Local Government Finance Bill

Lord Smith of Leigh Excerpts

Tuesday 10th July 2012 Grand Committee

[Baroness Sherlock]

My Lords, the Institute for Fiscal Studies, in its excellent report, Reforming Council Tax Benefit, states rather drily:

“It is difficult to think of reasons why the government’s original plan to integrate CTB into Universal Credit was inferior to what is now being proposed”.

Later on, the report says:

“There is no simple way that making only minimal changes to CTB will allow the new council tax rebate systems to interact with Universal Credit in a coherent way”.

I and a number of other noble Lords here spent months sitting through the stages of the Welfare Reform Bill, now the Welfare Reform Act 2012. This country is spending billions of pounds to create it, and the Government are now creating a scheme that will not interact in any coherent way with that thing that the whole country has now been told to expect.

A number of questions need addressing, many of which were raised by my noble friend Lady Hollis in her very powerful speech; I will ask just a couple. First, how is universal credit as income to be treated in the new system? Do the Government propose to give any advice to local councils? There is nothing very straightforward about this, and it is one of the many questions that every council will have to address. If universal credit is not treated as income, that would be much simpler, but it means that people facing the withdrawal of universal credit in addition to the withdrawal of council tax support, as well as paying national insurance and tax, would stand to lose at least 90p of every extra £1 earned, as my noble friend Lady Hollis pointed out. The alternative is that councils face putting incredible pressure on those who least can afford to bear the burden.

My noble friend Lady Hollis pointed out very well, I think, why council tax benefit and its successors are not basically local benefits. The only thing different about them is the extent of the liability. The reason why council tax benefit is national is because all of the assessments made are related to the extent to which the individual needs help in paying that liability, and that, of course, is shown out. For example, in working out how much somebody should get in help or council tax benefit, the starting point is the applicable amount, as I am sure the Minister is only too well aware. I recommend to him the Welfare Benefits and Tax Credits Handbook, which shows that the applicable amount is the same for income support, income-based jobseeker’s allowance and income-related employment and support allowance; indeed, it is used as the basis for housing benefit and council tax benefit. The point is that council tax benefit is a national benefit because it is designed on exactly the same basis as all the other elements of a social security system related to the need to assess what help somebody needs to meet their outgoings.

It is also based on a national assessment by central government of the amount of money that somebody needs to live on. Separating that out from the rest of the system creates fractures in what has previously been a coherent system. Ironically, it is going in precisely the opposite direction of the creation of universal credit. The point of universal credit was meant to be to bring all the component parts together in one place in order to simplify it both for the individual and for those administering it. Yet now we have a fairly important part of the system that has been broken off entirely and done in a different way.

On 8 March, welcoming the Royal Assent granted to the then Welfare Reform Bill, the right honourable Iain Duncan Smith, Secretary of State for Work and Pensions, said the following:

“The Universal Credit will mean that work will pay for the first time, helping to lift people out of worklessness and the endless cycle of benefits. Whilst those people who need our help and support will know they will get it without question. Universal Credit will, from October 2013, replace the current complex myriad of means-tested benefits with a single benefit system. It will be simpler for people to navigate and harder for people to defraud, but most importantly it will make work pay. No longer will it be possible to be better off on benefits than in work”.

If I were a council leader, I would be asking the Minister this question: how can I structure my scheme of council tax support to do both of the things that Mr Iain Duncan Smith pledges on 90% of the funding? I can see that I could simply cut support to all but the poorest, but that would have the effect simply of reducing work incentives. I could try to protect work incentives, but that would have an effect on the poorest. That is the choice I have. So the question for the Minister is: how can a council structure it so that it can help the poorest to get the help and support they need “without question” and ensure that people are always,

“better off in benefits than in work”?

Can the Minister explain? I have every confidence that councils all around the country are waiting to hear the answer because those that I have spoken to have not been able to figure it out for themselves. If the Minister cannot answer the question, is she going to break it to Iain Duncan Smith, or shall I do so?

[Lord Smith of Leigh]

My Lords, I support my colleagues in their contributions, which covered some of the points that I was going to raise. We thought that in Greater Manchester, where we worked together closely, we would try to work out a scheme of council tax benefits covering the 10 authorities. It has proved to be absolutely impossible. The reason is that we all start from different financial positions and we therefore approach the onset of the council tax benefit scheme from very different situations.

