Local Government Finance Bill

Baroness Lister of Burtersett Excerpts

Tuesday 12th June 2012 Lords Chamber

[Baroness Lister of Burtersett]

My Lords, it is always a pleasure to follow the noble Lord, Lord Wigley. I rise to speak not as an expert on local government finance—perhaps I should also say that I have no links to the LGA—but as a survivor of the marathon that was the Welfare Reform Bill. Clause 9 of today’s Bill, which provides for council tax reduction schemes, forms a coda to the Welfare Reform Act but it is a discordant one. As my noble friend Lord McKenzie of Luton has eloquently argued, it threatens to undermine some of the key objectives of that Act in the name of localism, although whether this represents genuine localism is disputed. I will focus my remarks on this issue but will also briefly mention another legacy of the Welfare Reform Act that has implications for local government finance—the localisation of key elements of the discretionary Social Fund.

During the passage of the Welfare Reform Bill, my noble friend Lady Hollis of Heigham, who unfortunately could not be here early enough to take part in this debate, delivered what the late and much missed Lord Newton of Braintree described as a “devastating critique” which demolished the rationale for localisation of council tax support set out in the original consultation paper. I am tempted to provide noble Lords with the Hansard references and say, “I rest my case”. But in the role of understudy I will make some of the arguments that my noble friend might have made.

First and most fundamentally, for those below pension age we are turning a nationally determined social security entitlement, paid out of a demand-led budget, into a local game of roulette, the rules of which will be shaped by the effects of a shift to a cash-limited budget that, as we have heard, incorporates a 10% cut on current expenditure. Instead of a clear entitlement which changes only in response to changes in a claimant’s circumstances, which will be the same regardless of where the claimant lives, there will be a patchwork of schemes in which the help for which a person qualifies will depend on the demographic make-up of the local population. As we have heard, the greater the number of pensioners whose entitlement is protected, the less there will be for other groups. The support available will be vulnerable to economic shocks, such as a factory closure, and the scheme could change from year to year. Instead of forming part of the overall structure of social security, council tax reduction schemes could spell financial insecurity. Low-income households will be the main losers, as many noble Lords have already pointed out.

As has already been noted, the Institute for Fiscal Studies calculates that unless councils find additional money from elsewhere, which seems unlikely given the pressures that they are under already, the requirement to protect pensioners in England will imply an average 19% cut in support for working-age claimants, which could be as much as 25% in some areas.

Citizens Advice has warned its bureaux that this means that the poorest non-pensioner claimants, who would have received full council tax benefit under the present system, will probably have to find about one-fifth of their council tax from their weekly income—a point made by the noble Lord, Lord Best. It reminds bureaux of the trouble that paying a 20% minimum caused in the days of the poll tax or the community charge. It said:

“Many claimants could not make up the shortfall and were pursued for arrears. We expect a similar scenario to develop”.

Similarly, the IFS warns:

“The poll tax experience showed how difficult it can be to collect small amounts of tax from low-income households that are not used to paying it”.

That point was made very well by my noble friend Lady Donaghy.

The Explanatory Notes assure us that:

“The Government is committed to ensuring that local authorities continue to provide support for council tax for the most vulnerable in society”.

But that is not being enforced for groups other than pensioners and there is some ambiguity as to who exactly counts as vulnerable. The impact assessment gives the example of disabled people or carers. The DCLG document Vulnerable People—Key Local Authority Duties refers local authorities to the public sector equality duty, including specifically relating to disabled people; to their duties under the Child Poverty Act and homelessness legislation; and to the Armed Forces covenant. That is quite a range of duties which local authorities must bear in mind when drawing up their schemes. Perhaps the Minister could tell us what the consequences will be if they do not meet those duties.

To take just the duties under the Child Poverty Act, a recent survey by 4Children found that fewer than half of English local authorities have a child poverty strategy in place and that 35 of those without a strategy do not even have a needs assessment in place, as required under the Child Poverty Act. If they do not have a needs assessment, it will be difficult to take proper account of these needs in any local council tax reduction scheme that is devised. The evidence from a JRF survey of local authority spending cuts states:

“It cannot be assumed that the needs of disadvantaged residents and communities will inevitably be to the fore as councils manage budget reductions”.

While there is evidence that strategies are being devised to try to ensure that the needs of disadvantaged places and people can continue to be met, there is also evidence of tensions emerging around the degree to which such needs should be protected and prioritised. Then it says that only half of the sample of authorities had adopted,

“protecting the needs of the most vulnerable clients or communities”,

as a principle guiding budgetary decision-making. In other words, this does not augur well for government assurances that protection of the most vulnerable will be safeguarded when council tax support is localised. The study highlights the potentially divisive consequences of the policy—divisive as between different vulnerable groups and low-income council tax payers and the rest.

