Local Government Finance Bill

Baroness Sherlock Excerpts

Thursday 19th July 2012 Grand Committee

Moved by

[Baroness Sherlock]

79B: Schedule 4, page 58, line 8, after “income” insert “including universal credit”

[Baroness Sherlock]

My Lords, in the absence of my noble friend Lady Hollis, I move Amendment 79B and speak to Amendment 83 in my name. My noble friend asked that I convey her apologies to the Committee. When she tabled her amendments, she believed that they would come up last Thursday. When that sitting was cancelled, they were moved to today when, unfortunately, she is chairing a meeting of her housing association, so she asked that I make that clear and apologise to the Committee.

Amendment 79B is designed to make clear that when a local authority makes a council tax support scheme which takes income into account in determining entitlement to support, that income should include universal credit, not just earnings or other kinds of unearned income. I presume that the Minister will need little persuasion of the merits of such an approach, as her default scheme takes precisely that approach. My understanding is that the default scheme will take account of universal credit income with some deductions relating to income that is to meet housing and childcare costs.

Having read the Explanatory Notes, I wrestled for some time yesterday trying to work out why the default scheme would want to take account of income net of the child cost element of universal credit. Why would you deduct the element designed to meet the costs of children? My noble friend Lady Hollis and I had a debate for some time trying to work out what the Government might be thinking of by this. Having read the draft regulations themselves, I concluded that this was meant to be a reference to the childcare cost element of universal credit, which of course is completely distinct from the child cost element. Having talked to an official—I am very grateful to the Minister that her department gave me access to a member of the Bill team—that is still my understanding. It would be helpful if she could confirm that on the record for the benefit of those reading the report of our debate.

I ploughed through the 155 pages of regulations as best I could with my limited understanding, and on page 105 there is a list of the rates that should apply for the various elements of council tax support under the scheme. When I read them, I panicked slightly because they are not the current rates that apply to council tax benefit. They are constructed in the same way but they are different numbers. Again, my noble friend Lady Hollis and I spent some time trying to work out why that might be and, in the usual way of politicians, ranged through cock-up and conspiracy theories trying to work out what the Government might mean by that by the wonderful old-fashioned Kremlinological means. Was this a way of saving 10% in the scheme itself? Actually, my best answer is that it is probably a mistake and that they are last year’s rates rather than the current year’s rates. Again, it would be helpful if the Minister could confirm that the intention is to use the current year’s rates, which were published this January, rather than those for last year.

We know very little about universal credit and the new system, because in those 155 pages of draft regulations the only substantive reference to universal credit comes in chapter 3 of part 10, which addresses the question of income and capital when there is an award of universal credit. That chapter is only 389 words long, and that includes the title. Of course, it would be hard for it to contain much more because there is a great deal that we do not yet know about universal credit, so I do not blame the department for the fact that it does not have that detail yet, but that is a point to which I shall come back. At least universal credit income will be taken into account. The case for doing that for everybody is compelling. Has the Minister had the opportunity to read the IFS report, Reforming Council Tax Benefit? It is a 148-page report that has an entire chapter on integration with universal credit. The report notes that the universal credit system was intended to,

“simplify the benefit system by reducing the number of different benefits that claimants and administrators must contend with”.

As council tax benefit is,

“the means-tested benefit with the largest number of recipients”,

keeping it outside universal credit,

“and allowing it to vary … undermines this simplification”,

but we are where we are. The report goes on:

“Universal Credit is also intended to rationalise work incentives by replacing a jumble of overlapping means tests with a single one, ensuring that overall effective tax rates cannot rise too high. Again, separate means tests for council tax support could undermine this, with the potential to reintroduce some of the extremely weak work incentives that Universal Credit was supposed to eliminate”.

I shall translate that for simpletons like me. If council tax rebates carry on having a 20% withdrawal rate and if universal credit is not counted as income, the effective marginal tax rate for a basic rate taxpayer could go up to 89.8%. Furthermore, it would mean that,

“income from private pensions, contributory benefits and spousal maintenance would actually make some recipients worse off”—

more money coming in, less money left behind, which is really serious—

“unless these income sources were ignored when calculating council tax rebates, which would be expensive for local authorities”,

as well as complicated. The report continues:

“This arises because income from these sources will reduce Universal Credit entitlement on a pound-for pound basis”.

