Local Government Finance Bill

Lord Best Excerpts

Thursday 19th July 2012 Grand Committee

Moved by

[Lord Best]

82: Schedule 4, page 58, line 42, leave out from beginning to end of line 13 on page 59

[Lord Best]

My Lords, I move Amendment 82, and will also speak to Amendments 86 and 93ZA in this group. This will take a few minutes, but I hope that your Lordships will find it worth while.

These amendments all relate to the devolution from central government to local government of decision-making about council tax discount schemes. The Committee has discussed extensively the principle of devolving responsibility for these discounts—the old council tax benefit—from the Department for Work and Pensions to local authorities. The noble Baroness, Lady Hollis, and others have made the case very eloquently that localising the support for those on low incomes has distinct disadvantages over it remaining centralised and becoming a part of the new universal credit arrangements. The Local Government Association, of which I am president, and some Members of this Committee, most prominently the noble Lord, Lord Deben, take a contrary view.

My amendments concentrate not on whether the arrangements should be localised, per se, but on the ways in which localisation can be made to work properly. The amendments are aimed at making the process of localising council tax benefit or discounts fit for purpose by allowing local authorities proper discretion to tackle the difficult position in which they are placed because of the requirement on them to save a further £410 million per annum.

My starting point in pursuing these amendments has not been so much about the principle of localisation but about addressing the implications of the cuts, which could mean taxing many poorer households throughout the country. If the £400 million has to be paid by those currently receiving council tax benefit, bringing them into the tax system where they have not previously been required to pay, those households must dip into other benefits provided for them to pay for their food, clothing, heating and so on. As I spelt out at Second Reading, these are the people who have gained the least from the boom years of the UK economy, and I am anxious that through this Bill their standard of living is not reduced further.

I recognise that I am not going to prevail in reversing a Treasury decision on cutting public spending. I have learnt from previous efforts to spare those on the lowest incomes from the imposition of the new bedroom tax in the Welfare Reform Act that even when your Lordships give wholehearted support to such measures, the other place is very likely to overturn the decisions taken in your Lordships’ House, no doubt using financial privilege as the basis for its objection. But while we may be powerless to prevent this latest reduction in support to local government, because of the overriding necessity for deficit reduction, we can influence the way in which that cut in funding is distributed. In particular, my hope is that we can amend the Bill so that local authorities can safeguard some of our poorest citizens from the necessity to start paying local taxes out of their very low incomes.

From the perspective of local councils, there are practical problems in being asked to raise revenue by reducing discounts on council tax for the poorest households. The cost of collecting council tax from those with no spare income is likely to be very high. Because arrears and the cost of prosecuting those who fall into arrears will be a serious problem, the amount to be found by each council is likely to be much greater than the headline figure of 10% of last year’s council tax benefit bill. Costs seem certain to grow as more people become eligible for help. The 10% CTB cut is clearly an underestimate of where this is all going, and it comes on top of the 28% of cuts in government funding which local authorities are already having to handle.

Amendment 82 and the consequential Amendment 86, which need to be read with the subsequent Amendment 93ZA in mind, start with the premise that local authorities, in facing up to the new cut, need to be able to use their discretion, creativity and sense of priorities in determining who should pay in their local communities. What irks local authorities, in being thrust reluctantly into the position of tax collectors from the poor, is that central government is giving them new responsibilities but denying them the autonomy to decide how best to discharge those responsibilities. In several respects, government is tying the hands of councils and requiring them to implement the cuts in centrally determined ways that are quite counter to the ethos of localism.

My amendments, put together by the Local Government Association, seek to liberate councils from several straitjackets prescribed by Whitehall and thereby to enable every local authority to do what it sees as best in its own local circumstances. Amendment 82 addresses the insistence by central government that current council tax support for pensioners be left alone so that any cuts in benefits fall wholly on those of working age. I have no desire to see the living standards of any poorer households, including any low-income pensioners, reduced at this difficult time. I would want to ring-fence all those least able to pay, as the current arrangements seek to do. But if I were to single out any one group for less harsh treatment, it might not necessarily be the pensioner group.

