Lord McKenzie of Luton
Main Page: Lord McKenzie of Luton (Labour - Life peer)Local Government Finance Bill
Lord McKenzie of Luton Excerpts“Council tax benefit scheme
Nothing in this Act shall prevent billing authorities retaining the provisions of the existing national council tax benefit scheme, such schemes to be fully funded by the Secretary of State.”
Lord McKenzie of Luton
My Lords, I did not know whether we were going to get a quasi-statement from the Minister at the start of our proceedings, but perhaps I may comment on the Written Statement we received yesterday and then move directly to my amendment.
We should thank the noble Baroness for her Written Statement, if not the entirety of its content. This is an astonishing state of affairs. Just 24 hours before we are due to commence our final day on Report, we are told that there is, after all, just a little more funding for local council tax support schemes. Of course we should welcome any new money for councils, even if it is just a fraction of the endless cuts they have endured, added to by an extra £1.1 billion cut in formula grant that has emerged from recent edicts. The extra money, £100 million, comes with strings. Yesterday’s Written Statement said that it was about “best practice” and that the money,
“will be available to councils … who choose to design their local schemes”,
according to certain criteria.
However, the design of the schemes has been going on for months. They have been consulted on by local authorities up and down the country. Councils have been agonising over the impossible choices with which many of them have been faced, trying to juggle the near impossibility of protecting the most vulnerable and maintaining vital services. The Government have been sitting back and watching all this happen, denying that the councils needed more time, refusing to accept that there was insufficient funding in the system for all councils to produce decent schemes, and letting them go through the agony. However, this announcement is not, even at this late hour, really about protecting vulnerable people or having good work incentives. The cynical reality is that this is about the Government trying to get political cover as the consequences of their policies strike home.
What does this mean for local councils who wish to access this funding? Some may not have to change their proposed schemes to access the pot, presumably but not necessarily including those who have opted for the default scheme. Some may have to make considerable changes, although they do not yet know how the pot is to be distributed and how this relates to the cost of any changes they may have to make. Some richer councils, through the use of increased flexibility from the empty properties and second homes provisions of the Bill, are in a position to have already funded a compliant scheme and will get a windfall from it.
Minor changes to draft proposals consulted on may not require reconsultation, but more substantial changes might, and we need proper advice and the opportunity to research this. Councils will have to grapple with the sustainability of all this. The funding is for one year only. Using this money to fund improvements in year one and for what would otherwise be affordable for the council may just mean reverting to the original scheme in year two. However, of course, the risk is that political blame will be visited on the council rather than the Government.
Quite apart from the content of the Written Statement, the process has been a disgrace. Springing this on our deliberations at the last moment does not make for a considered legislative process. Perhaps we should not be surprised, because the record shows that the Government have failed to live up to commitments to have full information, including draft regulations available, in good time.
As for our business today and as already mentioned, we have a number of amendments that affect vulnerable people and relate to tapers and work incentives that, in addition to this announcement, need to be considered fully in the context of schemes already consulted on by councils. We need to consider whether to push these today or at Third Reading. We would be grateful if we could have a clear statement from the Minister on the approach that will be taken to Third Reading and whether what we took to be the Minister’s position from our meeting on Monday will become the reality.
For us, of course, this approach is irksome and inconvenient but councils are having to deal with the practicalities of it now. This is not a good way for government to do business. Ultimately, it is abundantly clear that, even after this 12th-hour panic measure, the Government are still not prepared to insist that all the most vulnerable, including those currently passported to full council tax benefit, should be fully protected. It is to their shame that they eschew this responsibility.
I now turn specifically to the amendment, which requires the Government to fund local council tax support schemes up to the level of the proposed default scheme—that is, as now. In seeking agreement to this, we reject the notion that the Government’s newly announced transitional funding is an adequate response to the challenges that local councils face in creating local schemes. I acknowledge up front that the amendment would deny the Government the savings that they are seeking—some £400 million—but, when they are so minded, the Government have a happy knack of finding resources for a council tax freeze, bin collections and even tax cuts for millionaires.