There is also a tension between the supposed commitment to protecting the most vulnerable, vaguely defined as they are, and the policy objectives set out in the impact assessment to support the improved work incentives to be delivered through universal credit. The repeated assertion of this objective takes on a Lewis Carroll-like quality in the face of the widespread view that the opposite will be the case. This is policy-making through the looking glass. It is widely believed that if local authorities are to observe the various duties relating to vulnerability, low-income working council tax payers are likely to be the losers. In other words, this policy change has the potential to create a significant work disincentive and, as the IFS points out, to the extent that local authorities try to protect those on the lowest income through the use of aggressive means-testing, the greater a disincentive it will create to the extent that some people could be worse off with a pay rise, recreating the very worst excesses of the old poverty trap.

Moreover, the overlap with the universal credit taper, mitigated but not removed by a more generous income disregard for the latter, undermines universal credit’s policy objective of rationalising overlapping means tests and, again, improving work incentives. To quote the IFS again, separate means tests for council tax support has,

“the potential to reintroduce some of the extremely weak work incentives that universal credit was supposed to eliminate”.

It also points out that the policy “severely undermines” the simplification that universal credit was intended to achieve.

The noble Lord, Lord Freud, was quoted in the Financial Times earlier in the year as saying that the Government were,

“not going to let a ha’p’orth of tar around council tax benefit undermine the universal credit”.

But with a 10% cut built in, we are talking about £500,000 of tar, and the consensus is that it will undermine universal credit.

Having worsened the work incentives within the benefit system, the Government then turn round and tell local authorities that the reform will create stronger incentives for them to get people back to work. That argument was given pretty short shrift by the CLG Select Committee report, Localisation Issues in Welfare Reform. It commented:

“We have seen little evidence to support the hope that new and better-paying jobs for individuals, immediately sufficient to off-set the 10% reduction in the benefit budget, will inevitably follow from these incentives”.

Or as was argued in the House of Commons:

“I am not sure that local authorities can wave a magic wand and create jobs in six months, a year or two years”.—[Official Report, Commons, 31/1/12; col. 726.]

That was a Conservative Member, by the way.

Localising council tax support in this way could create some new perverse incentives, as the IFS has pointed out—an incentive to discourage low-income families from living in the area, with shades of the Poor Law, and a disincentive to take up the support. In addition to the principled arguments against the policy, in the interests of good policy implementation—as a number of noble Lords from all over the House have argued—we have to raise concerns about the reckless speed with which it is being pushed through, as did the CLG Select Committee, which therefore recommended a year’s delay. As the IFS has argued, councils face a difficult task in squaring a number of circles in devising their schemes, yet they have little experience or expertise in designing means-testing support schemes and very little time to do it. We also have to question why a Government committed to reducing bureaucracy are increasing it as myriad local schemes are developed.

The more I look at this policy, the more it seems fraught with pitfalls. A big hole is being torn in the social security safety net, all in the name of localism, yet the CLG committee disputed whether this can,

“be considered a great advance for the policy of localism”,

when in fact it provides,

“an illusion of delegation with a minimum of real discretion”.

Those points were made by the noble Lord, Lord Jenkin, and the noble Baroness, Lady Eaton.

Personally, I am not opposed to local authorities continuing to administer a national council tax reduction scheme because there are dangers in lumping all financial support together in one universal credit payment, which may not be paid into the account of the person responsible for making the payment and which is highly vulnerable should anything go wrong with that universal credit payment. However, it needs to be a national scheme, dovetailed with universal credit.

Finally, and very briefly, not only are local authorities having to take over responsibility for implementing their own local council tax reduction schemes, they are also being made responsible for elements of the discretionary Social Fund. Again in the name of localism, another hole is being torn in the social security safety net, threatening the well-being of some of the most vulnerable members of our community, who currently can turn to community care grants and crisis loans for assistance in times of emergency or acute need. The money currently spent on this assistance is being devolved to local authorities but without any duty being placed upon them to use it for the intended purposes. When this was debated during the passage of the Welfare Reform Bill, there was considerable disquiet on all sides of your Lordships’ House as to the likely consequences. I hope that we will be able to return to this issue during the passage of this Bill as it is very much an issue of local government finance and is part of the localism agenda—an agenda which, as currently framed with reference to social security matters, spells insecurity and unfairness for many people living in poverty.