Lord McKenzie of Luton
Main Page: Lord McKenzie of Luton (Labour - Life peer)Local Government Finance Bill
Lord McKenzie of Luton Excerpts
Lord McKenzie of Luton
I am sorry, I was slow to get to my feet. We speak in full support of this amendment, moved so comprehensibly by my noble friend Lady Hollis. I am delighted that it also has the support of the noble Lords, Lord Shipley and Lord Best, who made a hugely important point about the collection of issues coming down the track, particularly from next April, and the need to look at those on a comprehensive basis, as well as the importance of any review being independent.
As we discussed throughout our deliberations on the Bill, the council tax support scheme represents a major change to the benefit system, affecting millions of people. We know that it has been introduced with inadequate funding and, further, has been introduced at a time when probably the biggest change to the social security system since Beveridge is being phased in, with universal credit. As my noble friend made clear, we consider that council tax reduction schemes should revert to being a national, demand-led benefit, as now, inculcated into universal credit, and this amendment seeks a recommendation of an independent review on this issue. But it does not insist on it, and this is not the only issue that it wishes to be the subject of the review; it seeks a comprehensive look at how the localised system is working.
The fact that local authorities have had to operate council tax benefit schemes does not necessarily make them experts in the design of such schemes. Of course, designing an individual scheme that has to work alongside and be consistent with other national benefits, the rules of which are still to a certain extent being worked out, is particularly problematical. The design must lead not only to a system that is practical and efficient to operate but one that addresses the needs of the poor and most vulnerable, while also containing adequate work incentives. It is clear that the variety of schemes on which local authorities have been consulting do not all meet these criteria; proposals include requiring minimum payments of 20% or 30% for all working age claimants, introducing a maximum limit, increasing tapers, reducing savings limits and counting child benefit as income. Having espoused the mantra that it is up to local authorities and not central government, at the 12th hour the Government have had to come forward with a package to encourage local authorities to comply with some national norms—a taper rate of not more than 25% and those currently passported to full benefits to be subject to not more than 8.5% of what would otherwise be their full liability.
The extent to which the package is sufficient, with just one year and less than one-quarter of the funding cut imposed, remains to be seen. Early evidence is that it is insufficient. It still leaves the prospects of the poll tax mark 2 and horrendous collection problems for local councils. The point is that on the first consultation by many local authorities, many proposals diverged from some key principles which the Government at least nominally sought to encourage, particularly protection of vulnerable people. That is because councils have been left with impossible choices—poll tax mark 2. The Government of course hope that this will all settle down; we think that they are wrong—but an independent review within three years will test that matter.
Lord Palmer of Childs Hill
At this stage, we get down to essentials, as we did in the previous amendment. That amendment addressed the crux of the problem. I appreciated what the noble Baroness, Lady Hollis, said about this being in the universal credit. That has come through from various noble Lords. However, we are where we are, as my noble friend Lord Tope said, and we must deal with that.
The important thing about the amendment is that it gives discretion to local authorities. That discretion is important. Speaking as a councillor in the London Borough of Barnet, I believe that that would help my council, although it would not help all councils. It is an extension of the localism which we debated previously. This amendment and the previous amendment tabled by the noble Baroness, Lady Hollis, support the poorest in society. That is why, contrary to my normal beliefs, I voted for the previous amendment and will certainly vote for this one.
My noble friend Lord True spoke about the difficulties that it would impose on local authorities to have the change at this late stage and asked how it would help. As I said, local authorities have discretion whether to do this or not, and that discretion does not have to be applied this year—it could be applied next year. Many local authorities may decide to use their part of the £100 million in transitional relief this year to ease the pain but, as I pointed out on Report, it will help only this year. By next year, the amendment, building on the review suggested by the noble Baroness, Lady Hollis, will mean that local authorities can achieve my aim and, I hope, that of many noble Lords: to help the poorest in society.
My noble friend Lord True said that that was swallowing a spider to catch a fly. Without the amendment and the previous amendment, the Bill is a particularly dangerous fly and I think that it is worth swallowing the spider.
Lord McKenzie of Luton
My Lords, let me start with a point of agreement with the noble Lord, Lord Tope, which is that the Government—his Government—have underfunded the requirement placed on local councils to introduce local council tax reduction schemes. That is the root cause of the problem that his amendment is intended to address.
