Lord Smith of Leigh
Main Page: Lord Smith of Leigh (Labour - Life peer)Local Government Finance Bill
Lord Smith of Leigh Excerpts
Lord Smith of Leigh
“(4) Both billing and precepting authorities shall be entitled to hold such balances to deal with the shortfalls in council tax receipts as agreed by their auditors.”
Lord Smith of Leigh
My Lords, in moving this amendment I recognise the contributions that have been made around the House today saying that the new council tax support scheme poses a much higher degree of risk to local authorities. There is great uncertainty about the collection rates under the new scheme and how we will be able to get money from people who currently are not paying. That is not in contention.
Those of us who have been involved in local government finance for a number of years recognise that local authority treasurers and finance officers are by nature a conservative bunch in the non-political sense of that word; in other words, they take a gloomy view of life and they want to make sure that they cover all the bases. We welcome their advice although we do not always necessarily take it. Therefore, I am not asking in this amendment that authorities should take the advice of their own treasurers or finance officers. However, auditors may take a more objective view on the balances that an authority needs to hold. Anyone who takes a prudential view of a local authority believes that it is necessary to increase balances, whether a billing authority or a precepting authority is involved. In the past certain announcements or indications have emanated from the Department for Communities and Local Government which seemed to indicate that local authorities which maintained high balances were storing up money, and consequently they might be hammered in the future. I hope that the Minister can assure us that that is not the case and that the Government will support the concept of prudential balances.
As regards Amendment 107C, this matter was raised in Grand Committee in a slightly different format. I seek clarity on whether or not the Government will impose a freeze on council tax support from now on. If that is the case, that is not fair because all local authorities will see a change in the number of claimants. This will in part reflect the state of the economy and the number of pensioners in an area. At my age I was pleased to see that in the Greater Manchester area Wigan has the highest increase in the number of pensioners. That is good news for people like me but it is not good news if you are running a council tax support scheme because the more pensioners you have to deal with the greater the inflexibility of the scheme for everyone else, which tends to increase the burdens falling on them. In the spirit of recognising new burdens, a local authority cannot be expected simply to absorb such changes given the general problems affecting local government finance.
What we are trying to do is make sure that payment for support to each local authority reflects the actual need for council tax benefit, and is based on some historic situation, similar to the point made by the noble Earl, Lord Lytton, about council tax never being updated and still calculated on 1991 figures. We do not want to get into that situation and make this an equally problematic area. I hope that the Minister will think about that. I beg to move.
Baroness Lister of Burtersett
My Lords, I shall speak to Amendment 108. Its purpose is twofold—first, to ensure that a local authority has a duty to do what it can to ensure that local residents claim the council tax discount to which they are entitled and, secondly, to ensure that any consequent increase in expenditure, which exceeds 10% of its 2012 grant, is reimbursed.
In making the case, I can do no better than quote two noble Lords from the Liberal Democrat Benches who expressed concerns in Grand Committee about the potential conflict of interest that local authorities now face as a consequence of the cash limit imposed on the council tax discount settlement, so that the authority will now have to find the money to fund any increase in take-up rather than have it reimbursed by central government.
The noble Lord, Lord Greaves, who is not in his place, warned that,
“Under the new system, there would be a real incentive for local authorities to discourage people from claiming”.—[Official Report, 10/7/12; col. GC552.]
The noble Lord, Lord Shipley, kindly spoke in support of a similar amendment that I moved. He described it as,
“a serious and important issue. That must be addressed. It may be in the financial interest of a local council not to promote or advertise the council tax support scheme. That cannot be right”.—[Official Report, 19/7/12; col. GC147.]
It is not right. It is unethical to build into the template of a statutory income-maintenance scheme an incentive to depress take-up.
Noble Lords will be aware that take-up of means-tested benefits is a perennial problem, and take-up of council tax benefit is among the lowest. The latest government estimates indicate that as many as nearly two-fifths of those eligible might not be claiming their entitlement. Take-up is particularly low among pensioners and among couples with children, of whom between two-fifths and nearly half are not claiming. Overall, the trend in take-up of council tax benefit has been downward. Since 1993-94, take-up has fallen by at least six percentage points for pensioners, by around seven percentage points for non-pensioners, and by a massive 15 percentage points for couples with children, although these figures are approximate.
Take-up matters. The Child Poverty Unit has identified it as a crucial element in the child poverty agenda, suggesting that as many as 400,000 children were living in income poverty in 2009 because their families were not receiving the benefits or tax credits to which they were entitled. The unit also pointed to the benefits for the local economy, as the money is likely to be spent in local communities, and to the importance of increasing awareness of the financial support available to those entering employment.
Given the importance of take-up, in particular to the child poverty agenda, it is extraordinary that the Government now want to cease publication of the official estimates of take-up. If there are no official estimates, we will lose one important indicator of the effectiveness of benefits and of the Government’s own universal credit reforms, one objective of which is supposedly to improve take-up. I asked the Minister if she would make the noble Lord, Lord Freud, aware of the Grand Committee’s concerns on this issue. I should be grateful if she could tell your Lordships’ House whether she has been able to do that.
