Council Tax (Benefit Claimants)

Brandon Lewis Excerpts

Tuesday 29th January 2013 Westminster Hall

[The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis)]

It is a pleasure to serve under your chairmanship today, Sir Roger. I am grateful to my hon. Friend the Member for Birmingham, Yardley (John Hemming) for providing us with the opportunity to debate the policy of localising council tax support, which will be delivered through the Local Government Finance Act 2012. I will touch on the salient points generally as well as the specific points about the council in Birmingham if time allows.

There is widespread recognition that welfare spending needs to be targeted better. My hon. Friend made that point. More needs to be done to tackle poverty by getting people off benefits and into work. Council tax benefit expenditure more than doubled between 1997 and 2010 under the Labour Government. Localising support for council tax delivers a 10% saving on council tax benefit expenditure, making a vital contribution to deficit reduction.

Importantly, however, this reform also gives local authorities control over how this saving is delivered, and it gives them a direct financial stake in supporting local people into work. I am clear that councils are best placed to understand local priorities and the needs of residents on low incomes. Localisation enables them to take local factors into account when deciding on levels of support and programmes.

Localising council tax support gives local authorities a real stake in the economic future of their areas. We want local authorities to do more to grow their local economy and reap more of the benefits of local economic growth. Making local authorities responsible for council tax support reinforces the positive benefits of driving economic growth in their areas. Funding for local council tax support schemes is being provided through the retained business rates system itself, further strengthening the incentive for local authorities to grow their local economy and get more people into work in the first place. In doing so, local authorities will not only be helping to create jobs, but will be increasing the income from increases in business rates and, therefore, the amount that they can spend on other valued local services.

Through our other local government reforms we have been clear that we want local authorities to be fully accountable for the decisions that they take. At present, councils can put up council tax without considering the impact on council tax benefit costs. Localising council tax support will change that and encourage greater local financial accountability. It will also strengthen the incentives to drive down fraud and error. We have shown that local authorities can do far more about that.

Councils have choices about how to design their schemes and manage the reduction in funding. As well as being able to choose whether some awards should be reduced, they can also manage the reduction by reconfiguring funding for other services through efficiency savings, using reserves, or using the flexibility that we have now given over council tax charges. I am aware that some local authorities, such as East Hampshire district council, Bristol and the London borough of Merton have decided to do just that, so that council tax benefit claimants in their areas see no reduction in the support that they receive, which shows that it can be done.

Local authorities have until this Thursday to agree their local schemes. I am aware of a range of options that are being considered across different authorities in addition to the examples I have given.

[John Hemming]

Will the Minister confirm that if a local authority has not agreed a scheme, central Government will impose a scheme where people on JSA pay no money?

[Brandon Lewis]

I will come back to that point in a moment.

Let me give another example. Mansfield district council has agreed a scheme that will see claimants pay a maximum of 8.5% of their council tax bill and no change to the support that they receive on top of that for six weeks after returning to work, which is better than the current four. The council has also set up a hardship fund to assist people who experience genuine financial difficulties as a result of the changes. That is the kind of sensible, forward-thinking approach that I hope to see other local authorities adopting. The debate is a good opportunity to put on the record some of the great work that authorities are doing.

[Richard Burden]

In reality, Birmingham is losing £11 million in Government support to help people on low incomes or on fixed low incomes with their council tax. It is being told by the Government that for two years, perhaps—no commitment after that—it might get £2 million back if it does what the Government say. The Government’s financial envelope, looking forward to the next five years, will leave Birmingham with a shortfall of £625 million, although it is being told that if it freezes council tax, it will get another bung, but only for two years. This sounds like a loan shark offering a payday loan that will leave Birmingham’s citizens much worse off in the space of two years.

[Brandon Lewis]

I will touch on a comment that was made by my hon. Friend the Member for Birmingham, Yardley earlier. To be fair, he made the point very well. Some hon. Members are confusing their role as Members of Parliament in representing their residents when they criticise my hon. Friend and make comments about supporting Birmingham. The job of an MP is not to support the council; it is to support, defend and stand up for the residents. There is nothing wrong with a Member of Parliament standing up for the residents and challenging the council on whether it is doing the right thing and putting in a good scheme. I have already given examples of councils that are doing the right thing by their residents. If Birmingham does not choose to do that, that is a decision that Birmingham residents should consider carefully when they get their opportunity at the ballot box.

