditure within a cash limit. Hitherto, if claims increased—legitimate claims—then the Government paid up. No longer will that be the case because the cap limit will be brought into effect.

It is already far from clear that the amount currently estimated for expenditure on council tax benefit will prove accurate—the 10% cut could indeed be greater than the £500 million that the Government will be providing. That £500 million sits a little oddly with the £250 million that the Secretary of State was willing to spend on weekly waste collection or the £450 million which, he announced yesterday, will be devoted to his new initiative on problem families, as he describes them, with £150 million over three years. As others of your Lordships have pointed out, including the noble Lord, Lord Shipley, only £150 million for TIF 2 being available between the eight authorities puts those figures into some perspective.

The fact is, as my noble friend Lord Smith pointed out, that none of this recognises that much benefit goes unclaimed, even though the total paid out has been rising. I think that the estimate is that around £1.8 billion of entitlement is not claimed, much of it by owner-occupying pensioners. It may be that as a result of these changes more such pensioners will be induced to claim but, in answer to a question that I raised some time ago, the Government have made it clear that they have no intention of promoting take-up by either pensioners or anybody else.

Further, as the grant is not ring-fenced, councils which receive more than they need will be free to retain the surplus, while others which receive less grant will themselves have to meet any claims that they receive, funding the gap by cutting other services or increasing council tax, or by cutting even more benefits from non-protected groups. As we have already heard, roughly speaking, if you take just the amount relative to pensioners—approximately 50% of claims—a 10% overall cut translates roughly into a 20% cut for other claimants, but that is without taking into account other vulnerable people.

The Government ever so helpfully remind councils of their duties in relation to child poverty, the disabled, the Armed Forces covenant and equalities issues generally, implying that those groups should also receive protection. Of course, councils would be anxious to extend that protection, if at all possible. However, the corollary is that the even greater cuts in benefit would then be inflicted on those not counted among those groups, and in particular by people of working age on low incomes—in other words, the working poor.

The depths of intellectual understanding underpinning these proposals is revealed in some remarks by no less than the Housing Minister, Mr Grant Shapps—or “Grant Stops”, as he is known pretty universally in local government. He puts it in this way:

“if somebody is in work they will not be receiving the [council tax] benefit because they will not need to … The culture of ‘Let them rot in the houses while we pay them benefit’ must come to an end”.

I have two slight differences of opinion on that statement. The first is that people in work on low wages can and do receive council tax benefit, and so they should. The second is that the implication that councils of any political persuasion simply allow people to rot in their houses while we pay them benefit is, frankly, a disgraceful slur for any Minister to make on local government.

The position in which we are left is that, unlike with the business rate, which the Government will fix, councils will be free to devise their own schemes for the new council tax support with the default mechanism which has been referred to. Therefore, we are likely to see a rash of different schemes producing a pattern of different local benefit levels, effectively emulating the Poor Law regime of the 19th century, and here is where I take issue with the Local Government Association. I find it astonishing that the LGA should approve of this deeply divisive approach, which, as my noble friend Lady Lister pointed out, undermines the whole notion of national entitlements. Of course, it fits with the Government’s calls for regional and local pay determination. One has to ask whether this variable geometry will next be applied to universal credit—perhaps to be renamed “locally adjusted universal credit”—or to other national benefits. As others have asked, what is the logic of two separate systems, given a universal credit standing alongside?

There is another aspect to this lottery that is worth bearing in mind. Most noble Lords who have spoken hail from London boroughs or metropolitan authorities, but of course, in the shire counties, we have a two-tier arrangement. It will fall not to the county council, which is responsible for something like 80% of the expenditure, to devise the council tax support scheme for its area; it will be for each individual district council to devise a scheme. In some cases, they may come to an agreement and there may be a scheme common across the county, but that cannot be guaranteed. We could therefore have a significant difference just across a district boundary when most of the money that has been paid by the council tax payer goes not even to that district but to the county council. There is a question not only of fairness but of accountability.

In fairness to the LGA, the association has never directly involved itself in distributional issues because of different interests in different groups. The association facilitates the presentation of a case by a particular authority or groups of authorities, but that is all that it does. That is quite reasonable. However, I was a little surprised that the briefings do not set out the differential impact of the changes either to the flow from the business rate change or in relation to council tax benefit. The average loss per head of population is £8.31 in England, with a range of £11.71 for the north-east to £6.65 in the south-east. Of course, the average loss for claimants is significantly higher. Inner London, northern and West Midlands authorities do particularly badly. Their local economies will suffer as a result of reduced spending power in those areas and it is in those local authorities that the constant strain on council services is likely to rise. The same is true of the function of the pattern of business rates, to which the noble Lord, Lord True, referred.

The Government suggest that the gap may be closed by removing second home discounts and all reliefs for empty properties. As an illustration, the former of those moves would save Newcastle all of £54,000. Contrast that with Westminster’s gain of £750,000, or that of Kensington and Chelsea, which is presumably dear to the Minister’s heart, of £1.125 million. The latter—relief on empty properties—on the face of it looks more tempting and more useful, but as has been pointed out by the noble Lord, Lord True, and my noble friend Lady Donaghy, it is somewhat unpredictable in what it will yield. Others, including the noble Lord, Lord Shipley, referred to collection costs, which is certainly a factor. There are problems and in referring, I suspect, to the briefing that he and I received, the noble Lord, Lord Shipley, spoke of the potential impact on housing revenue accounts. It is not only local authority housing revenue accounts. We must think of registered social landlords who might have properties that are empty for a time or which are being repaired. They either have to meet the cost, as the council might have to meet it, or tenants might have to meet the cost, in which case we will see rents rise. That is another call on the working poor with knock-on effects on the local economy.

In any event, a study carried out by UNISON shows that many councils will remain substantial losers even if they sought to remove all the reliefs. The warnings from Members on the government Benches, such as the noble Lords, Lord Shipley, Lord Palmer and Lord True, should be taken into careful consideration by the Government.

Another area to which the noble Lord, Lord Shipley, referred, was the question of funding of student council tax exemptions, which are estimated to be underfunded by some 25%, as he rightly said. This affects a large number of towns and cities, as well as county areas where universities are outside metropolitan areas and student housing is a significant issue. This matter was not touched on in consultation and I join the noble Lord, Lord Shipley, in inviting the Minister not to make any definitive announcement tonight but to look into this as we go into Committee.

Finally, there is the issue of process. At this stage the Bill is unlikely to reach the statute book until October at the earliest. How can there be effective consultation with a range of interested parties over local schemes for benefits and changes to reliefs in a way that still leaves time to gear up IT, train staff and deliver a fully fledged system by the start of the new financial year? It would be sensible for implementation to be deferred for a year.

The Bill is not about localism per se. It is about localising blame for painful decisions affecting household incomes and local services. The Government are intent on passing the buck without passing the bucks. This House must seek to improve the Bill, and in particular to mitigate the hardship it portends for hard-pressed communities and householders.