In Committee, when I moved a similar amendment, the Minister responded that the Bill already,
“seems to cover more or less what the amendment is about”.—[Official Report, 19/7/12; col. 152.]
I am afraid that it does not. There is nothing in the Bill that places a clear duty on local authorities to maximise take-up of the discount. This is in fact a step backwards from the current situation with regard to council tax benefit. Under the Social Security Contributions and Benefits Act 1992, local authorities have a statutory responsibility for council tax benefit take-up. Each billing and levying authority,
“shall take such steps as appear to it appropriate for the purpose of ensuring that any person who may be entitled to council tax benefit in respect of council tax payable to the authority becomes aware that he may be entitled to it”.
Amendment 108 is in the spirit of this obligation and would write a similar, although differently worded, responsibility into this legislation.
Baroness Hanham
My Lords, I shall start by answering the noble Lord, Lord Smith of Leigh, with regard to reserves. We have discussed this issue before and we have all accepted that local authorities need to have, and must have, reserves. The amendment is almost exactly the same as the one the noble Lord laid on a previous occasion and would make it explicit that local authorities are entitled to hold reserves to deal with any shortfalls.
I entirely agree that it is sensible for local authorities to consider what reserves they are going to budget for. We acknowledge that reserves can help local authorities to respond to unexpected and exceptional circumstances. Local authorities can build-up reserves for particular aspects and they can act as a support for budgets. However, individual authorities are already free to determine the level and use of reserves as part of their own overall financial risk management. It is a matter for individual authorities to consider taking into account their local priorities. There is no prescriptive national guidance on the minimum or maximum level of reserves either as an absolute amount or as a percentage of the budget. For that reason, I do not think that the amendment is necessary.
With regard to Amendment 106A, that would require the auditor to agree the level of reserves. As I explained when the previous amendment was tabled in Committee, that would not be appropriate because the auditor is meant to be independent and therefore should not give advice on reserves, although he can comment if he thinks they are not appropriate. Sometimes auditors ask what is going to be done with the reserves, but they do not direct how much should be held in order to help cover expenditure. I hope it is clear that there is nothing against reserves. From time to time it might be suggested that if they were too large, they could be used for something the local authority had not thought of, but that is good financial management anyway. I hope that the noble Lord will be able to accept that as the final answer. I have said the same thing twice, and I hope that it is sufficient.
Amendments 107C and 108 would both require the Government to provide additional funding in certain circumstances to support local authorities to deliver council tax reductions, and indeed the noble Baroness, Lady Hollis, drew attention to the situation where there might be a big change in circumstances as regards the amount of money being held by a local authority. Central government are not going to leap in and help out in those situations. The funding for council tax support is going to be formed as part of the baseline funding under the new local government finance systems, and as noble Lords know, that will not be changed until the reset. However, we recognise that there will be fluctuations in the demand for council tax support, and primarily we will be looking to billing authorities to work with their major precepting authorities to agree an approach to such management risks.
As noble Lords will be aware, mechanisms are in place to share the effects of a reduction in council tax collection rates between billing and major precepting authorities, and that will be the same for financial pressures that result from increases in demand for support so that it can be shared. We are also making provision in the Bill to enable billing authorities to arrange with major precepting authorities to vary the amount of precept to be paid in-year to reflect any shortfall in council tax receipts. It will be a partnership between the billing authorities and local authorities if the sort of pressure that is anticipated—it will not happen everywhere—comes to pass.
The noble Lord, Lord Shipley, asked about the data that have to be collected. Our expectation is that data requirements on local authorities will be very small and significantly less than those in relation to council tax benefit, which is the one where council tax support is coming from. We are working with local authorities to establish what data on the value of reductions offered under the scheme will be collected for both pensioner and working-age people, and we also want to make use of the information collected in the Family Resources Survey to support future policy evaluation. We do not expect too much data to be required.
In relation to the publication of statistics, the Department for Work and Pensions has conducted a consultation on proposals to cease publication of the annual Income Related Benefits: Estimates of Take-up. The consultation closed on 4 October, and a response will be published in due course. No doubt the noble Baroness knows about it. If she does not, she should ask me and I will make sure that she gets to see it. There were a number of options in the consultation paper. The DWP is not going to cease any data collection, just the calculation of estimated take-up rates—which was the point made by the noble Lord, Lord Beecham—and the data source is and will continue to be available, so it will be possible to do the calculations later.
Noble Lords asked about pressures on budgets. I hope that I have answered that. On the question of promotion, it will be up to local councils to make sure that they get people coming for council tax support. The noble Lord, Lord Beecham, is correct that one of the things we understood to be holding people back from applying for benefits was the name, so “council tax support” will we hope make them more interested in doing it. Once again, local authorities will have to manage their budgets in order to deal with that.
I hope that with those explanations, the noble Lord will be willing to withdraw his amendment.