It is now widely recognised that the cut in grant to support local schemes is more than 10%. For a start, the national control total is based on falling claimants, although the reverse is the case in a number of areas. That is to the disadvantage in particular of those areas which have been hardest hit by the extended recession. The IFS estimates that the grant for support—this is before the transitional grant—will cover only 81% of the costs of claimants nationally and that for one in 10, the figure will be less than 75%, a grim prospect indeed.
I say to the noble Lord, Lord Tope, and his colleagues in particular, that they accept this position as an inevitability. It is not. We are in this position because they as part of the Government do not knock on the Chancellor’s door or lobby Ministers to get a different outcome. It is in their hands to do it. They can influence their coalition partners better than we ever can. If they could do that, it would be a much more effective way of dealing with what we agree is a very serious problem.
In moving the amendment, the noble Lord explained, and other noble Lords reiterated, that this amendment differs from the amendment moved by the noble Lord, Lord Best in two respects: it gives discretion to local authorities to reduce the single person’s discount by up to 5% so that it cannot be lower than 20% and it does not allow local authorities to change the discount for pensioners, who are protected from any such change. However, as the noble Lord, Lord True, said, it does not address all the issues raised when we debated the amendment moved by the noble Lord, Lord Best. This more restrictive proposal will still have the effect of increasing levels of council tax support, other things being equal, because it will increase council tax levels for some, pushing them into the scope of the benefit. The LGA argues that an average reduction of 5% in the single person’s discount for non-pensioner households coupled with the use of the discretion on empty properties and second homes would close the funding gap for most authorities. It is further argued that this would involve spreading the pain of the cuts so that more people would be contributing, but contributing a smaller amount, towards the shortfall. This may well be right, but it does not necessarily make the resultant distributive effect of the outcome acceptable.
We should also recognise the point made by the noble Lord, Lord Shipley, that not all councils have an equal ability to raise revenue from other freedoms in the Bill. Second homes, for example, are not evenly spread. One of the difficulties with the noble Lord’s proposal is that looking at aggregate in the position is all very well, but things are played out at individual local authority level. This is supposed to be the essence of localism, which the noble Lord supports. The IFS has done some modelling of the proposition, albeit with a 7.5% reduction in the single person’s discount, and I believe that the thrust of analysis holds good. One of its conclusions is, unsurprisingly, that changing the discount would produce more in relatively prosperous areas than in poorer areas. The prosperous areas, which are likely to have lower demands for council tax support and more income from second homes, would be able to retain a higher level of single person’s discount than poorer areas. It is all right for the rich; it is the poorer areas that will bear the consequences of this. Further—and, I grant you, with a 7.5% reduction in the single person’s discount—the IFS estimates that losers would include 20% of the poorest income decile group, 16% of the second poorest income decile group, 22% of the third poorest income decile group and 86% of lone parents in work. This is reinforcing the point that in many respects the proposition requires the poor to pay more to protect the very poor.
We well recognise that councils whose resources have been cut to the bone and are struggling to protect the most vulnerable see this as a lifeline, and I understand where my noble friend Lord Smith is coming from, but there has got to be a better way. Frankly, if the noble Lord is supporting an increase in the tax base by a change to the single person’s discount, it would be more logical for him to argue that there should be a mandatory change at national level and the additional resources should be reflected in the local government settlement with a redistribution in favour of poorer areas. That would be a better way to approach it, but that is not his position, nor is it ours. As we argued on Report, the answer is for the Government to provide proper levels of support. The Government have implicitly recognised this in providing the transitional grant but, as ever, that is too limited and time-limited. I suggest to the noble Lord that by pressing this amendment he is seeking to let his Government off the hook and asking poor people, among others, to pay the price. We cannot support the amendment.
Lord McKenzie of Luton
Will the noble Lord tell me what he and his colleagues have been doing for the past two and a half years?
Lord Tope
My Lords, as the noble Lord never ceases to remind us, we are actually part of the Government, and willingly so. We have been lobbying for a long time on this issue. I do not lightly bring an amendment to the House which I know that my coalition partners cannot agree with. I do so because we are at the very last stage of the Bill. This is the last opportunity that any of us in this House have to do something about it. I am now going to give the House the opportunity. I beg leave to test the opinion of the House.
“Guidance to authorities
The Secretary of State shall issue guidance to local authorities as to what persons or category of persons shall be deemed to be vulnerable for the purposes of ongoing council tax support.”
Lord McKenzie of Luton
My Lords, this is a straightforward issue which was the subject of much debate in Committee. The amendment requires the Secretary of State to,
“issue guidance to local authorities as to what persons or category of persons shall be deemed to be vulnerable for the purposes of … council tax support”.