The point that my noble friend Lady Hollis raised about the poll tax is something that we should not forget. In the days of the poll tax, the cost of collection took a huge amount of the revenue that was collected. That was the law, we had to encourage people to pay, and if they did not pay we had to go for them in ways that were not as satisfactory as one would have liked, but that was the only way we could go forward. It created the problems that my noble friend mentioned. The unintended consequence was that a whole load of young people disappeared from Wigan and neighbouring authorities. They never registered for the poll tax; they never registered to vote because that would have exposed them as being liable to the tax; and most of them were probably not too bothered about voting. Someone said they had all moved to Spain. Well, not that many Wiganers were moving to Spain at that time. Again we are introducing a system whereby local authorities will be collecting very small bills from people who find it difficult to pay. In her response, the Minister might provide us with a calculation of the estimated extra costs of collection.

On the point about risk, my noble friend Lady Hollis made it clear that for a local authority the situation is very unpredictable as regards council tax benefit. We can devise a scheme for it, as I am doing at the moment, but I can tell noble Lords that that is not an easy task. The outcome of that scheme is unpredictable because we do not know, even when we set it to start on 1 April, how many people will be eligible to claim the benefit during the year. Clearly, treasurers will be advising local authorities that they have to cover that risk with additional balances. They cannot make an assumption. My authority covers 300,000 people and is therefore relatively large compared with other authorities. The noble Lord, Lord Greaves, comes from a smaller authority, but if, as we mentioned last week, one of the factories in his area were to close, the impact upon the scheme in Pendle would be huge. The money would have to be found for that and, at the same time, as noble Lords will remember from last week, the authority would not be receiving the business rate to cover the increase in benefit—so there would be a double impact.

At Second Reading, the Minister suggested that we can pay for this scheme by the new proposal to end discounts on empty properties and second homes. It may come as a surprise to your Lordships but there are not many second homes in Wigan. It is not a preferred choice for people who want to buy second homes. Unfortunately, that is not a source of revenue that I look forward to collecting money from. What about empty properties? We have empty properties and some have been empty for some time. I therefore asked for some information, and the number is less than the Government seem to think it is. Empty homes in Wigan are a reflection of a number of things. One is the state of the housing market, which is in great difficulties and people who need to sell their houses cannot do so. Maybe they want to move away for work, or have done so and left the house empty, and still cannot sell the property because there is no demand; I notice that the noble Earl’s organisation, the Royal Institution of Chartered Surveyors, has today announced that house prices are going down, revealing the state of the housing market. It is not there. They cannot sell the properties that they wish to sell. Many are people who have inherited properties from their parents and, again, cannot sell the property. Many of these properties are on terraces, so not desirable for modern couples. I cannot believe that there will be a huge amount of money there.

--- Later in debate ---

[Lord Shipley]

My Lords, first, I do not share the concern of the noble Baroness, Lady Hollis, about the capabilities of local government and councillors. Councillors are perfectly able to produce fair and equitable council tax support schemes. However, one problem we have is that timescales are driving the publication of draft schemes very quickly. Inevitably, draft schemes that go out to consultation will be different. After all, lots of things that local government does are different. Council tax rates are different. It would not be surprising, given differences between local authority areas that there may be differences in council tax support schemes. However, timescales are likely to prove too tight. I think that there will be a problem over equalities impact assessments and the timescales that they require. I would prefer a start date of April 2014, but we will come to that in a moment.

The real issues remain financial support, the level of financial support going into those schemes, and the new burdens doctrine. Amendment 73A matters quite profoundly because we are having a debate about the 10% cut and how it should be applied, and I absolutely subscribe to the view that it cannot simply be loaded on to the working poor. I would prefer it, if it is to be applied, to be spread across council tax payers generally.

Secondly, it has become clear to me that 10% is at the low end of what the reality will be. It will be significantly higher than that and, for the reasons that my noble friend Lord Tope outlined, demand is likely to rise and the change of title from “council tax benefit” to “council tax support” is likely to produce more people applying for it. Economic conditions remain difficult and will continue being difficult for the next two to three years; therefore, more people are likely to be applying.