Lord Smith of Leigh
My Lords, I thank the Minister for her response. I am not sure that I take it as an assurance that she recognises that we need to hold more balances now as a result of the Bill that we are currently enacting. She might not carve her name in history like her predecessor Lord Bellwin, but until we get the “Hanham reserves” to support this, I will accept what she has said.
I thank the noble Lords who supported me on Amendment 107B: the noble Lord, Lord Shipley, and my noble friend Lady Hollis, who raised the issue of the economic shock and the impact that could have on council tax benefit. I remind noble Lords that that will have an impact the other way as well because it will probably affect the business rate collection, so local authorities will be squeezed in both having to pay out more council tax benefit and receiving less business support.
I sincerely regret that the Government have now confirmed that the real value of any contribution they make to the council tax support scheme is going to fall significantly over time. None of us really understands what that will be, it depends on the changes that happen over a period of time, but we need to say before we start that it will bring instability into the system. I regret that, but I beg leave to withdraw Amendment 106A.
Lord Smith of Leigh
“Equalisation of additional council tax income
As part of the local government finance report the Secretary of State shall—(a) report on the capacity of each billing authority to raise revenue under sections 10, 11 and 12, and(b) alter the distribution of revenue support grant to equalise resources.”
Lord Smith of Leigh
My Lords, my view of the political process these days is somewhat prejudiced because I watch “The Thick of It”. I can understand the meeting taking place in the Department for Communities and Local Government with government advisers and civil servants when the idea was mooted for changing the council tax benefit, saving £500 million as a contribution towards deficit reduction but at the same time raising money through changes to the council tax scheme by technical adjustments which would actually fund it. In previous times, that might have been called a stealth tax, but we do not use those words any more.
That might seem superficially attractive, but the major flaw, as my noble friend Lord McKenzie of Luton said earlier, is a misunderstanding of geography. It works very differently in different parts of the country. As we said earlier, the capacity of local authorities to raise money through technical changes depends on a number of factors, including the number of second homes. I made the point that Wigan is not seen as a place in which people live in second homes, and we understand that we might raise £20,000 from that source. I suspect that in the London Borough of Kensington and Chelsea, which the noble Baroness used to run, a single house might raise that. So we are limited in the amount that we can afford.
Secondly, there is a mismatch with the need for council tax benefit support. Those authorities with the least capacity to raise it probably have the greatest liability to pay out council tax support. In Wigan, 25% of our households are on some form of council tax support at the moment, and 65% of those are on full benefits. That is because we have a large number of people on low incomes as well as a large number of pensioners.
The Institute for Fiscal Studies, in its report on the cuts which my noble friend Lord Beecham mentioned, showed that the geographic distribution is not fair. Places such as Wigan, Newcastle and many others have the triple effect of having difficulty raising funding through the council tax adjustment, the need for expenditure on council tax support and the biggest level of cuts to implement.
Last week, when we were debating business rates, I noted with interest that the noble Baroness stressed the importance of equalisation to provide fairness in the distribution of business rates. The amendment is there to say: if it is right to do it for business rates, to ensure that there is a fair playing field for local authorities, we should do it also for the amount of money that can be raised through council tax administrative changes. Then we would have a level playing field and would not need to fritter away £100 million in a strange manner; it could simply be applied and the system would be fair. I beg to move.
Lord McKenzie of Luton
My Lords, my noble friend Lord Smith raises an interesting point in his amendment. There are two bits to it. One is the extent to which local authorities have the capacity to raise revenue under the new freedoms that they get under the Bill; and the second is how that should be dealt with under the revenue support grant as an equalisation process. One difficulty with this in the longer term is that, as I understand it, we do not know whether we will have revenue support grant on an ongoing basis. That is tied up with the issue of the central share, how it is to be used and what redistributive mechanism there will be. Obviously, the greater the local share, the smaller the central share. The more that the central share is used in Section 31-type grants or their equivalent, the less capacity there is in the system to equalise—to do what my noble friend rightly says should be done.
I am not sure what the resources component of the current revenue support grant in the three-part calculation is, or the extent to which that would pick up those issues. It certainly should if it does not. This is an imaginative and appropriate amendment and I look forward to hearing the Minister’s response.
Lord Smith of Leigh
My Lords, I thank the Minister for her response. I suppose that I am not surprised by what she said but I am obviously still somewhat disappointed because she focused on the detail of the amendment and not the principle behind it. The principle was that in the system being set up we have created an unfair opportunity for some authorities to raise revenue to pay for any change to the council tax support system. As we heard earlier, many authorities will not need to implement any change whatever while other authorities, which do not have that capacity but have a greater need for council tax benefit support, will be making very difficult decisions and reducing the support that they give to many deserving people on low pay who currently benefit from that scheme.
I take the point that it may not technically be a correct amendment in the way that I wanted it to be but my “distribution” was simply intended to move it back. If the Government were to assume that we would all implement the system to the full extent, whether we do or not, that would be one basis for doing it. What we are seeing now is that the Government are accepting that this Bill will create two nations: the nation of those who can afford to pay for the scheme that is being introduced and the nation of those who cannot. I wonder what the impact of that will be in the long term. I beg leave to withdraw.