I apologise for getting to this level of detail, but I am trying to illustrate the consequences of not taking universal credit into account as income.

There is no simple way out of the challenge faced by local authorities. Some authorities will decide that they have to devise their own schemes to avoid having to find the money to pay for the 10% saving by next year. The noble Earl, Lord Attlee, gave them some advice during our last sitting, on Monday, saying that local authorities,

“could opt to use the default scheme, but perhaps with some amendment to secure some easy savings. Local authorities could choose to develop a more sophisticated scheme later, but that is a choice that they will have to make … However, if a local authority wants to have a complex scheme, it can have one in later years, and it can go for a simple scheme perhaps based on the default scheme in year one”.—[Official Report, 16/7/12; cols. GC 15-17.]

A simple scheme based on the default scheme of 155 pages of draft regulations would be quite difficult. More complicated still is that any means-tested system is basically a complicated ecosystem.

Although I am teasing the Minister, I do not blame the department at all for having 155 pages of regulations. It is impossible to devise simple means tests that work well; that is why there are 155 pages, and they are based on the regulations for comparable benefits at the moment. If a council were to try to find an easy way forward, the reality is that its most likely step would be, for example, simply cutting 20% off the top of the applicable amount that goes to everyone or the maximum amount, but it may not fully understand the consequences of doing that distributionally across incomes or different types of activity. It is very complicated.

As the IFS notes, it would be simpler for local authorities to have an independent taper from that used for universal credit, but to do so would be worse for effective marginal tax rates. The key question is, “Why should we not leave it up to local authorities to decide how they will individually treat universal credit income?”. The answer is that one of the Government’s main arguments for the upheaval involved in creating universal credit is that it would reduce the very high marginal tax rates faced by some working claimants, so there is a clear risk that council tax rebates will undermine one of the main advantages of universal credit, namely the elimination of those high effective marginal tax rates.

In other words, it is a policy question. Think for a moment about the impact that this could have on the noble Lord, Lord Freud, the DWP Minister. If the Government cannot determine how universal credit income interacts with the taper on the various council tax support systems, it is impossible for central government to determine the effects of changes it makes to its own universal credit systems. The noble Lord, Lord Freud, could make a decision to do something that is more generous and has a particular effect, but when he pulls that lever he will not know what will move in the various parts of the country that have devised their own schemes. That is simply a bad policy outcome given the billions of pounds of public money being spent on universal credit. It is clear that the Committee should agree to this amendment and direct councils to take universal credit income into account.

I turn now briefly to Amendment 83, which would require a local authority to consult not just on the scheme it proposes under the current social security system but, at the appropriate time, on the scheme in the world of universal credit. The reason is very simple. There is a whole series of decisions that a local authority will have to take, even if it sought to devise a scheme that mirrored as closely as possible in the universal credit era that obtains in the current tax credits and benefit system. Simply maintaining the status quo is not possible, as the department has already discovered, because universal credit replaces a range of tax credits and benefits for working-age adults that are currently treated differently for council tax benefit purposes. For example, tax credits count as income, but income support does not, and nor does jobseeker’s allowance or income-based employment and support allowance. In universal credit, if one half of a couple is under state pension age, the whole household is treated as that, as my noble friend Lady Hollis reminded the Committee last week, but that is different from the current situation. Somebody on income support, JSA or income-related ESA is automatically passported on to maximum council tax benefit. That will not be possible in future. If universal credit income is taken into account without making corresponding adjustments to the means test, as the IFS noted:

“It could be impossible even for those with no private income at all to be entitled to maximum rebate”.

In other words, once a local authority has its own scheme in place, when universal credit comes in, it will be impossible, even for those in the current system, to know for sure what will happen to their entitlements unless there is an additional consultation and more information is made available. Indeed, although I had a very helpful conversation with an official earlier, which has moved me along in understanding this, I am not completely clear about what will happen to somebody in the default scheme. Will the Minister take this opportunity to tell us on the record? The Explanatory Notes to the draft regulations for the default scheme state:

“Applicants with an award of Universal Credit may still receive 100 per cent support under this system”.