We have made it clear that we consider the move away from a national scheme to be wholly misguided and, ultimately, not sustainable. However, in the interim, the underfunding of the task given to local government has put many councils in an impossible position—one which the transitional funding does not fully address. Even with this transitional funding, which is to last but one year, millions of people around the country will face rises in their council tax from April next year. At the very time when the Secretary of State is lecturing councillors that they have a duty not to increase council tax bills, his own actions are forcing up the bills to be paid by people on the lowest incomes. The Secretary of State is delegating the responsibility of providing council tax support but with 10% less funding than the cost of the current national council tax benefit scheme. As my noble friend Lord Beecham said at Second Reading, it is passing the buck without passing the bucks. However, as we know, the 10% cut in funding is greater because it assumes that claimant numbers for council tax benefit will fall when they are rising, and it will not protect councils to the extent that the benefit is attributable to council tax increases.
Of course, because councils have properly to keep the benefit to pensioners whole and are cynically reminded by the Government of their duty under equalities legislation and—would you believe it from this Government?—child poverty legislation, the burden of the cut has to fall on others: the working-age poor. This awful dilemma is being presented to councils at the same time as they face unprecedented cuts in their funding—bigger than the cuts imposed on any government department. The latest cuts facing local government are significantly higher than those anticipated in the 2010 spending review.
As things stand, we know that some councils are being pushed to financial collapse by all this, and the cuts in council tax benefit funding will hit the poorest areas the hardest. Those that have already endured the largest cuts will suffer the greatest reductions in council tax benefit funding: Manchester will lose £5 million; Liverpool, £6 million; Birmingham, £10 million; and the City of London, to which we gave special consideration just last week, £27,000.
Through the consultations that local authorities are undertaking, we have a glimpse of how, before the one-year transitional money, they are seeking to address these challenges. The LGA tells us that of some 200 councils surveyed, nearly 90% are looking to require a minimum from all working-age claimants. Half will seek a minimum payment of 20%. The transitional funding may impact favourably on this for one year, but this permits—even encourages, one might say—a minimum payment of 8.5%.
Of course, we acknowledge that the Bill presents some councils with additional revenue-raising possibilities from empty properties and second homes but these are not equally spread across authorities. There are not many second homes in Luton. Securing maximum revenue from these sources will not always be possible anyway. According to the LGA, if half the additional potential revenue could be garnered, it would still leave some 307 councils needing to reduce council tax discounts. One way or another we are faced with the prospect of hundreds of thousands of citizens who do not currently have to pay council tax having to do so. Whatever amelioration comes from some one-year funding, it will not dramatically change that. These, of course, will be the poorest citizens. They are likely also to be those most likely to suffer other cuts, especially those in receipt of housing benefit. The Government have seemingly still not woken up to the problem of collecting a relatively small amount of council tax from poor people who have not previously been required to pay. The amounts may be smaller for one year as a result of the extra funding but it potentially makes the problem worse. It seems that the lessons of the poll tax have been forgotten.
There are other admirable amendments before us today, which one way or another seek to lessen the harm that the Bill will inevitably inflict. In our view they do not go far enough. This amendment would require the Government to fund as now, without the 10% cut. We have seen time and again proposals that have a profound impact on the lives of our fellow citizens. We are instructed that they have to be accepted because the deficit must be addressed. The impact is invariably measured on a stand-alone basis without the accumulative consequences being laid out. The alternative is invariably measured in a narrow juxtaposition and not across the whole sweep of what government can really do. It is time to say no. The 10% cut is too far and it is time for us to stand up for poor people. I beg to move.
Baroness Hollis of Heigham
My Lords, I take pleasure in seconding the amendment. What do Westminster and West Oxfordshire District Council have in common? Not much you might think. One is a prosperous inner-city London borough and the other is a prosperous leafy, rural district council, although admittedly the Prime Minister lives in both of them. However, they are very different local authorities. If the localism agenda means anything at all, one might expect two very different schemes in two such very different councils—Westminster and West Oxfordshire.