This issue has to be revisited in light of the actual scope of schemes on which local authorities have consulted and the Government’s reaction by way of the transitional grant. Hitherto, the Government had set their face against prescribing the protection which councils should provide for vulnerable groups and the nature of that protection, other than for pensioners where statutory protections have been included. They have reminded local authorities of their equality duty, the duty to prevent homelessness and the obligation to mitigate child poverty but have washed their hands of greater engagement on the subject.
What effect has this had on councils in drafting and consulting on schemes? The LGA tells us that councils are seeking to give protection to vulnerable groups through their equalities impact assessments, although the outcome of this has not been analysed. Apparently, the groups identified in consultations as being vulnerable are people with a disability, lone parents with children, carers, war widows and young people leaving care. Notwithstanding this, some of the draft schemes appear to pay scant regard to protecting vulnerable people. There is a common theme of everyone of working age having to make a minimum contribution—perhaps 20% or even 30% of the liability. Some draft schemes look to include child benefit and maintenance payments as income.
In introducing the transitional grant, the Government have expressed their concern that while some councils are doing their utmost to avoid increasing the burden on those currently on benefits, who are vulnerable by any definition, other councils are asking, or being forced to ask, for significant contributions. Therefore, the Government are seeking to drive a national uniformity of approach by making transitional grant available if certain criteria are met. In particular, as we have just discussed, the funding can be accessed if those currently on 100% council tax benefit are supported so that they pay no more than 8.5% of what would be the full liability.
Baroness Hanham
The document makes it quite clear that councils have a responsibility, if nothing else, under the Equality Act to ensure that they treat everyone fairly. I think that would take account of what the noble Baroness has said.
Lord McKenzie of Luton
My Lords, I thank my noble friends Lady Hollis and Lady Lister for their support for the amendment. My noble friend Lady Hollis ranged over those draft schemes which, to her knowledge, are in a different place on a whole range of different components. She made the point about how local schemes undermine the import of national benefits, particularly DLA. My noble friend Lady Lister questioned whether there was any serious attempt on behalf of the Government to ensure that vulnerable people are protected.
The Minister said that she would reissue the guidance, such as it exists, which is to be welcomed. However, it does not go very far. Is not the lesson to be learnt from this that when you saw how schemes were being developed, what consultations had taken place and what was emerging from that, there was clearly insufficient protection for vulnerable people in many schemes? I think the Minister recognised that. That is still on the basis that councils, in the Minister's terms, should be well aware of their equalities duties, homelessness duties and child poverty duties. They are already in a position where they should be aware of that framework, yet they are still, as we know, being forced, due to a lack of funding, to come forward with schemes that simply do not protect vulnerable people sufficiently and the Minister herself has recognised that. That is why the transition grant had to be brought in, in a sense, to try to bend what individual councils were doing into some sort of national criteria.
One would have thought that that experience would validate the need for some ongoing guidance because that grant will disappear after a year and the import of it will dissipate over time. It is a great pity that the Minister and the Government do not feel able to do more on this front. It is a very critical time for local council tax support schemes. We know that funding is very tight and we should be doing absolutely everything that we can to protect the most vulnerable. This is an opportunity for the Government to be part of that. I regret that they are choosing not to do that. Having said that and given where we are, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
I support the amendments of both of my noble friends. They speak for themselves very powerfully and there is nothing I can add that would help them on their way.
Baroness Hanham
Rather than rising to speak, the noble Lord was nodding his head, so I was not sure whether he was going to intervene. We shall have to come to an agreement for the next two groups of amendments.
Amendment 2, moved by the noble Baroness, Lady Sherlock, and Amendment 3, spoken to by the noble Baroness, Lady Donaghy, are concerned with the interaction between the local schemes and work incentives. I share the concern that work incentives should be supported. That is why earlier this year the Government published guidance to which the noble Baroness, Lady Sherlock, referred, setting out the key features that local authorities should consider including in their schemes to support work incentives. All noble Lords have acknowledged that the transition grant scheme will provide a financial incentive for local authorities to implement those schemes that support work, ensuring that there are no cliff-edges—that is the 25%—as claimants enter work and increase their earnings, and that support is tapered away steadily as their earnings increase. Amendment 2 is intended to control the rate at which council tax support and other benefits are withdrawn to help preserve those work incentives.