“May” is good; “will” would be better. The Explanatory Notes also state that use will be made of income and other assessments. My understanding from the notes and the conversation is that in the default scheme the means test made by the Secretary of State for universal credit purposes will be taken across, certain deductions will be made for housing and childcare allowance and it will then be applied. For simplicity, will the Minister tell the Committee whether, if somebody is on income support, JSA or ESA and is passported on to maximum council tax benefit, when the new system comes in under the default scheme, that person will still get the maximum 100% council tax support, assuming no complicated changes of circumstances or other unknown factors? Simply person for person, will the very poorest still get the most?

This is an issue for all kinds of councils, especially those that do not use the default scheme or that want to make the 10% saving because they may want to use thresholds but they—and certainly the population—will not know what the consequences will be. Local authorities should simply be told that they must consult again under the universal credit regime. It is particularly an issue given, as I understand it—and I think we come back to this on a later amendment—that authorities may not amend their scheme in-year but must determine it some way ahead, when they may not know how universal credit is going to work in practice. Finally, when the Government are consulting they could take the opportunity of combining it with a take-up campaign, if they can afford it, of course. I beg to move.

[Lord McKenzie of Luton]

My Lords, I shall start on a somewhat disagreeable note, which is to register our protest about the tardiness of the regulations that we now have before us, to which my noble friend Lady Sherlock referred. They were published on Monday, and there was some challenge to get hard copies so that we could work on them on journeys and when away from screens. It is unacceptable, particularly bearing in mind the point my noble friend made that it was quite possible that this amendment would have been taken earlier before we had seen the regulations or known what was published on that day. At least we have the chance now to get into them before Report. The scope of the regulations is profound indeed, and we should at least have had last weekend to review them in some depth. I am grateful to my noble friend Lady Sherlock; it is clear that she has done so from the presentation that she just made.

[Lord Greaves]

I wonder if the noble Lord shares my alarm at the announcement by the noble Baroness that looking at the regulations had made her head hurt, and whether that is something that those of us who have not yet had the chance to look at them have in store.

[Baroness Sherlock]

The noble Lord clearly follows Twitter—that is all I can conclude.

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[Baroness Hanham]

But even so, local authorities have been waiting for and expecting these regulations, and they have started off. Also, on consultation, they are now entitled to do less than the 12 weeks—that is in the Bill—so they can curtail or tailor their consultation to different timescales. Moreover, local authorities are far better equipped and far further on than noble Lords opposite are giving them credit for. I have spoken to quite a lot of local authorities, and if they do not already have their scheme in embryo they are all just about there and about to undertake the consultation. While I do not mean any discourtesy to this Committee about the regulations, the most important aspect of this now is that local authorities are getting on with what they are doing and while some may find some difficulties, most are making a good fist of it.

The noble Lord referred to my noble friend Lord Freud. He will appreciate that up until now it has not been entirely in our gift to have discussions since the regulations were published. I do not know the timing for this Bill when we come back but perhaps I can give the noble Lord an undertaking that if it is not considered in the first week, we will make arrangements to have the discussions he has asked for before we get to Report. We may find that helpful and even if there is a day, we will make sure that we do it on that day. I hope that is all right.

I have clarified to the noble Baroness that we were referring to childcare costs; she was quite right to say that. While I am picking up on her questions, before I read my reply, I should say that the universal credit rates are indeed last year’s and will be updated in November, which is in line with the normal uprating procedure in the Department for Work and Pensions for this year.

[Baroness Sherlock]

I want to be really sure that I understood that. Separate from the uprating, is it the intention that the rates will be the same as those that apply at the time? For example, if it were starting this year it would be the 2012-13 rates and if it were for next year it would be the 2013-14 rates, which is slightly separate from the uprating point.

[Baroness Hanham]

My understanding is that the rate will be this year’s, uprated. I hope that covers that point. I think the other question that the noble Baroness asked me was whether the very poor will still get the most. The answer is yes, because their income will still be very low, so this should work.

