Local Authorities (Conduct of Referendums) (Council Tax Increases) (England) Regulations 2012

Lord Smith of Leigh Excerpts

Tuesday 14th February 2012 Grand Committee

[Lord Smith of Leigh]

My Lords, I have to confess that I am another honorary vice-president of the Local Government Association. I am also leader of a council. I declare those interests.

I agree entirely with what the previous three speakers have said. The noble Lord, Lord Jenkin, said that he approved of a new capping. We were one of the first authorities to be capped, in 1990-91, when we were cunningly capped by a Government who did not tell us the rules before we set a council tax and we suddenly found that we had done it outside the rules—but never mind, we got over that. We then had to set another, lower council tax, and of course the democratic influence came around and we got a much increased majority on the council as a result.

I have also been a passionate advocate for localism and I fought my Government on many occasions when I felt that they were being too centralist. I really welcomed the principle of the Localism Bill when it came through. Unfortunately I was not able to attend any of those debates, but with this measure the fundamental business of localism is undermined because it says that the Secretary of State will decide the council tax. As a practical local politician for many years—too many years, people may think—I would ask: which authority is actually going to go to its electorate and say, “We think that we should have a much bigger increase than the Government do”? Have we any evidence of anybody ever voting for an increase in taxes? They do not do that, but this will be on a specific item of tax and it is a question of the words.

What is surprising to me is the use here of “excessive” regarding a council tax rise, because “excessive” is pejorative. You are assuming that it is beyond what it ought to be. No local politician wants to set an excessive council tax but, looking at the local problems in their area, they will want to think, “What are the issues in the set of problems that we have to address?”. What worries me is that, in a sense, we are creating a problem of the democratic mandate. I have a democratic mandate; I am elected by people in my ward. Come next November, we will have police commissioners who will have their own mandate. Somebody may stand as a police commissioner in Greater Manchester on this platform: “There are not enough police on the beat, and we need to put more on the beat”. That will cost more money and therefore the increase in their precept next year may well exceed what the Government think is reasonable. As a billing authority, we will have to cope with that situation. The police commissioners probably will be not too worried if it costs us more money, because they will say that they have a mandate to do it. A referendum is a slightly different form of mandate.

The Minister mentioned that this year there will in most places be a council tax freeze—as there will be in my authority. However, we had to make sure that all the precepting authorities were also going to freeze their tax. There would be no point in me saying that there would be no increase in council tax if the precepting authority had not done that. As she said, the Government have given a grant for one year, but next year that grant drops out, so without anything being done at all the council tax in areas that have had a zero increase will increase simply to pay for the loss of the grant in year one. Is that going to be deemed excessive or not, as part of the principles? It does not matter what I think we need next year; in 2013-14, we will have to make an increase for what would have been there in 2012.

The noble Lord asked about the cost of the referendum. If we are having a referendum only on the first Thursday in May, when most billing authorities will have wanted to send out bills well before the end of March, so that the cash flow begins early in April, the serious cost will be that not of the referendum but of the loss of income if there is no determined council tax. There are so many different issues here. I know that the Minister understands from her own experience the intricacies of local government. However, despite having this wonderful set of regulations, if we think about them I cannot believe that they are ever going to be used. It will be an interesting historic document. We should hang on to it and say, “Here are the regulations for council tax referendums which were never used”. It is really not in anybody’s interest, particularly not that of local authorities, to have all the costs not just of the referendum but of the loss of income.

[Lord Beecham]

My Lords, whenever I speak in this Room, the pictures on the wall prompt me to make a connection with the subject we are discussing. Today, we have Moses bringing the tablets down—as I understand it, there was no referendum on the 10 commandments—but we also have Daniel, who I suppose could be described as a bit of a returning officer. Noble Lords will recall that “You have been weighed in the balance and found wanting” was the interpretation he gave Nebuchadnezzar. Such divine and semi-divine inspiration apart, we have today to deal with an important set of regulations.

This Government are addicted to referendums. We have had one, as my noble friend Lord Grocott has reminded us, on AV. They are compelling 11 councils to hold one on elected mayors. They are keen to have one in Scotland, perhaps rightly so, and the Localism Act provides for referendums in the context of local plans. Oddly, the Government have not yet indicated whether they plan one on House of Lords reform—precisely the kind of constitutional issue to which the noble Lord, Lord Rennard, referred when he spoke of the Constitution Committee’s thoughts and recommendations on what would be an appropriate subject for a referendum. Today, however, we debate council tax referendums.

There are, in fact, only two things wrong with council tax referendums and the regulations before us. The first is form; the second is substance and effect. Let me, in my perhaps typically perverse fashion, deal first with substance and effect. Rather than rely on their former powers to cap individual authorities, a power to which local government has always objected—and here I suppose that I ought to follow others in declaring an interest as an honorary vice-president of the Local Government Association—the Government are, in effect, capping every authority by stealth. The Government have determined an arbitrary figure for different classes of authority beyond which a council will be compelled to hold a binding referendum to coincide with the date of council elections in May. By this time, of course—as my noble friend Lord Smith has already reminded us—the bills will have gone out. If the referendum rejects the council's proposal, the council will have to re-bill. This in itself, combined with the cost of the referendum, will, as no doubt intended, deter many councils, especially small councils, from proceeding down that route. I recall an incident—I cannot remember which council it was—where the cost of re-billing exceeded the saving that would have been made in terms of the difference to council tax.