Both councils are going for the same scheme—the identical scheme and existing national default scheme. Is that because their local needs are the same? Hardly. Is it because they have identical insights into their locality? Unlikely. Is it because they have a similar demographic make-up? Doubtful. Is it because they have similar economies? Of course not. So what then? What they have in common is that they are both prosperous. As they are prosperous they can afford the existing scheme. That is welcome news for their poorer residents, but elsewhere, as my noble friend has said, councils are leaving the existing national default scheme not because they want to but because they have to—not because of vacuous and deeply cynical mantras of localism but because of the reality of the cuts.
These authorities tend to be the poorer authorities, which do not have the pretty second homes to levy or the comfortable reserves to cover their funding gap. Poorer authorities, with poorer residents, will be cutting their council tax benefit, and those with second homes or deep comfortable reserves who can afford not to choose not to. Some of the poorer authorities may try to revise their schemes for one year, but if they do in the light of the transitional grant, and if it is legal to do so, it will mean that their residents will have three different schemes in three years: this year’s scheme, next year’s scheme at 8.5%, and the third year at 20%.
Local authorities did not want to cut their money for their poorer citizens. Councillors of whatever political complexion did not come into local government to make the poor poorer. Not many want to spend hours, unless they are anoraks, fiddling with various models of tapers, capital limits and contribution levels. Nor—and I am certain of this—do they want to undermine the work incentives of the Welfare Reform Act, as some of these local schemes undoubtedly do, as my noble friend Lady Donaghy will explore. That is why Mr Cameron’s West Oxfordshire District Council, for example, has denounced the Pickles plan as damaging to work incentives, and was absolutely right to do so.
Lord Smith of Leigh
Before the noble Baroness sits down, perhaps I can clarify what I said. I was using cumulative figures of inflation to show the impact on different items. We heard from the noble Lord, Lord True, and the Minister that the problem was that council tax benefit doubled under the previous Government, and, in a financial sense, it did. However, underlying those figures is the fact that the number of claimants did not rise; it fell between 1997 and 2002 and then began to rise, reflecting the changes in the economy, as one would expect. If we look again at the figures for the difference in council tax—if we smooth out the increase in council tax—there was a decrease in payment on council tax benefit, not an increase, so the problem is not council tax benefit, it is council tax.
Lord McKenzie of Luton
My Lords, I am grateful to all noble Lords who have spoken in the debate on the amendment. I am particularly grateful to my noble friend Lord Smith for his interjection on some of the data.
As for procedure at Third Reading, I was not suggesting that we would necessarily consider bringing back this amendment at Third Reading. I was referring to some of our other amendments—on issues such as tapers and vulnerable people, for example—which are affected by a greater understanding of the transitional funding that has just been announced. From the briefing session that we had on Monday we very much took it that there would be some flexibility because of the timing of the announcement. If the noble Baroness is saying that that is not the position then we will have to take account of that as we proceed later today.
Baroness Hanham
It may help the noble Lord if I repeat what my noble friend Lord Strathclyde said. As the noble Lord knows, it is my noble friend and the Whips who guide business in this House, as well as the Companion. The Companion states:
“The principal purposes of amendments on third reading are: to clarify any remaining uncertainties; to improve the drafting; and to enable the government to fulfil undertakings given at earlier stages of the bill”.
Those are the three purposes for coming back with amendments.
Lord McKenzie of Luton
Well, my Lords, it seems that clarifying remaining uncertainties could keep us going for a month of Sundays, given what is outstanding on the Bill and the tardiness with which some of its provisions have been made available.
The noble Baroness talked about the 8.5% maximum that would be required for people to access the scheme. She referred to it meeting the cost. What we do not know is the extent to which it will cover the costs for councils which move from the existing scheme on which they have consulted to the new arrangements. We do not yet even know how it is to be allocated and apportioned. We may know that later in the week; we may not.
The noble Baroness said that it is easy to fulfil the criteria of the new scheme. It may be easy to identify what those criteria are, but how you move from where you are on the scheme on which you have consulted to that position is a completely different matter. There will be a whole variety of arrangements on which people have consulted. I doubt whether the Government have done any analysis on how practical or easy it will be or how costly it will be for people to move from where they are to where the Government want them to be. In any event, even if that were accomplished, that does not deal with the issue of what will happen in year two. I do not see the connection between knowing that this is available in year one and having a better idea of how councils can smooth it in for subsequent years if the plug is to be pulled on the transitional funding.