[Baroness Sherlock]

I am terribly grateful to the Minister for indulging me in this. These are the kinds of questions that I am wrestling with and that I therefore suspect others who read the record will be. It is not just about whether the very poorest will get the most but whether somebody on the equivalent of income support, for example, will get maximum council tax support under the default scheme. Will they get 100%?

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[Baroness Sherlock]

My Lords, I thank the Minister very much for answering the questions that I asked about the default scheme and the universal credit, and I look forward to the opportunity to talk more with her and her team. However, I do not feel that in the end she answered my point of substance about the amendment, and I realise that we have a disagreement on this. She is right that at the moment councils may choose to include universal credit; the point of the amendment was meant to be that they should—not that they may, but that they ought to do so. That is the point that I might want to come back to at a later stage, because I do not think that the Minister answered the policy question as to the impact on central government of being rendered unable effectively to determine the consequences of decisions about its own universal credit policy, due to an inability to control the interaction with separate tapers and schemes around the country.

On the point made by the noble Lord, Lord Greaves, since the default scheme is as the Minister explained in her reply, the real danger about consultation is that those authorities that do not feel able to find the other 10% cannot use the default scheme. They will have to amend it in some other way or change it. Because I cannot, despite the advice of the noble Earl, Lord Attlee, see a simple but fair way of amending the default scheme for a saving on that scale, they will have to engage in some other quite detailed process. Therefore, it is really important that the consultation is right from the outset. However, since they will have to change that scheme when universal credit comes in because they cannot simply move over from one to another for the reasons that I explained—obviously badly—they ought to consult again. That is the point I wanted to press on the Minister. However, since we are in Grand Committee, I thank everybody who has contributed.

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[Baroness Hanham]

My Lords, I am not sure whether the noble Lord would expect me to answer his last point, which was about modelling, today. That has largely been done by the DWP, and it would be more effective if I wrote to the noble Lord giving details of that and did not try to muddle my way through today. We ought to do it properly.

On the question of consultation and the scheme that local authorities are working on, I said very clearly that the current council tax benefit scheme is almost transferable into the one that they will have to operate from January. People who are already receiving council tax benefits and those in the pipeline will automatically be put in, so they will not require any more work done on that. As far as consultation is concerned, I have also dealt with this. The consultation does not have to be 12 weeks. Equally, say if you just have one consultation going out for your scheme, that will be back before the 12 weeks are up. Where there is a precepting authority involved, this is going to have to be a joint scheme and one would expect discussions to take place, or to have taken place, before the scheme was put out for consultation. It should be something that goes smoothly and seamlessly between the two.

We are satisfied that the work that has been done, the way this has been translated and transferred, and the amount of information that is available is absolutely sufficient for local authorities to be working up their schemes now.

[Baroness Sherlock]

At the risk of prolonging this, I wish to respond briefly. Although it is true that if a local authority were to implement the default scheme as it is now and to find the saving elsewhere then, on the basis of the assurances the noble Baroness has given the Committee today, individuals at the bottom would find themselves unaffected, but that will only be the case if the authority is able to find the money. A number of authorities clearly may decide not to do that, and they will have to make changes. Therefore, nobody can be assured from today that they will be protected from changes. I do not think the Minister is in a position to give that assurance. If she is, I invite her to intervene on me now and give it. I am delighted to pause.

[Baroness Hanham]

We are able to give that assurance because means-testing will be carried out so that people who have already been means-tested are going to transfer without any hitch or halt.

[Baroness Sherlock]

I am so sorry; this really is not false modesty on my part. If the authority I live in—and this is just for the sake of argument—decided it could not afford the default scheme and it took on another scheme then obviously the Minister is not in a position to give that assurance, is she? Or is she, even in those circumstances?

[Baroness Hanham]

If it takes on the default scheme, it takes it on exactly. If it has to use a completely different scheme, it would have to consult on it and indeed it might not be able to give exactly the same benefits.

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[Baroness Hanham]

I understand that the situation is as it would have been had the council not been changing. The default scheme is the current scheme—the current council tax benefit scheme. That will simply transfer and people will be treated the same way for a year unless it is reset the following year. If it is the local scheme, it does that itself; then it can make decisions about the amount that is reduced for council tax benefit.