It should be noted that the definition of excessive increases—and, again, I concur with the scepticism of my noble friend Lord Smith about the use of the adjective there—is simple and crude. There is no scope to differentiate between authorities, or groups of authorities, with particularly challenging problems—financial or otherwise. There is no scope, as under the previous system, for any representations to be made to the Secretary of State or any accommodation reached. Instead, there is a flat target—a referendum irrespective of whether there is any local demand for one—and a plethora, as the noble Lord, Lord Jenkin, has rightly described it, of tightly prescribed rules and regulations about how to conduct a referendum. There is page upon page of precisely that kind of prescription. This is all before the so-called localisation of business rates impacts, as it will, differentially between councils and their council tax payers, with its own impact on the level of council tax to be levied.

Consider the background. As Professor Tony Travers pointed out recently, the Government's VAT increase of 2.5 per cent last year cost households 20 times as much as an equivalent percentage increase in council tax. Many council tax benefit recipients will find their council tax going up sharply in the wake of the cut that the Government are imposing on benefit just as council tenants have suffered rent increases of around 8 per cent. However, there is no thought of a referendum about any of those burdens on households. When the department wrote to council chief executives last week, it became apparent that the way the system will actually work is far from the simple, albeit misguided, impression that one would gain from the headlines, as the noble Lord, Lord Jenkin, has pointed out. The rubric looked as though an increase would be excessive if it exceeded 3.5 per cent. It now appears, however, that certain councils could, depending on circumstances, levy a 5 per cent increase without having to hold a referendum. As the noble Lord said, 31 others might find themselves required to hold a referendum if they increase council tax by less than 3.5 per cent; indeed, as he said rightly, if they increase it by less than 3 per cent. Manchester, to which he referred, would have to have a referendum with a 2.05 per cent increase, Sheffield with a 2.7 per cent increase and Newham with a 2.79 per cent increase. All this is after the council tax freeze that we have already had and which, at some point, will have to be made good. In case my noble friend Lord Smith does not know it, I should perhaps advise him that the effective referendum limit in Wigan will be 2.83 per cent.

As usual, the authorities worst affected are those most heavily dependent on formula grant, particularly in the north, the Midlands and in some London boroughs. It is a measure of the problems that they face that the cut in formula grant as a percentage of council tax is as high 18.8 per cent in Manchester and 22.7 per cent in Newham, while their permitted increase will be around an eighth of that amount, not that those councils would be envisaging increases big enough to close the gap fully as that would be a very high council tax increase indeed.

However, there is an even more startling potentially perverse outcome, referred to by the noble Lord, Lord Jenkin, for it is possible that, due to the arcane working of the system, a council might have to hold a referendum even if it freezes its council tax. So it would go to the public with the question: “Do you agree that the excessive council tax increase of nil should be supported or not?” What a ludicrous procedure that would be.

As my noble friend Lord Smith has said, no council enjoys increasing council tax or does so willingly. It is noticeable that, this year, even a number of Conservative councils have felt compelled not to observe the freeze that the Government have called for, paid incidentally for those councils that accept it, from money which would have gone to local government anyway in the distribution of formula grant. Those Conservative councils have, no doubt, taken this course because freezing the base will make future financing more difficult. Alas, they have incurred the wrath of Mr Pickles accordingly.

Making a council budget is a difficult and protracted process at the best of times. Making it at a time when demand for services is growing, partly as a function of the state of the economy and the fact that people's capacity to pay is shrinking, is even more difficult, despite local government's outstanding record in increasing efficiency, which is much the best across the whole of the public sector. Extremely hard choices between competing demands have to be made by every council. These are not easily mediated by a simplistic choice between different levels of council tax. The proper way to come to a decision locally is for councils to consult widely on a range of options and then to determine the budget and set the tax. The Government’s covert capping undermines representative local democracy by proposing the veneer of democratic engagement in the form of a single question about the level of an increase. The proper occasion for judgment about a council’s policy and record is at local elections, not in the form of ad hoc referendums.

That brings me to the question of form. The Electoral Commission which, as we have heard, has responsibility for these matters, consulted widely last year and commissioned research on, in particular, the question to be asked. Instead of accepting the commission’s proposed question, the Government produced an alternative, embodied in the regulations, on which they neither consulted nor conducted research. The commission states that it is not possible properly to assess whether the question is clear, simple and neutral. The commission concludes that the question,

“risks introducing an unknown level of complexity and potential bias”,

to these referendums. I note, parenthetically, that the whole problem is caused by reducing complex choices and deliberations to the form of a simple question in the first place. Somewhat disingenuously—of course this is not the responsibility of the Minister—the Explanatory Notes for the regulations refer to the Electoral Commission’s position, saying, that the Government consider that,

“the alternative question proposed by the Commission did not make it sufficiently clear that voters are voting on a council tax increase that has already been set”.

The next paragraph says:

“The commission also offered views on the draft regulations and raised a number of points of detail which informed the drafting of the regulations”.

I find that an extraordinary assertion in the light of the explicit recommendation that the Electoral Commission made in a document circulated recently, in which it says,

“The Government should withdraw these draft Regulations and lay new draft Regulations specifying a revised referendum question which more fully reflects the recommendations”,

which it made in December. It is quite extraordinary that the Explanatory Notes should be published with no reference at all, either in the original or, if the response of the Electoral Commission came in later, by way of a supplementary note.

The noble Lord, Lord Rennard, is quite right to emphasise the importance of respecting the views and recommendations of the Electoral Commission. I concur with him that the setting of questions should be entirely a matter for the Electoral Commission, and that is not the position at present. The Government are within their rights to ask about the question posed. Sticking to those rights does not answer the problem that we are facing and that is posed by the Electoral Commission.