The noble Lord, Lord True, went on about the deficit and of course the deficit has to be addressed. Our point is: why does this have to be a component of it? Does every line in the government accounts have to cough up some sort of proportion? Why this one? Surely it is right that the Government have to evaluate the consequences of each cut that they are trying to make—and not only each cut. What the Government have singularly failed to do is to look at the cumulative effect of cuts on people. My noble friend Lady Hollis made the point about housing benefit and council tax benefits. We know that those two things often go together and that some people will get dramatic reductions in housing benefit because of underoccupancy provisions: an average of £14 a week. My noble friend Lord Smith referred to the importance of £3 a week for people in some of the poorer areas for which he has responsibility. How are those judgments made? The reality is that they are not, which is why we are justified in bringing forward an amendment on this basis.
The noble Lord, Lord Tope, said that this really was not something for the Bill but if we want to constrain the Government and cause them not to create the upset that they are going to cause by this legislation, what other mechanism do we have? He referred to the amendment of the noble Lord, Lord Best, which we will come on to in due course. We believe that this amendment is a better way of dealing with the situation. The noble Lord, Lord Tope, may disagree but, at the end of the day, the root problem that we are trying to deal with here is the so-called localising of council tax benefit and the massive cut that goes with that process. So long as the colleagues of the noble Lord, Lord Tope, support that approach, they cannot challenge us on where we end up on these issues.
When we heard from my noble friend Lord Smith, your Lordships heard then the voice of somebody who has to deal with these issues on a day-to-day basis and in challenging circumstances. It is not only about the council tax costs that people are suffering and the increases that this will bring but about housing benefit, about what is happening on food prices and about inflation generally. As my noble friend put it, there is also the growth of payday loans and worse forms of lending. That is the authentic voice of someone who is dealing with the chaos that these measures are creating. As he put it, there are no more cuts that can be made in the system and the Government should recognise their responsibility for that. My noble friend Lady Hollis spoke with her usual passion and the great analytical approach that she has to things. Again, that is the authentic voice of someone who is dealing with housing on the ground and knows local government through and through.
We do not have a meeting of minds on this. We see this as a very important issue—
Lord True
Before the noble Lord sits down, will he answer the central point that I put to him? I accept all his strictures about wishing to reduce spending on welfare. However, the effect of his amendment on every council in this country, including my own, is to have responsibility for this decision transferred from where it has been decided—in the other place and in the Cabinet room in Downing Street—to cabinet rooms and town halls up and down the country. If this were passed, I might well say to the Chancellor of the Exchequer, “Right, you pay for it, mate”. I do not think that your Lordships’ House should give the power to local authorities to take those decisions away from the Chancellor of the Exchequer. Is that not the effect of this amendment? Will the noble Lord answer that point?
Lord McKenzie of Luton
Does the noble Lord think that the House should have the opportunity to say to some councils, “You have the right to slash people’s council tax benefit and put them into further poverty”? Does he think that that is the right equation? Of course there are consequences if you have a scheme that covers all councils, just as you would have the same consequences if you went back to a unified system through universal credit or otherwise. However, I would put the obverse to the noble Lord, who seems to be arguing that because some councils should not benefit, we have to hit the poorer councils to stop that. I do not think we can have a meeting of minds on this. To us this is a line in the sand, as my noble friend said, and I would like to test the opinion of the House.
Lord Smith of Leigh
My Lords, I think I should make a contribution on this as well. I declare my interest as a vice-president of the LGA and, in view of the remarks made by the noble Lord, Lord Best, about the discussion he had with the chairman, I should say that I am also the vice-chairman of SIGOMA.
As I said in the debate on the previous amendment, I am having to make some very practical decisions on this matter, and I still think that it ill behoves Members opposite to say that Members on this side are not interested in poverty issues, when they voted Not Content on the previous amendment. Putting that to one side, I found the contributions really interesting. It has been confession time. One noble Lord confessed to being the author of the poll tax and another to being the author of the council tax. Had we time, I am sure that we could debate those issues to a great extent.