In Committee we set out our intentions for the default scheme that will come into force if a local authority fails to adopt a local scheme. We clarified in particular how we intended to take universal credit income into account in that scheme. Officials from my department have continued to work closely with officials from the Department for Work and Pensions to refine the proposals we set out earlier this year so as to ensure that the default scheme avoids unintended interactions with universal credit and supports the strong work incentives that universal credit was intended to deliver. Indeed, my officials have discussed this with the noble Baroness, Lady Sherlock.
The approach set out in the default scheme to treating universal credit income clearly supports work incentives, and I will expand on two key features. First, universal credit will be tapered away by 65% before it is taken into account as income under council tax support schemes. This means that the 20% taper under the default scheme will apply only to residual income once universal credit has been tapered away, and helps to control the overall withdrawal rate. For people below the income tax and national insurance thresholds, the combined marginal deduction rate would be 72%, which for many households would be a significant improvement on the current system. Secondly, the default scheme reflects the fact that universal credit will allow people to earn more income before it starts to be withdrawn. The default scheme allows for council tax support to be withdrawn earlier, minimising the extent to which the means tests interact. Local authorities will not be required to treat universal credit cases in the way provided for in the default scheme, but there are very good reasons why they should want to use this framework as a starting point.
Amendment 3 is intended to require local authorities to have regard to work incentives in designing their local schemes. As I explained when this amendment was first tabled in Committee, I agree with the noble Baroness that work should be supported. As I have said, the Government have published guidance that will help authorities to do that. We are very happy to revise and reintroduce this guidance in order to set out clearly the approach that the department is taking to provide for the treatment of universal credit in the default scheme and to emphasise the benefits of this approach to local authorities, which I think is more or less what the noble Baroness, Lady Sherlock, is asking for. I am also content to use the refreshed guidance to set out the implications for work incentives of increasing the taper rate to help local authorities in their considerations. More particularly, officials will continue to discuss the content of the guidance with the two noble Baronesses as it is developed, and I am very grateful to them for their constructive contributions. I hope that, with their help, we will be able to produce guidance that they can accept. While I cannot accept the amendments, I hope that my assurances go some way to addressing their concerns.
Baroness Thornton
My Lords, I take the opportunity offered by these government amendments to Schedule 1 to raise the issue that I have been pursuing throughout the course of this legislation, which I discussed with the Minister last Thursday, and to seek clarification at this last stage of the Bill. I declared all my interests at the previous stages of the Bill and they remain the same.
I shall not rehearse the arguments that we have already heard in this House. I am grateful to the Minister for her time at the meeting on Thursday. I also thank Sporta, SEUK, my noble friend Lord McKenzie and the noble Lord, Lord Best, for coming along to the meeting and lending their support and great expertise. I was also able to inform the Minister that the noble Lords, Lord Shipley, Lord Tope, Lord Adebowale, Lord Mawson, Lord True and Lord Smith, sent their apologies. I thank the Minister and her team for the letter which she sent to me and copied to all those concerned.
I am sure that noble Lords and others are very pleased that, at last, the Government seem to recognise a problem which the political parties, the Cross-Benchers and all the organisations concerned with community-based charities and mutuals have articulated for months. Sporta, in particular, has been active in doing most of the leg-work research and in meeting officials during the summer. However, it is a matter of regret that the Government have decided not to take action on the concerns of a wide range of local community organisations with charitable status during the course of the Bill.
In her letter to me the Minister referred to, “the persuasive arguments that you and your advisers have used”. However, she also said that the department would need to see evidence of the problem. I think the fact that all the leaders and ex-leaders of councils in this Chamber and all the organisations concerned at community level are clear that there is a problem should be persuasive. However, all is not lost. The Minister also informed us that a way of addressing the issue is provided by the amendments that were brought forward on Report specifically with enterprise zones in mind. The Minister’s letter gives a broad assurance that, “the same powers could be used in respect of other reliefs such as charitable relief”. The Minister will not be surprised to learn that what I am seeking today is confirmation of that and that the powers can apply to the central funding of all mandatory reliefs given by all local authorities to charitable organisations, should we be able to persuade the Government of the rightness of this decision in the next year.
I would also welcome confirmation from the Government that they will open their doors to the evidence which the many charitable bodies associated with this cause will work hard to gather over the next period and that they will assist the main representatives of these bodies to understand how and when to present this evidence to the department. Indeed, can a specific mechanism be offered to do this? I would also like to take this opportunity to encourage local authorities to co-operate in supplying evidence of the effect of the legislation on their decisions as regards the formation or expanded use—or otherwise—of local charitable organisations. Indeed, I intend to raise this issue with the Local Government Association. This is especially necessary if, as is feared, such decisions are taken with negative effect at an early stage in the consideration of options.
