Local Government Finance Bill

Lord True Excerpts

Tuesday 12th June 2012 Lords Chamber

[Lord True]

My Lords, I declare an interest as leader of a London borough council, though not the one who served for 16 years, and as a member of London Councils’ Leaders’ Committee and of the assembly of the Local Government Association. That may be enough to make most people’s hearts sink. We all know that mentioning local government finance in the 21st century is like mentioning the Schleswig-Holstein question in the 19th. Almost nobody understands it and, given all the changes we have seen over recent decades, some of the few of us who thought that we understood it will soon find that we have forgotten it all. I may be told that later in the debate by my noble friend when she winds up.

None the less, this is an important Bill which affects many people, as other noble Lords have said. I join those who welcome the moves on TIF, albeit some have said that they do not go far enough. I also warmly welcome the first steps towards localisation of business rates. Business rates were nationalised a generation ago at a time of fear over soaring demands by some local authorities. Today, the political life of Mr Ken Livingstone is, thankfully, over and the spirit of “force tax up as far as it will go” is largely spent. Most authorities, given more authority over business rates, would act wisely. We recognise the importance of business, growth and jobs. Shops and businesses define our local communities and it was high time for this power to begin to come home. The party opposite was wrong to resist that when it was in power. I hope that it will support it now that it is in opposition. I warmly congratulate the Secretary of State and my noble friend Lady Hanham on taking this step. Unlike some, I understand my noble friend’s wish to retain 50% of the proceeds for the immediate future, but I join others in hoping that this Treasury derogation from localisation can be uncoiled a lot sooner than 2020, as I gather is currently suggested.

My noble friend stressed that no authority would lose. That is welcome. I understand the wish to base new approaches to local government finance on existing financing levels. It makes for a simple life for central government. However, as some have pointed out, fixing levels can fix many forms of rough justice. From my standpoint, those authorities that were long discriminated against by the old funding formula, or which, for spatial reasons, have limited capacity to increase business rates, should not be expected to suffer a decade-long financial penalty.

I hope that a way can be found to reflect the position of authorities whose residents make a huge contribution to economic well-being and growth, but do not make that contribution within their own local authority’s borders. You can see who they are and which authorities those are if you go to any suburban railway station or stand by any major road outside the centre of London or our other major cities during the rush hour.

We need consideration for authorities that feed the growth of businesses, shops and factories in our major cities. We occasionally seem to be falling into the error of believing that you get growth only by pouring concrete into every given locality. Labour is dynamic and a good business-tax system should recognise that. It is one reason why I am open to positive consideration of pooling arrangements. I welcome what my noble friend said about that in her excellent opening speech.

I now turn, perhaps with less enthusiasm, to the other major aspect of the Bill—council tax support. I start by expressing thanks for the initial discussions that I and other noble Lords have had with departmental officials, and I look forward to future discussion, particularly with other noble Lords, when we get into Committee. That discussion is vital and, as others have said, cannot exclude consideration of the timetable for implementation.

As others have said, the Bill may not complete its passage until October or even November. Meanwhile, scores of local authorities are being invited to set up mini-welfare systems—with risks of employment trap, unintended effects and other effects that have been mentioned by other noble Lords—when many final financial decisions are yet to be taken and some critical information is still not available. In those circumstances, I must join my noble friend Lord Tope who said that the timetable for decision by January 2013 seemed challenging. It may even seem to be a little heroic to some. Heroism can be a splendid thing but can be rather unwise.

I support localism but share the regret—it is a done deal, as I understand it—that council tax benefit was not rolled into the widely supported scheme of universal credit, whereby the needs of a whole person or family could be reviewed as one. Instead, London, my city, may have 33 different benefit systems in place by next April, if the Government’s plan works. The help that you may get may be different if you live on one side of the road than if you live on the other side. In such cases, the pressure will be on to equalise schemes up to the more generous ones.

Unlike many others who have spoken, I understand and support the need for spending cuts. Indeed, the Government’s actions across the board have not been forceful enough. Current levels of public spending are unsustainable and no debate about the use of public resources can ignore the continuing explosion of public debt, which will have surged by £85 million during the time that today’s short debate is estimated to take. However, I would have preferred the spending reduction to have been included in the rational and coherent whole of a national universal credit, or that if the money were to be required from local authorities—that is a perfectly legitimate demand from the centre—we had been asked to make a further cut of £500 million from overall spending rather than being invited to set it onto a narrow spectrum of residents who receive council tax support.

