Local Government Finance Bill

Clive Betts Excerpts

Tuesday 10th January 2012 Commons Chamber

[Mr Pickles]

The whole point about TIF 2 is that it goes beyond a reset. That is why there needs to be a degree of co-operation from Treasury colleagues. The period for TIF 1, of course, is potentially 10 years. We will encourage local authorities to work together on TIFs and pool their resources—I think I recall the right hon. Gentleman speaking about this some time ago—which will be enormously liberating for them.

The Bill also sets out a replacement for council tax benefit, which is essential in supporting those who, through no fault of their own, struggle to pay their council tax bills. However, rather than having a national, one-size-fits-all scheme, designed and directed by Whitehall, we propose that councils themselves should set up council tax support at the local level. We will give them the flexibility to design schemes that reflect local priorities. Tailor-made approaches will also be essential to making the 10% saving, which is an important component of the plan for reducing the deficit inherited from Labour. Some councils are already considering how they might exercise the new powers and discretions. Westminster city council, for example, is looking into the idea of social contracts, such as linking council tax benefit with obeying the law, actively seeking employment and undertaking voluntary work. That is fundamentally no different from councils such as Manchester and Newham, which are seeking to prioritise individuals in work for council house waiting lists, ending the “something for nothing” culture while providing a safety net for the vulnerable. I believe that benefits should provide the right incentive to get people back to work and to reward social responsibility.

[Mr Clive Betts (Sheffield South East) (Lab)]

The reality, surely, is that on day one councils will receive what they are currently paying out in council tax benefit, minus 10%. They will have no choice about where that 10% comes from, because pensioners will be protected—we might support that—as will people in work, because councils have to observe the 65% tapers under the universal credit. In the end, therefore, the totality of those cuts will fall on the unemployed of working age, leading to probably up to 20% to 30% of their benefit being withdrawn. If unemployment goes up and more people claim council tax benefit, that will mean either money drawn from other services to fund it or further cuts for those on council tax benefit who are unemployed.

[Mr Pickles]

The hon. Gentleman makes a reasonable point, but I would put it this way:

“Beveridge would have wanted determined action from government to get communities working once again, not least to bring down that benefits bill to help pay…the national debt…He would have wanted reform that was tough-minded, and asked everyone to work hard to find a job.”

That seems a very reasonable way to express it; indeed, those are the very words of the shadow Secretary of State for Communities and Local Government, in his article in The Guardian last week. I am pleased that that approach was also endorsed by the Leader of the Opposition on the “Today” programme this morning, so frankly, I am not entirely sure that I understand the points being made by Opposition hon. Ladies and Gentlemen.

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[Mr Clive Betts (Sheffield South East) (Lab)]

I am a localist. I believe that this country is too centralist and that, in order to further localism, local authorities need to have more control over their own finances.

In 2004, the Select Committee that I now chair produced a report on local government revenue in which it concluded that business rates income should return to local authorities, where it was raised. I have no problem in principle with measures that seek to give local authorities more incentives to encourage development in their areas and that allow them to retain more of the finance raised in their areas, but let us look at what the situation was in 2004. The components of local government finance then were council tax, which councils kept, and business rates, which were taken to the centre and then redistributed, and about one third of local government revenue came in the form of central Government grant and was distributed according to the resources of councils and their needs. Under the Bill’s proposals, there will be a fundamental change. When they are introduced in 2013-14 local government finance will, essentially, come from only council tax and business rates; the Government grant element will go completely.

The Government therefore face a problem. They propose that the council tax will be left as it currently stands, so they have two objectives for business rates. On the one hand, they want local authorities to retain them so they can provide an incentive for development in their areas and have more control over their own financial futures. On the other hand, the Government want business rates to be used as a mechanism for redistribution—for taking from areas with higher resources and giving to areas with greatest needs. That is the fundamental conflict at the heart of the Government’s proposals. They are trying to do two conflicting things with the one tax of business rates.

That is why the proposal is not for a simple retention by local government that everyone could understand, whereby money raised in an area is kept in that area. Instead, we have a complicated system in order to try to ensure that one tax addresses two conflicting priorities. That is why we will now have a complicated system, and one that further centralises power by giving more powers to the Secretary of State. This is centralised localism once again. The proposal fails to achieve what the Secretary of State says he wants, which is to ensure that authorities with great needs have the same amount of resources to spend as previously. All the information we have received suggests that authorities in the greatest need will lose out.

I welcome the Secretary of State’s proposal not to put council tax into the universal credit, as I think it should be kept at the local level. My problem is with the 10% savings authorities are meant to make. Rightly, pensioners will be protected from many of the cuts that that 10% saving will impose. However, if authorities take account of the tapers under universal credit, so there cannot be reductions for those in work claiming council tax benefit, the total burden will fall on the unemployed of working age who claim council tax benefit. Up to 30% of their benefit could be taken away, and if unemployment rises there will be a further reduction in income so authorities will have to cut either other services or, again, the benefits of the unemployed who are of working age.

There is a further issue. Council tax has been a stable source of income for local authorities over the years. It is not like a sales tax or an income tax, in that revenue from it does not tend to fall at times of economic difficulty. Now, however, for the first time local authorities will find that their main source of income, council tax, will go down at a time of economic difficulty. That will create instability at the heart of local government finance. The Select Committee looked into this issue. It is impossible to believe that bringing in a system in a matter of a few months—consulting on it, designing it, bringing in all the new technology required to implement it—will not result in any disasters caused by a failure to implement things properly, and such disasters will cause genuine hardship for people. I do not think this proposal can be delivered with certainty within the time period.

People whose income changes will also find that they have to go to one office for council tax benefit changes and another office for housing benefit changes, which will add further confusion. The Bill does not take that into account.