Local Government Finance Bill

Lord Palmer of Childs Hill Excerpts

Monday 22nd October 2012 Lords Chamber

[Lord Shipley]

My Lords, I agree entirely with the noble Lord, Lord Smith, that this is the best of the options that we have available. Crucially—and it is the reason why I thought that the Government might be willing to accept it—the amendment would cost them nothing.

In her Written Statement last week announcing a £100 million transitional grant, the Minister said that it was,

“to help those councils who choose to do the right thing”.—[Official Report, 15/10/12; col. WS164.]

The problem with that is that it does not recognise that many councils cannot do that. There are several reasons why this is the case. We have heard reference to the council tax freeze—last year, this year and now next year. Last year was fine, because the Government built into the baseline of all local authorities the amount that they had lost through the tax being frozen, but, in this financial year and the next financial year, no money has been or will be built into the baseline. That means in practice that councils will have to absorb inflation and rising costs.

There was an expectation that councils, in being able to tax at 100% empty or second homes, would be able to make up the gap in their finances. The problem is that many councils do not have many empty homes or second homes and therefore cannot use that means to make up the gap in their finances.

We should also note, as I reminded the House on Report, that according to figures from the Institute for Fiscal Studies, councils in poorer parts of England have had budget cuts since 2010 at almost three times the rate of councils in the south of England. That is partly a result of the loss of working neighbourhoods funding.

The consequence of all these factors is that many councils have no flexibility or room for manoeuvre. This amendment would give them some extra flexibility. It would mean a small extra weekly sum from a large number of working-age, single person households, most of which have had a freeze in council tax for the past two years and would otherwise have a freeze next year. It would be enough in most cases to take poor working-age households out of paying council tax, thereby preventing a regressive tax being implemented.

Last week, at Report, I reminded the House of a statement made by the Deputy Prime Minister a few days ago. I shall repeat his words because I think they are hugely relevant. He said:

“As we have to tighten our belts … as we have to make more savings as a country … you start at the top and work your way down, not the other way round”.

I agree that those who are poor should be protected. The reason why I give my full support to the amendment is that it does just that: it protects the poor better than the Bill. Given that it has the full support of all political groups on the Local Government Association, I hope that your Lordships’ House will feel able to support it.

[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.