Local Government Finance Bill

Baroness Donaghy Excerpts

Tuesday 12th June 2012 Lords Chamber

[Baroness Donaghy]

My Lords, although I do not claim to be knowledgeable about local government finance, I think that the Bill is intended to encourage local authorities to mitigate the 10% cut in council tax support with various self-help projects. Mr Andrew Stunell, in reply to a debate in the House of Commons, said:

“The savings from localisation are a vital contribution to deficit reduction, and it is essential that we have a credible deficit reduction plan ... It would be much easier to have this scheme without deficit reduction, but it is an unavoidable part of the scheme”.—[Official Report, Commons, 31/1/12; col. 744.]

The real question is: will the Bill achieve what it says? Have the Government considered any of the unintended consequences arising from its implementation, as other noble Lords have said? The Government set great store on the proposal to allow local authorities to raise revenue from empty or second homes. It is claimed that current discounts cost around £420 million and that if authorities exercise the flexibilities allowed in the Bill to maximise revenue, the extra revenue generated would relieve pressure on council tax to the equivalent of approximately £20 per Band D equivalent in England.

Three-quarters of the discounts or lost revenue are in exemption C housing which, as the previous speaker said, relates to a vacant dwelling that is empty and substantially unfurnished for up to six months. What constitutes “substantially unfurnished”? Under the new scheme a new dwelling could be liable to tax from the moment it is completed, or deemed to be completed —an important phrase. Who will do the deeming? It could incentivise owners to refurbish more quickly, as the Bill intends. However, the owner may not be able to afford refurbishment and will have to face the choice of trying to sell on a flat market at a huge discount, pay the council tax and keep the property empty for a couple of years until the market picks up, or be taken to court if he fails to pay the newly imposed council tax. Have the Government factored in the costs of chasing non-payment through the courts? The impact assessment states, with remarkable understatement:

“Collecting council tax from those who were previously exempted or who previously received a higher level of discount may be difficult. As a consequence, collection rates for these groups may be lower, reducing the revenues that may be raised from them”.

The proposal for an empty homes premium, allowing local authorities to charge more than 100% of council tax in some circumstances might encourage some owners to sell or refurbish their properties more quickly. However, such a proposal is hugely complicated and will bring local authorities into conflict with mortgage lenders and building societies, which will resist increased cost liabilities from possessed homes and will be in a much better position than individual homeowners to take councils on. There is no impact assessment on this proposal and no indication of what costs will be passed on to borrowers. We see that the October 2009 figures reveal that 3.4% of dwelling stock is empty. Of that, 41% of properties were empty for six months or longer. Of course empty homes are a problem. Will the Bill solve it? The impact assessment says that,

“we are unable to measure the impact our proposals might have on reducing the number of empty homes”.

We are heading into the unknown with the coalition Government. Is this a potential cash cow or a cynical diversion? Only 6% of dwellings receive the full 50% discount; 80% of local authorities already set the discount at the lowest level possible for at least some of their second homes; and 90% of dwellings receiving the second-home discount have a discount of only 10%.

On the council tax reduction scheme, it has been made clear already that pensioners and the most vulnerable in society will be protected from the proposed reductions. Pensioners currently account for 46% of council tax benefit expenditure. If overall expenditure is to be cut by 10%, the reduction can be met only by a disproportionate cut for the 54% of people of working age. Of course, this is a national average; there is a wide variation between local authorities in the proportion of claimants who are pensioners. For example, in my borough of Southwark the figure is 29%; in East Dorset it is 70%. East Devon Council calculated that there will be a shortfall of £800,000 for its working-age population compared with current expenditure. The council maintains that its existing working-age claimants will face a 25% cut in entitlement if it is to meet the Government’s savings target. If other vulnerable groups are included, the cut in the existing entitlement will be nearer 28%.

What happens then? How will the shortfall be met? Under the poll tax, everyone was expected to pay 20% of their poll tax bill. This system could lead to a return to one of the worst features of the poll tax, with large sums of public money being wasted as councils pursue payments through the courts. Have the Government factored in the possible increased costs of pursuing council tax payments through the courts? The Bill represents an attack on the working poor by a Government who want to make work pay. Instead of the right to a benefit, we will get a grant that is cash limited and will vary depending on where a person lives. The Government claim that councils will have increased financial autonomy and a greater stake in the economic future of their area. However, I believe—as has already been said—that the Bill will simply transfer the financial risk to local councils and hit the working poor the hardest.

The DWP indicates that 1.7 million households—40% of pensioners—do not claim the council tax benefits to which they are entitled. The Government have said that one potential advantage of localisation will be to increase the take-up, but will provide no finance to local authorities to meet the additional costs. Instead, any improved take-up by pensioners will be paid for by reductions to people of working age or cuts in local services, or both.

The timetable was mentioned by many noble Lords. What assurances will the Minister give that the tight timetable for implementation and the absence of detail in the most crucial parts of the Bill will not lead to administrative chaos and the poorest in our communities facing real hardship? Secondary legislation has not yet been published, and the Government expect local authorities to design their own scheme, consult major precepting authorities, publish a draft scheme, adapt IT systems, procure and test software, develop claims procedures, train staff and adopt finalised schemes by 31 January 2013. Why is so little information available? The council tax reduction scheme was announced in October 2010—20 months ago. If the Bill becomes law in October this year, local authorities will have four months to produce a scheme. It is no use saying that the Government’s intentions are already known and that local authorities can start planning; the crucial information is missing. What scope is there for raising money through empty homes? Will the amount of money an authority can raise through increasing its proportion of business rates be worth the candle?

On the business rate retention scheme, the Government plan a 10-year period for resetting, which is good. However, three major planks of this year’s Budget were reversed in 10 weeks, so how much faith can we put in a 10-year plan? Local authorities have been treated with disrespect. In addition to the 10% hit in council tax reduction and the absence of any useful information surrounding the Bill, they will have to cope with the formation of local Healthwatches, police commissioners, the cost of care—mentioned by my noble friend Lord Warner—and the fallout from welfare reform. Yet the Government are expecting a productivity rate from local authorities which is five times greater than their own productivity record on the Bill.

We should not forget in our discussions that these proposals affect real people, those who are just about coping. Inflation and cuts in council tax benefit—let alone anything else that might be thrown at them by greater job insecurity and cuts in welfare benefits—might make the difference between coping and not coping. I was president of NALGO, one of the forerunner unions of UNISON, 22 years ago. I travelled the country meeting local government staff who were immensely proud to be working for local government. Not only will they be expected to implement the proposals in the Bill, some will also suffer financially from it. I have examples of cleaners and assistant caretakers who stand to lose up to £2 a week from council tax benefit. It may not seem a lot but it does not take much to provide a tipping point. This is not making work pay.

Debates about the Poor Law through the centuries have been what Derek Fraser called,

“the impossible task of marrying deterrence and humane relief within the same system”.

There is a genuine debate to be had about the role of national and local government in social support systems, as William Rathbone described in 1867,

“to meet the conflicting claims of justice to the community, severity to the idle and vicious and mercy to those stricken down into penury by the visitation of God”.

There is a debate to be had but it will not take place in the confines of this contradictory Bill, which promises local but leaves immense powers in the hands of the Government.