[Baroness Sherlock]

My Lords, I am glad that we have cleared that up. My understanding, therefore, so that we are all clear, is that local authorities have two choices. They either adopt or have imposed on them the default scheme or they create a scheme of their own devising, which may or may not bear some relationship to the structure of the default scheme.

The amendment is actually targeted at the second group of authorities. I have probably confused things by asking some questions so that I could better understand the default scheme, but in fact the amendment is targeted at those authorities that either do not choose to adopt the default scheme or on which it is not imposed. This amendment is aimed at those authorities that devise their own schemes and it was intending to say that they should be required to take universal credit income into account in any means test that they go on to apply to determine entitlement on the basis of income.

The case for that is very strong. Nothing that has been said today in any way diminishes it. It is in fact strengthened, if anything, by the intervention of the noble Lord, Lord Greaves. There is a real danger that in attempting to square the kind of circles that have been described, an authority will devise a scheme without having a full understanding of the consequences on either individual incomes for universal credit or of the national position in terms of what the Government want to do. That is problematic.

The Minister’s argument, finally, that it would not be practical to name universal credit because one could name lots of other benefits simply does not hold water. In fact, the purpose of this is not about the individuals who are on it: it is about the national policy conference. The reason I am asking this specifically is to enable the Government to make judgments about universal credit—a single integrated benefit for people of working age—to be able to do the things that, at some considerable length during the passage of the Welfare Reform Bill, we were told universal credit would do. The amendment simply seeks to enable that policy aim to be realised. The case is very strong.

[Lord Greaves]

I have found a statistic that might help the Committee and might not because it refers to Pendle and nowhere else. There are 6,038 existing claimants of council tax benefit of working age, if I have read this correctly. I do not have a proportion on 100% but I have a proportion on 90% to 100%, most of whom are on 100%. The number is 4,479. Around two-thirds of the working-age claimants who are means-tested are on 100% benefit in Pendle, if I have read these charts correctly, which I think I have. That puts the thing in context.

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[Baroness Sherlock]

Indeed it does. I am afraid that the choice faced in that authority is very stark. Either it finds money from very scarce resources, which it probably will not feel able to do, or it devises a scheme of its own making that must in the end have the effect of penalising some of its population. Does it penalise the very poor in order that everyone should pay something, or does it make it very hard to make work pay by putting that burden on to those in work? That is a Hobson’s choice and I am very glad personally that I do not have to make it. Those who are, in Pendle and elsewhere, have my sympathy. We have aired this as much as we can and, given that this is Grand Committee, I beg leave to withdraw the amendment.

Amendment 79B withdrawn.

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To conclude, I am happy to support Amendment 80, but Amendment 81 perhaps needs further work and examination of exactly how councils might raise the money themselves.

[Baroness Sherlock]

My Lords, following that helpful contribution, perhaps I may say a brief word. I was talking to a northern authority recently which could not raise significant sums from empty homes for obvious reasons but, as half of its council tax benefit claimants are pensioners, it was assuming that it would be a 20% cut across the board for the rest, because that is how the sums work. It did not have the money available. I had a look at its website. If I were living in a band B property on my own, even with a single-person discount, council tax would be £892.80. If I lost 20% of that discount, I would be £3.43 a week worse off. That does not sound like a lot, but actually, out of £71 a week JSA, that is about 6% of my income. If I were to lose 6% of my income under the current situation and, if the take-up were to increase significantly—given the gaps that both my noble friend Lady Lister and the noble Lord, Lord Shipley, described, that is quite possible, especially with the renaming—that figure would surely rise even further. How will the Minister protect those people and what assurances can she give that authorities would not be put in that position? If the take-up goes up and no additional funds were available, they would simply have to stretch the amount available even further.