Thirdly, the fixed-grant system that the Government are likely to introduce seems dubious in terms of who will actually decide on which data the government estimates are based. I fear that the estimates of demand over the first two years of the scheme will prove to be understatement. Therefore, the Government should manage the risk. In the context of 28% front-loaded cuts in the current and previous financial years, which have had a great impact on councils’ ability to meet all their obligations, there is a major principle at stake. If we have a new burdens doctrine, it ought to be applied; otherwise there is no point in the Government having a new burdens doctrine. Given the sum of money involved—£500 million, 10% of the £5 billion annual commitment to council tax benefit—this is an acid test of whether the new burdens doctrine has a future.

I sincerely hope that the Government will look again at this whole issue. I have subscribed, in my role as vice president of the Local Government Association, to the view that if you are going to localise—we are trying to devolve and localise—it is entirely appropriate for local government to take responsibility for this. They are the ones who set council tax. Therefore, they are the ones who are capable and should be responsible for setting the level of council tax support, but they have to be able to do it in the context of knowing that that cash will be available and the risk will be managed against rising demand by a Government that is supportive of them.

[Lord Smith of Leigh]

My Lords, in principle I support the localisation of council tax benefit, but I do not support this scheme at all. It will have impacts, and my noble friend Lady Hollis has raised them clearly. She talked about the regional in-fighting that we will have. Certainly, we believe that it will be worse in the area that I represent and many other parts of the country—worse, even than the poll tax. When the poll tax was in place, it was relatively easy for me; I was only chairman of finance. When somebody came to me and complained about the poll tax, I could always say, “The Tories have introduced the poll tax”. We swept all the Tories off the council; it was very easy. But now, when they say, “What are you doing with my council tax benefit support?”, at the end of the day I will have to devise a scheme. That will be down to me.

[Baroness Hollis of Heigham]

It has been done to you.

[Lord Smith of Leigh]

It has been done to me. What options would we have in designing such a scheme? I have shared with my colleagues some of the initial thoughts that we have had in Wigan; we have not got quite as far as announcing what they will be. We will unfortunately not raise the money from the empty homes thing, so we will have to make some anticipation of where the costs will come from. Will they come from council taxpayers? I do not think so. I agree entirely with the noble Lord, Lord Greaves, we are not going to ask for an increase in council tax above the minimum amount that the Government will allow us to have in order to put money into council tax benefit. A referendum on that is certainly doomed to defeat. We will never try that. Will we make cuts in services to put more money into the council tax support scheme? That is an option but as my noble friend Lady Hollis mentioned, the impact of such a policy will be on the same group of individuals who should benefit. They are the people who need and rely on many of the council’s services that are already facing £66 million of cuts over the next few years. Where am I going to find the extra £2 million or so to pay for this? Or we could have to have a scheme that pays lowers benefits than the current scheme. That is very difficult because the people upon whom this will impact are the working poor. They are the ones who will really suffer from this—if we discount some of the vulnerable groups we will talk about in future amendments. I fear for some of the political consequences. The noble Lord, Lord Greaves, and I know of the kind of campaigning done by certain political parties, including the BNP, about people who are downtrodden. They say, “No one thinks about you. Here you are, you are poor and you live in these difficult communities”. Such parties could campaign on those issues.

--- Later in debate ---

[Earl Attlee]

My Lords, I will cover that in my concluding remarks. The noble Baroness, Lady Hollis, suggested that schemes would be determined on the basis of councillors’ prejudices. I refute this, as does my noble friend Lord Shipley. Schemes will have to be constructed by the council, not on the basis of individual councillors’ prejudices. They will not be in a position to take decisions on individuals but will agree to the best system after considering any changes they think they need to make to the current scheme—or they can use the default scheme which, as noble Lords know, is more or less the current scheme.

The noble Lord, Lord Smith of Leigh, made an interesting observation. He said that he supported the localisation of council tax benefits, but not this scheme. If that is so, what scheme would the noble Lord support?

[Lord Smith of Leigh]

One that is fully funded, so we do not have to make local authority cuts.

[Earl Attlee]

My Lords, we would all love to have a fully funded council tax benefit scheme.