Local Government Finance Bill

Lord Best Excerpts

Tuesday 12th June 2012 Lords Chamber

[Lord Best]

My Lords, I declare my interest as president of the Local Government Association and I express my appreciation to the LGA for its briefings on this Bill. The Bill has much to commend it in advancing the cause of localism. However, as others have made clear, there are ingredients which need the input of this revising Chamber. Most worryingly perhaps is the seemingly impossible timetable for implementing the new fiendishly complicated arrangements.

For my part, however, I want to concentrate on the changes to council tax benefit and the measures which the Bill will introduce for council tax support for those on the lowest incomes. Some, including London Councils, as the noble Lord, Lord Jenkin, has noted, have argued that council tax benefit should be determined centrally by the Department for Work and Pensions. However, the LGA believes that the localising of decisions about who should receive what rebate off their council tax should be a matter for locally elected politicians. Decisions about raising additional tax from properties left empty for extended periods, and from second homes, should be taken in the places where these are significant issues. The LGA is not so happy with the Government constraining this local decision-making by pre-empting local consideration with some significant centralised diktats.

My concerns are about the accompanying reductions in help for poorer households that are part of these arrangements. Councils must achieve an overall reduction of 10% from the council tax benefits currently paid. This is calculated to save the Exchequer £500 million per annum. Well over 2 million households will each lose an average of £247 per annum—£5 a week. A 10% cut in this benefit, which currently covers all the tax that most recipients would have to pay, may sound relatively trivial but it is the compounding effect of this reduction in support, on top of the cuts in the other forms of benefit, that adds up to a very severe reduction in living standards for those already struggling on extremely low incomes. Those affected will have to allocate a proportion of their other benefits, such as jobseeker’s allowance, to pay the tax. That means taking an average £5 a week from the benefits that have been calculated to cover food, heating, clothing and so on, and which, quite specifically, do not include anything to pay local taxes. Moreover, for those affected, the cut will not be just 10% of the support they currently receive. To the disapproval of the LGA, central government will limit the discretion of local government in how they cut council tax support to save the required amount by insisting that pensioners and other vulnerable groups are excluded from these benefit reductions, which mirrors the similar exclusion of pensioners from having to pay the “bedroom tax” when they underoccupy larger homes. As other noble Lords have noted, the full weight must fall on the remaining recipients, mostly younger, unemployed people, and those working part time and for very low wages. Because half of the recipients of the benefit, in some areas, will see their current rights protected, the other half will often be looking at a 20% cut. On average, the Institute for Fiscal Studies estimates that those affected will see a 19% reduction in the support that they receive.

I understand the Government’s reasoning on this—that everyone, including those on the lowest incomes, must play their part in reducing the nation’s deficit. This is the same argument as that made for the cuts to other benefits. But during the passage of the Welfare Reform Act, many of your Lordships expressed the view that the poorest in our society should not be asked to reduce significantly their standard of living or shoulder a disproportionate share of the burden of deficit reduction. This latest cut to previous benefits exacerbates the problem. It is worth remembering that, as the recent IFS analysis has made clear, the improvement in living standards in the UK since the previous royal jubilee in 1977 has been far less for those on the smallest incomes than it has been for the rest of us. I find it hard, therefore, to accept that this extra reduction in support to poor households can be justified on the grounds that all citizens are facing comparable falls in living standards.

The other argument for cuts to benefits, and therefore now to council tax benefit, is that these measures will provide the necessary push to get people into work, always assuming work is available, since it will be increasingly untenable for them to try to live on social security benefits. I applaud the efforts by the Secretary of State for Work and Pensions, Iain Duncan Smith, to make sure that “work pays” by tackling the taper—the rate of withdrawal of benefits—as income is earned. His universal credit, with its joint architect, the noble Lord, Lord Freud, aims to ensure that never again will earning £1 mean a loss of 80p, 90p or even more, before paying transport costs to work and so on, as benefits are withdrawn. It is hugely discouraging if a very steep taper means that getting a job and working hard leaves you no better off than you were on benefits. The taper for the universal credit seeks to make sure that people are always noticeably better off in work. But here is the problem with the cut to council tax benefit: this support, of course, will now fall outside the DWP’s universal credit; local authorities, as they withdraw this help from those who move into work, will find themselves in danger of recreating the employment trap—the work disincentive—whereby households that manage to get into employment are no better off for their labours.

Councils will not be able to borrow more to compensate for this further central government cut, on top of the 28% budget cuts already experienced; there will be very limited opportunities to raise large amounts from taxing empty and second homes. As the noble Lord, Lord Warner, has just made clear in relation to the social care crisis, they cannot further cut services. Few will be able to raise extra council tax to cover this. They are boxed in and will be forced into the invidious position of further impoverishing their poorest citizens and pushing those on the edge of employment into a poverty trap, whereby the loss of benefits will mean that work does not pay.

My questions on this issue to the Minister are twofold. First, will local authorities be provided with guidance, technical advice and IT support when devising local systems for cutting council tax benefit? In particular, will they be helped to ensure that they create a taper—a rate of withdrawal of support which does not wreck the key principle of universal credit that no one should lose more than about 70p in the £1 they earn? Secondly, if the maths simply cannot be made to work—this cut would break the back of one of the welfare benefit’s central and worthwhile purposes—will the Department for Communities and Local Government make available a specific fund for local authorities, just like the discretionary housing payments for those worst affected by housing benefit cuts, to keep the Government’s flagship policy for welfare reform on course?

The LGA would welcome more discretion for councils to model a discount scheme that could give protection to those in dire financial circumstances. However, the underlying problem is that the Government are taking this opportunity to extract further contributions to deficit reduction from local council budgets. My fear is that the outcome of the Local Government Finance Bill is that local authorities could be blamed for causing extra suffering to those trying to get by on the very lowest incomes and for undermining the best intentions of the Government’s Welfare Reform Act.