However, I agreed with the noble Lord, Lord Jenkin, when he said that one issue about what is being proposed here is that local authorities are going to have the agonies of collection that we had under the poll tax. In fact, before coming down this morning, I spoke to the North West Legal Consortium, which is a group of local authority lawyers. I said I was coming down to your Lordships’ House to participate in this Bill and I assured them that while one outcome may well be that it creates more poverty, it will also create more work for lawyers.
We are getting round to the fact, as I said earlier, that this is actually the poll tax mark 2. We are now in a situation where we are going to take money from the poorest, and to collect it will be very expensive. Local authorities will have that dilemma of whether and how to collect very small sums, when the cost of collection will outweigh the amount of money they will get. But we will have to make those decisions.
I would not have thought that an adjustment in the single person discount would be something that I would be able to support, except in the most exceptional circumstances. I have to tell your Lordships that these are those most exceptional circumstances. This is not a panacea by any means. In Wigan, the shortfall in the council tax support scheme is about £4 million. About a third of households receive the single person discount, just under 50,000 properties, and they get the benefit of about £10.4 million. In my area, a band D property is regarded as something that is not a poor household, but it obviously depends on where you live. The vast majority are in bands A and B, which are poor properties. If I was to try to raise the £4 million simply out of the single person discount, I would be reducing the single person discount by a very significant amount, which would be far more than I could do. So it is not a panacea to the problems that authorities like my own face.
However, and this is probably where I part company with some on my own side, we have already got our hands tied behind our backs because we cannot do anything about pensioner discounts, and we are now having them further tied behind our backs in the sense that we are not allowed to look at flexibilities in other areas. I am having to make really tough decisions about the working poor. Some of the decisions that I might make, such as reducing the single person discount, would not have as great an impact on the poor people of the borough and I would like the flexibility to do so.
As the noble Earl, Lord Lytton, said, there is an interesting contradiction here, where, on the one hand, the Government want to support a single person discount, which allows people to be rattling around in properties that are perhaps too big for their actual needs but, on the other hand, we have agreed to a system where if you are on housing benefit you have to pay bedroom tax. If you want the privilege of that, you actually pay more for living in a property that is deemed too big for you, and here we are giving people money to support them doing that. That seems to be a lack of coherence in policy.
We should trust local authorities. If we believe in localism, local authorities should be trusted to implement the scheme in a way that best meets the needs of all the people in their area. I would not want to reduce the single person discount by a significant amount, but it would help me make more palatable some of the cuts that I shall have to make in council tax benefit.
Lord McKenzie of Luton
My Lords, we have heard from the noble Lord, Lord Best, an authoritative case. As ever, he approaches the issue from the point of view of protecting the poorest in our society. I guess that that makes my task slightly more difficult than it otherwise would have been, because, to be clear, we are not convinced that the proposition is the best solution to the problem that local authorities face. I can understand—my noble friend Lord Smith has just emphasised the point—that local authorities, desperate for some source of funding, could see it as a ready means of getting that, but, as my noble friend Lady Sherlock and the noble Lord, Lord True, said, to change the structure of a tax system just for that reason without a broader approach and analysis is not the right thing to do.
We are concerned that the wording of the amendment does not exclude pensioners. It gives local authorities the discretion to exclude pensioners but does not of itself exclude them. It does not exclude a reduction in the single person discount which is greater than 5%; it would be up to local authorities to do that.
We broadly accept, on the basis of numbers that we have seen and the LGA analysis in particular, which picks up some of the IFS data, that the proposition would in comparison to what is in the Bill produce a generally better redistribution outcome, particularly for poor people. However, if you look at that outcome in the context of the debate that we have just had and the adverse decision that we now face, you see that it is not so favourable. I have not seen from the data that have come across my desk how the proposition works at individual authority level. I concede that, when you look at things in aggregate, you have a less regressive, or perhaps a more positive, redistribution, but what is the impact down at individual authority level? If an authority has lots of second homes and is very rich, it is more likely than a poorer authority to be in a position where it does not have to change the single person discount. In terms of redistribution, that is going in the wrong direction. I accept that the proposition would result in a redistribution that is better than is in the Bill, but it is not as good as we can get and where we should leave it.