I say this for three reasons. First, since this is the largest group of claimants, excluding everyone in it has serious consequences for the rest. Pensioners account for 40% of claimants nationally and for more than half of those eligible for the present CTB in a number of local authority areas. In East Dorset, for example, 70% of claimants are pensioners. Preserving the status quo for pensioners hugely increases, and frequently doubles, the burden on the remaining households. Secondly, this Government and their predecessor have done more to improve the position of pensioners than has been the case for the poorest people who are below pension age. The recent IFS report, Pensioners and the Tax and Benefit System, points out that those over state pension age have seen their incomes increase more quickly than those of working age over the past 15 years. Measures such as winter fuel payments, free eye tests, free bus passes, prescriptions and TV licences have given extra help to pensioners.

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In summary, the Government have been clear about how they intend to use their regulation-making powers and, in particular, that they intend to follow the existing system in prescribing support for those of pension credit age and excluding foreign nationals from support. I do not imagine that the noble Lord intends to increase the administrative burden on local authorities and claimants, which would be the effect of Amendment 88D, or to allow support for pensioners to be reduced, which would be the effect of Amendment 82. I am sorry that that was rather a long explanation, but I hope that it will help the noble Lord to withdraw his amendment.

[Lord Best]

My Lords, I am grateful to the noble Lord, Lord Smith of Leigh, for putting his name to my amendment. I am very grateful to the noble Lords, Lord Jenkin and Lord Tope, for their support. The noble Lord, Lord McKenzie, is unable to support the amendment because of the combined effect of the two amendments. I shall respond to his objections, since I hope for support from his side. He objects in principle to the idea that localisation is a way to deal with this issue. That is a fundamental disagreement of principle, and I understand that the Committee is divided on that point. However, if he is unable to secure the amendments he wants to ensure that localisation does not come about, as a fallback, he and his colleagues might consider whether the lesser evil here would be found in allowing local authorities greater discretion to do what they might see as the right thing with the powers that they are going to be given.

The noble Lord makes the point that there is a historic basis for what sounds like a rather pseudo-scientific formula for calculating the 25%. The 25% here is a human invention, based on an assumption that there will be two people in the home and that half of this tax relates to the provision of services. Therefore, if there is only one person, and if one calculated this on a basis that more accurately reflects the real composition of households—and households have got smaller, as we know, over the years—I think that having 1.8 people in the home, and halving that, would create the same position as I find myself in. The precision of a 25% reduction for this purpose is entirely artificial and could be changed if anybody wished it so.

The more serious objection made by the noble Lord, Lord McKenzie, was that this would bring more people into having to make a larger payment than they do at the moment. The average cost across the piece of a reduction from 25% to 20% might be something like 90 pence per person. People in the lower bands, who pay less council tax and for whom the 25% is therefore a lower amount, would have to pay a rather smaller sum than the 90 pence or so per week that would be the average across the piece. I still take the point that some people at the lower end might find themselves paying perhaps 50 pence a week more than they would have done to save people poorer than themselves from having to have their council tax benefit reduced. However, it would be possible to nudge the scheme so that those in the lower council tax bands were not affected and remained at 25%.

As the noble Lord rightly says, more distributional analysis is needed of how one would work it to try to ensure that people on low incomes were not losers in that respect, while still keeping the payment that the rest might have to make at less than £1 a week as a target of the additional cost. That distribution sounds so much more preferable than targeting £3 or £4 a week on the poorest, who currently will have to pay the price of this.

The Minister talked about protection for pensioners. She is very keen that pensioners are not to be harmed by these new measures, as am I. My point is that other vulnerable groups also deserve our attention. Pensioners may not have done as badly as some other groups in terms of other benefit cuts and other ways in which the tax and benefit system have worked over recent years. If it is so obvious to all of us that pensioners need to be singled out, why not allow local authorities, which will no doubt come to that judgment on their own, to make that decision, rather than pre-empting them deciding whether spreading the load more evenly across pensioners would be seen as a preferable route in their own local communities?

I feel entirely dissatisfied that my remedies for trying to ensure that these measures are not harmful to people on the lowest incomes are not meeting with universal approval. However, at this stage, I beg leave to withdraw the amendment.

Amendment 82 withdrawn.