[John Hemming]

Does the Minister agree that if the council produces massive figures by exaggerating, for instance, inflation, it gets misleading results?

[Brandon Lewis]

That is a fair point. Obviously, anybody can use figures in a way that suits them. The reality is that we have put in some money to help councils through the first year or so, and I will come back to that in a moment. However, if councils have not done anything by Thursday, the current scheme stays in place.

I see the most variation in the amount that local authorities propose to charge benefit claimants who have previously received 100% support. Suggested amounts range from 6% to 30% of council tax bills.

[Steve McCabe]

Will the Minister confirm what the Institute for Fiscal Studies has said, which is that the support that has been offered is worth 25% of the cuts? Is that not the difficulty?

[Brandon Lewis]

I will come back to that point in a moment, but as it happens I do not agree that that is the difficulty; it is just part of a wider package. As ever, Opposition Members tend to pick on one thing rather than look at an issue as a whole. The flexibilities that we have given to local government, along with councils’ ability to crack down on fraud and error—£200-odd million last year alone, which in most people’s books is a lot of money—give local government enough to deal with the measure. Across the country, that comes to more than its cost.

I am disappointed that some councils have failed to rise to the challenge to explore every option, and that they are taking what they perceive to be the easier route of looking at double-digit across-the-board cuts. That is a short-term approach that slashes entitlements for the poorest without looking at other ways in which to manage the funding reduction, and it is not sustainable. It is common sense that asking the poorest to pay contributions of 30% is simply unreasonable and, in the longer term, as the funding for council tax support is built into the baseline level of business rates funding, councils have everything to gain from helping people back into work. That is where their focus should be.

It is, of course, for local authorities to consider the appropriate funding to be applied to support local taxpayers as part of their wider budget decisions. Making councils financially responsible for providing support creates stronger incentives for them to get people back into work and to reduce costs.

[Richard Burden]

Why is the support scheme that the Government are offering only temporary?

[Brandon Lewis]

That issue was raised earlier, and I said that I would come to it, so if the hon. Gentleman will bear with me I will do so.

We want to ensure that councils are doing all the right things. They should be looking at back-office functions, tackling fraud and error, and carrying out every one of the “50 ways to save”, especially an authority such as Birmingham, where the spending reduction for 2013-14 is just 1.1%.

To provide the space and the support for local authorities to design a scheme that protects the poorest by making the most of opportunities to find savings elsewhere, the Government announced in October the provision of an additional £100 million transitional grant for 2013-14. The money will be available to councils—billing and major precepting authorities—that choose to design their local schemes so that people currently on 100% support pay between 0% and no more than 8.5% of their liability, the taper rate does not increase above 25%, and there is no sharp reduction in support for people entering work. Details of how the grant can be claimed were sent out on Friday.

As time is of the essence, I will skip to the core query about the grant being for only one year. I recommend that authorities that have not yet looked at their schemes do so very quickly now so that they might qualify for the grant. It is for only one year because it is, effectively, pump priming. It gives councils that year—that opportunity —to redesign their schemes, to consider how they fund other services and look at what they do with the flexibilities we give them regarding council tax and encouraging local growth. The benefits will come during and towards the end of the first year, and we are putting the money in up front to give the councils a cushion to get them through that year. I will be very clear about this: we will closely watch the decisions local authorities take on their schemes and the impact on the poorest people in their communities before deciding whether to take further action.

Localising council tax support is an important step towards reducing the welfare bill. The measure will not only reduce spending by £470 million, but give local authorities significant local control. It will give them an opportunity to make council tax support an integral part of the council tax system. Ultimately, the new localised system will enable councils to take decisions locally about the provision of council tax support in their areas, and it is consistent with the drive for greater local financial accountability and decision making.

Question put and agreed to.