The noble Lord, Lord Palmer, charged that we want poor people to suffer. If I may say so, that is a disgraceful thing to say. If he were to look at the record of this side of the Chamber, the propositions that we have advanced, what we have voted for and what we have voted against, I hope that he would see that that is not true. We have just tried to stand up for poor people more positively and more strongly than the noble Lord is seeking to do now. The noble Lord, Lord Tope, said that it was quite inexplicable that we could not put our name to the amendment and engage in the wording. We find it quite inexplicable that the Lib Dems, who have in many ways a proud tradition of liberal thinking and action, should allow the Government to put in place a system that leads to the problem that we are trying to ameliorate with the amendment. That is the fundamental problem that we face. As the noble Lord said, we know that the Government are not going to move on the single person discount. We seemingly know that the Government are not going to move on the 10% cut, so where do we go? This amendment seeks one route to break that logjam; we have tried another which would have a better outcome. That is why we have some concerns with this approach. I accept the strong intent behind it and I accept that there are circumstances where it could lead to a better outcome because the pain is being spread over more people, but that pain would still be spread to some who are fairly low down the income scale, which is not the right thing to do.
I agree with the noble Lord, Lord Jenkin, about collection issues, as I think does pretty much every noble Lord who has addressed this issue. That will be a real problem with the system that we face. Dealing with the single person discount might change that a bit at the margins, but it, and certainly the transitional funding, do not change the problem fundamentally—arguably, they make it worse, because authorities are encouraged to reduce council tax benefit by 8.5% rather than 20% or 30%. They therefore have a smaller sum to collect with at least the same, and arguably greater, costs because of the problems with collection. That is the real issue which I hope will cause the Government to wake up and say that we should deal with this differently.
It is a pity that we did not pursue the issue of a report on the tax base, a theme returned to by the noble Earl, Lord Lytton, and how it would operate in practice, because it would have served us well in due course. The noble Lord, Lord Shipley, talked about child poverty. I simply make the point again: if the noble Lord and his colleagues are seriously concerned about child poverty in our country, they will know that there have been plenty of opportunities during the past couple of years for them to stand up and address that issue in a far more positive way than just supporting this amendment would do. The Lib Dems need to think strategically about where they are going on this rather than pick at something which I accept is very well intentioned and would ameliorate the problem to a certain extent but which in the wider scheme of things is just a sticking plaster on the problem when we need to address the problem itself. We cannot alone cause the Government to change their mind. We and the Lib Dems, with help from Cross- Benchers, arguably could, so that ball is in the noble Lord’s court.
I always hesitate to disagree with the noble Lord, Lord Best, because my colleagues and I have been shoulder to shoulder with him on many important issues where we have challenged and overturned the Government’s wishes even if they have subsequently been pushed back to us. I know that he raises this issue with the best intent, but there are some technical problems, if none other, with his approach which mean that this amendment cannot be supported. It is with some regret that I say that.
Lord Cormack
My Lords, coming in to listen is fatal. I was very taken by what the noble Baroness, Lady Meacher, said. As somebody who did not support the introduction of the poll tax in Scotland and voted against it on every conceivable occasion thereafter, I would hate to think that we are in any sense moving in that direction. I say briefly, but with great feeling, that I hope the Minister, for whom I have genuinely high regard, will be able to give us some comfort in her response, either now or on Third Reading, because the problems that the noble Baroness sketched are for us theoretical, but for those who suffer, they can make the difference between a life and an existence.
Lord McKenzie of Luton
My Lords, we fully support the amendment moved by the noble Baroness. It touches the issues of justice and of practicality. The noble Lord, Lord Cormack, has just emphasised the challenges of collecting small amounts and revisiting the poll tax. This is, in part, genuinely saving the Government from themselves. I hope the Minister will not pray in aid the transitional funding because that simply does not address the problem. It might ameliorate it at the margins, but it does not deal fully with the very substantial issue that the noble Baroness has raised.