I do not want to repeat what others have said about the narrowing of the base from which savings are to be made. Pensioners, who in my authority account for more than 42% of claims, are already exempted by the Government’s request, whatever their wealth. No doubt, other exemptions will be suggested in Committee by noble Lords. Therefore, the notional cut in the level of support for local non-pensioner claimants is already nearer 18% in my borough, which is roughly similar to the 19% figure that others have used. Richmond is not the hardest-pressed authority. We have to save only the equivalent of just over 1% of council tax. Yet, within those figures, we have 5,800 non-pensioner claimants, of whom 1,700 are working, with an average weekly claim of £21; 3,400 claim income support or jobseeker’s allowance, with an average claim of £26; and just over 700 non-earners—people in receipt of benefit but who are not passported—with an average claim of £22 a week.

My noble friend Lady Hanham was right to point out the large-scale expansion in council tax benefit spending. Noble Lords opposite are wrong to say that any reduction in this area of spending must end in disaster. No doubt some of these payments could be reduced but—here I return to the timetable—fair decisions must be taken in possession of full knowledge of who is affected. Local authorities have been told, quite reasonably, that in designing schemes they must have regard to what are, as my noble friend Lord Tope said, still undefined vulnerable groups and to their duties to children, disabled persons and homelessness. Each local view of vulnerability may be open to legal challenge. Local authorities will need time to consult widely and fully consider the impact of any changes to their schemes as they come to decisions. This would include robust equalities impact and needs assessments. Given the potential for legal challenge, the timetable must allow time for authorities to complete this work. I urge my noble friends to reflect on this.

We are also urged to enhance work incentives—a principle that I strongly support. To do that local councils will, for example, need continuing access to details of universal credit claimants affected by the cap. An authority might, for instance, propose that, as with universal credit, no group earning over a certain level gets support. However, once we cease to administer housing benefit, we will have no need to access such information from the DWP. Therefore, the legislation will need to ensure that councils can access appropriate information to enable them to deliver on that objective.

All that must be considered, software must be designed, consultation carried out, EINA assessments made, decisions taken and published, and policy implemented against the ticking clock, described by many others who have spoken, while the Bill wends what now seems a rather leisurely way through Parliament. With these uncertainties in mind, and with the bait dangled before us in Clauses 10 and 11, as we have heard, many local authorities will decline to take the bold course and design the radical new schemes that Ministers may have had in mind, while the winners and losers tables are still shrouded in mist and the final shape of the law is still unknown. Instead, because of the pressure of time, many councils will, as we have heard, take up new and existing rights to limit council tax exemptions so as to raise new income to cover or offset the costs of running a council tax support system, which, if they can afford it, may turn out to be not too different from what we have now. If so, then instead of achieving a £500 million saving in overall public spending, much spending may be transferred from central government to local government spending, paid for by as large an extension of the tax base as councils can get away with.

I do not want to dwell further on the details. I simply want to add that the removal of exemptions, which will be attempted and considered by every local authority in this country, will not always offer easy solutions. For example, Clause 11 addresses long-term empty property. However, we have just 53 such properties in our borough. The richest seam for us, theoretically, would seem to lie in the so-called exemption C, awarded to properties unoccupied and unfurnished for less than six months. My noble friend Lord Palmer has addressed some of the potential difficulties with that. Many of these awards may be to landlords for short periods between tenancies. There is a risk that we will create a large number of small debts that are difficult and expensive to collect. The noble Earl, Lord Lytton, referred to related difficulties which may contribute to an overall decline in collection rates. Furthermore, landlords may simply add on the cost in higher rates to tenants.

My fear is that if it is left to every local authority to decide and publish a scheme by next January, we may reduce public spending by less than is needed, raise taxation—including in some places the council tax itself—by somewhat more, and, because we do not have all the facts at our disposal, risk unintended anomalies or, still worse, injustices on the way. I think that with careful thought many of these problems could be overcome but it will be harder to do and to implement safely within the compressed timescale consequent on the rate of progress of the Bill. That is why I am grateful to my noble friend for her typical willingness to engage in discussion, and I look forward to ways of ameliorating some of the potential consequences of the Bill before and during the Committee stage.