In the year of the Olympics, the Paralympics and the big society, we are concerned about the impact that these changes might have on sport and exercise for the disabled, the less able, the old, working mothers—everybody, actually. I know of no one in the sport and leisure field who has welcomed these proposals. Indeed, Social Enterprise UK has written to the Cabinet Office about the policy clash produced by these proposals and advised the Minister on why the Bill could have a damaging effect.
We suspect that the impact of these proposals will be damaging for the future of theatres and museums outside London; in other words, there will be fewer of them at local level. Social Enterprise UK believes that, as time moves on, this policy could have a chilling effect on new proposals in the Localism Act for the right to bid and the right to challenge community facilities by local charities, so a great deal is at stake. I thank the Minister for her help with this and for the meeting and the letter. I hope that she will feel able to reassure me that arguments will be heard at an early stage and that adjustments will be considered before too much damage is done.
Lord McKenzie of Luton
My Lords, so far as the government amendments are concerned, I understand them to be consequential and to correct other parts of the Bill. I am grateful for the short briefing note that the Bill team gave us. I have no problems with these amendments.
As for the contribution by my noble friend Lady Thornton, I, too, thank the Minister for her engagement and the engagement of the team, and particularly for facilitating the meeting last week. I hope the Government will be able to put on the record the assurance that was given at that meeting, particularly as it concerns the prospects of dealing with the matter through secondary legislation, once the Government become convinced, as I hope they will be, that we do not need to amend primary legislation.
Baroness Hanham
My Lords, the noble Baroness referred to mandatory and discretionary rate relief under particular circumstances. She kindly did not put an amendment forward, but she has done very well in getting her speech recorded in Hansard so that there is no escaping what she has been talking about. I gave her two clear messages when we met. One was that while we accept that there is concern about the effect of the percentage amount of relief available to charitable organisations, we are not totally satisfied that it will have the effect that she thinks. If the organisations that were there provide good evidence and the Government decide that it is of serious significance, there are measures within the Bill that would enable us to make the changes that she seeks. I am very happy to see her again if that should be necessary.
Baroness Hanham
No. Local authorities have their different transitional schemes. A transitional scheme has come in. It will provide local authorities which wish to take it up with extra resources to help them ease into the new system. They must know themselves if they decide that they need it. In many cases, it will not be necessary but, if they need to, they will take that advice.
Local authorities now know what they are going to get from the transitional relief; that has already been published. They will know whether they need to change their scheme according to what they have received from transitional relief and on the basis of what they are proposing if they are going to amend it.
I do not believe that they need extra time. January 31 is, after all, a full four weeks. Most local authorities can undertake a quick consultation on this. I imagine it will be very limited indeed. Most local authorities which are principal authorities are very quick and adept at having consultations with other councils. I must resist the amendment on the basis that it is completely unnecessary.
Lord McKenzie of Luton
My Lords, I respond on behalf of my noble friend as this is the last time that we will be speaking on the Bill. With great respect to the Minister, she has not fundamentally dealt with the point that my noble friend was probing. We accept that it would be up to local authorities to make a judgment as to whether or not they needed to consult. However, given where they are and the processes that councils have to go through to come up with a revised scheme—and sometimes the agonising decisions as to whether they can put in the additional funding to close the gap because the transitional money is not going to cover it all in many circumstances—I wonder whether there is time to do that. It would be perverse indeed if, in attempting to take advantage of these provisions, the system simply did not allow them to do that in time to hit the 31 January deadline. That is the point that we were pressing, and it has not been fully addressed. However, we are where we are on it.
I close by saying a brief thank you to some people, certainly to the Minister and the Front Bench for engaging on this Bill and to all noble Lords who have participated. Around the Chamber, we have seen a lot of expertise and wisdom, some of it very long-standing, brought to bear. I certainly thank my team, both Back Bench and Front Bench. I conclude by thanking the Bill team. I know that we see a bit of what the Bill team does. A lot goes on behind the scenes and I am grateful for what it has done on this piece of legislation.
Baroness Hanham
Having seen the noble Lord rise, I apologise for the number of times that I have tried to out-step him throughout the Bill. I am grateful for the noble Lord’s good humour. I am grateful to all Members of the Opposition for the way in which they have put their amendments. I am particularly grateful to those of my political colleagues who have, in most cases, supported me. I have enjoyed taking the Bill through the House. I also thank, of course, my Front Bench and also the Bill team who has been completely outstanding.