[Lord Beecham]

My Lords, there are Ministers in the Government, I think including the Prime Minister and certainly including the Chancellor, although not, alas, the Minister, and there are certainly Members of your Lordships’ House, who were not even born when I first came into contact with what was then the rate rebate scheme. I put out a leaflet promoting that scheme in the ward to which I had recently been selected as a Labour candidate. That was in the winter of 1966, so we have been living with this system for a very long time, and my interest in it and in other aspects of welfare rights has been continuous throughout that period. Indeed, it is 40 years—I am sorry to go through this historical saga—since I, as opposition spokesman on social services, produced a report about social services for the Labour opposition in Newcastle. We included within that the establishment of a welfare rights department; we called for action to promote the take-up of all kinds of benefits; and we subsequently implemented that plan. Incidentally, I was advocating a passporting system which, at that point, was apparently impossible to achieve. We have something at least approaching that now and, in fairness, universal credit, subject to the qualifications that we have discussed today in Committee and on earlier occasions, should move us in the direction of streamlining the system and seeing that one door is open to the relevant requirement of support. I commend the Government for that, at least.

We are now in a situation in which very many people are clearly not claiming. I have been quoting a figure of £1.8 billion of unclaimed benefit. My noble friend thinks there is a band between £1.8 million and £2.4 million. Traditionally, the greater proportion of that is not claimed by owner-occupying pensioners. About the only good thing about this aspect of the Bill is the change of character from a benefit to a discount or reduction, which was advocated by the LGA—I make no more declarations. I think it was included in the two reports on local government finance which, I am sorry to say, the previous Government kicked rather rapidly into touch. I do not blame my noble friend Lord McKenzie of Luton for that. Others might, but I am sure that he has changed his mind as much as the noble Lord, Lord Shipley, appears to have changed his in a different direction. As we have said many times, the amount will undoubtedly and rightly increase. I would commend the Government for that if they provided the wherewithal to pay for it, so my commendation is qualified. However, the principle is right, and it will have that effect.

What the Government have apparently decided—it was only today that my noble friend Lady Lister of Burtersett discovered this—is that they will not take any steps to make any estimate of the number of people requiring this benefit, let alone promote take-up. I do not know whether the decision was made by the Minister’s department or the Department for Work and Pensions. Perhaps my noble friend can enlighten me.

[Baroness Sherlock]

It was the Department for Work and Pensions.

[Lord Beecham]

It is even less forgivable that the department that has the overall responsibility for dealing with the problems of poverty and sustaining the income of pensioners and vulnerable people should apparently not wish to know how many people are eligible or how many are claiming. It is not doing what it ought to be doing and promoting take-up. When it comes to promoting take-up, there are a number of things that many councils—in fairness, I think of all political colours—have pursued. I was able to persuade my own council, Newcastle City Council, then under the leadership of the noble Lord, Lord Shipley, to stage a benefits summit two or three years ago in which we brought together a range of people, some major public sector employers, such as the health service, trade unions, community groups and others, to look at ways in which we could promote a range of benefits. The council committed some resource to doing that. It certainly led to an increase on top of what was already being claimed. I think the figure was £8 million or £10 million, so it can be done.

The previous Government mounted take-up campaigns, usually advertising campaigns, but they are not actually all that effective. The increase in take-up from that kind of media campaign, with adverts in cinemas and perhaps on television, tended to be of the order of only about 1%. It did not have sufficient impact. What is needed is face-to-face or some kind of human contact at least, perhaps even at the end of a telephone, with people in the workplace and elsewhere promoting take-up. That is why the first part of my noble friend’s amendment is very important. It is hugely important to engage local charities, such as Help the Aged, although I think that merged into—

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[Baroness Sherlock]

Before my noble friend withdraws the amendment, will the Minister clarify something that she said in her reply to the noble Lord, Lord Greaves? She said that council tax benefit expenditure had more than doubled in that period. Can she clarify that she means that it has more than doubled in real terms? The noble Baroness nods. The reason that I ask is that it was not clear from the impact assessment, so I wanted to be clear that I had understood it properly.

Amendment 80 withdrawn.

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Moved by

[Lord McKenzie of Luton]

92: Before Clause 10, insert the following new Clause—
“Report on effects of provisions
At a date no later than three years from the implementation of this Act, the Secretary of State shall prepare a report detailing the effect of these provisions on—(a) the number of people receiving or eligible to receive council tax support in each local authority, including the number in employment, the number actively seeking work, and the number of pensionable age;(b) the costs incurred by each authority in running the scheme, including the cost of appeals; and(c) the impact on work incentives.”