Local Government Finance Bill

Debate between Clive Betts and Edward Leigh

Tuesday 31st January 2012 Commons Chamber

[The Temporary Chair (Mr Edward Leigh)]

Order. We are in danger of straying into the next group. Please keep in order, Mr Betts.

[Mr Betts]

My right hon. Friend is right to say that the time scale is incredibly tight and there are so many potential problems associated with the measure that Ministers really ought to think them through. In the end, the problems will be created not for councils, but for people on low incomes who need benefits simply to sustain themselves. They are the ones who will be damaged if this is got wrong.

Altering the responsibility for any future changes in the number of people claiming council tax reductions is a fundamental shift. Now, if more people claim the reductions, the Government pick up the bill; in future, councils will. The present arrangements, with the Government picking up the bill, make council tax revenue very stable for local authorities. One of my criticisms of previous Lib Dem proposals to scrap council tax and introduce local income tax was that it would make local councils’ revenue unstable, putting them at risk in times of recession, as we had in 2008, and undermining their financial base if unemployment rises. That is a real problem.

Some of us went on a parliamentary trip to the United States after the recession. We talked not only to local authorities, but to states whose budgets were cut to shreds by the recession and the associated decline in their income tax and sales tax revenues. They became unstable because they could not borrow for revenue, just as our local authorities cannot. The current compact between central and local government is that although local authorities cannot borrow for revenue, they know that their revenue will be stable. They set their council tax and they know they will receive the money—council tax has a very low rate of non-collection. That is why I understand the amendment tabled by Labour Front Benchers to compensate councils for changing revenue in-year. There is a real risk not only of longer-term instability for councils, especially those in areas that start to experience economic decline because of the collapse of a particular industry and more people therefore claiming reductions, but in the increased uncertainty for councils year on year. Councils will no longer have certainty. If they do not know whether unemployment will rise in their area and they do not know how successful a campaign to persuade more people to take up the reduction scheme will be, councils cannot forecast their revenue with the normal degree of accuracy.

Ministers do not appear to understand that. Until now, there has been a clear system in this country in which councils cannot borrow for revenue, but they can be sure that revenue will come in so they do not have to borrow. They can set their budget for the year with a good degree of certainty. Ministers appear not to have tackled that issue at all. Local government in this country has been absolutely sound and stable throughout all the recent economic difficulties. The proposed scheme introduces an element of doubt at a time of great turbulence in local authority revenues, when grants are being cut and there is great pressure on services. The Government should think carefully before adding this extra potential for loss of revenue—this extra risk—by pursuing the scheme in such a short time scale.