Council Tax Support

Nick Raynsford Excerpts

Wednesday 14th May 2014 Westminster Hall

[Mr Nick Raynsford (Greenwich and Woolwich) (Lab)]

At the outset, I draw attention to my interests as declared in the Register of Members’ Financial Interests.

I am pleased to have the opportunity to raise an important subject that affects the lives of millions of people throughout our country, namely the consequence of the Government’s decision to localise council tax support in England. Council tax benefit—and before that, rate rebates—had been an integral part of our national system for helping low-income households to meet their living expenditure. Indeed, unlike housing benefit, it was available to people irrespective of their tenure—so home owners, tenants in social housing and tenants in privately rented homes were all eligible—and for that reason council tax benefit was the most widely claimed of all income-related benefits, reaching almost 6 million households.

The decision to localise council tax benefit, which was announced as part of the 2010 spending review early in the life of the current Government, was in some respects surprising, as it ran counter to the Government’s commitment to bring together a range of separate benefits into a universal credit. Arguably, if one is trying to simplify and streamline benefits, it makes no sense to separate out council tax support, which had previously been fully integrated with housing benefit, as the consequence will inevitably be to create variations in entitlement between people living in different areas, which may have perverse outcomes and will certainly add administrative complexity.

Now, I am not one of those who take a strong ideological view that this benefit must be either national or local. There is a case to debate, but unfortunately we had no opportunity to do so. With the Government proposing on the one hand to introduce universal credit and on the other to localise council tax benefit, one might have expected an opportunity for consultation and reflection, to allow people to look at the merits of localisation and diversity as against unification and simplification, which was the stated objective of universal credit.

No such opportunity was allowed, however. Instead, the Government ploughed ahead with their plan to localise council tax support, and it became increasingly clear that the overriding motive for that was to save upwards of £400 million in central Government expenditure by imposing a 10% cut as part of the process. Local authorities were given the unappetising choice either of protecting the benefit entitlement of their local residents but having to meet 10% of the cost themselves or of passing on the cut to benefit recipients.

[Grahame M. Morris (Easington) (Lab)]

I congratulate my right hon. Friend on securing this timely debate. Does he agree that the Government’s decision to protect pensioners has had perverse—and I hope unintended—consequences, particularly for working-age disabled people? As a consequence of that decision, a heavier and more disproportionate burden has fallen on those disabled people, who have to make up the shortfall.

--- Later in debate ---

[Mr Raynsford]

My hon. Friend is prescient—I was about to come on to that very point. I hope he will bear with me, so that I do not repeat myself by first answering his question then coming back to the text in my speech where I refer to the issue.

To add to the challenge, the Government added two further obligations. The first was to protect all recipients over pension age—the point to which my hon. Friend the Member for Easington (Grahame M. Morris) referred. The second was to avoid creating work disincentives. The first might well be justified, even though, as my hon. Friend indicated, it will create anomalies, with people in virtually identical circumstances but divided by perhaps a couple of years in age receiving different benefit entitlements because of those few years. People over retirement age generally live on fixed incomes and cannot easily adjust to unexpected reductions in benefit entitlement, so a degree of protection for pensioner households is understandable. However, protecting around 40% of recipients will inevitably mean heavier cuts for those who are not protected. It is the remainder of households—a majority, including those in work—that have borne the brunt of the change.

Imposing what was estimated to be an average cut of 16% in entitlement for working-age recipients is bad enough, but of course it runs completely counter to the stated objective of avoiding work disincentives. Furthermore, the centrally imposed requirement to safeguard those over pension age does not sit comfortably with the Government’s other stated objective. I will quote from the Government’s objectives for the scheme, which give a stated aim as being to

“reinforce local control over council tax. Enabling decisions to be taken locally about the provision of support with council tax is consistent with a drive for greater local financial accountability and decision-making”.

One of the more bizarre characteristics of the current Government is that they keep on talking the language of localism while dictating, often in minute detail, exactly how local authorities should behave.

Thirteen months on from the introduction of localised council tax support, how have local authorities responded and what has been the impact on the households that depend on financial support to meet all or part of their council tax liabilities? There have been several studies, including detailed analyses by the New Policy Institute and the Institute for Fiscal Studies. Those studies show that a minority of councils have sought to maintain the same level of support as under the former council tax benefit scheme, but the large majority of councils—more than four out of five—have reduced benefit entitlement for working-age applicants. Almost three quarters have introduced a minimum payment, which varies considerably from area to area: currently, 69 out of 326 authorities expect recipients to pay 8.5% or less, but at the other extreme, 47 councils expect contributions of 20% or more. The majority of councils are somewhere between those extremes, expecting a minimum contribution of around 15%—my own local authority of Greenwich is in that category.

In addition to a minimum contribution requirement, several other changes to the former council tax benefit scheme have been made by individual councils. They include: removal of the second adult rebate; a band cap restricting entitlement in higher value properties; reductions in the limit on savings that can be held before entitlement is withdrawn—many have reduced that savings limit from £16,000 to just £6,000; increased non-dependant deductions; and changes to the income taper, which determines the rate of benefit withdrawal as income levels rise.

In the first year of the new arrangements the Government provided transitional support, conditional on local authorities limiting any minimum payment requirement to 8.5% of the total liability. With the ending of that transitional support, almost half the councils that had kept to the minimum payment requirement then increased the amount; there have been other changes to the details of schemes in specific areas as well.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

For the record, I draw the House’s attention to my indirect interest in my right hon. Friend’s interests. Does he agree that the net outcome of all these changes, with their piecemeal effects, is that the south-west has been hit hardest? The average cut in support across the south-west is now £177 and last year, it was even worse, at £185. Cornwall, which was an objective 1 area, is historically very poor, yet people there are being badly hit by the changes.

[Mr Raynsford]

My hon. Friend has identified one of the interesting characteristics of the consequences of this change to localisation—the significant and often surprising variations between individual areas. One of the curious characteristics of the change is that, based on figures I have seen, the largest adverse impact appears to be on council tax benefit recipients in the south-west, who are now facing a greater average obligation to pay than those in any other region in England.

[Kate Green (Stretford and Urmston) (Lab)]

I am grateful to my right hon. Friend and to my hon. Friend the Member for Plymouth, Moor View (Alison Seabeck) for pointing out that anomaly. Is it not the case that when local authorities or regions have substantial and disproportionately high numbers of older people and pensioners, the effect will inevitably be felt more adversely in those areas? I guess that is as likely to be an explanation in the south-west as it is in my local authority of Trafford.

[Mr Raynsford]

I am grateful to my hon. Friend for identifying precisely the factor likely to be behind the slightly surprising figure from the south-west. In the north-west one might expect it because there is probably more substantial poverty than in the south-west so there might be a bigger problem with the greater proportion of council tax that individual households must meet, but the number of households with people over pension age who are protected has a significant impact and I suspect that that is the main reason why the south-west features in this way. That highlights the arbitrary and curious consequences of the rules that the Government have put in place.

In the first year of the new arrangements, there was protection with the 8.5% limit provided by the Government’s transitional support, but when that support ended, many authorities increased the amount they expect individuals to pay without support and as a result the overall level of council tax support in 2014-15 will be lower than in the previous year and substantially lower than under the former council tax benefit scheme. Research by the New Policy Institute for the Joseph Rowntree Foundation shows that 2,340,000 low-income families will be paying an average of £149 a year more in council tax this year than under the old council tax benefit scheme. For a Government who continually boast about their efforts to keep council tax demands down, and threaten action against councils that seek to increase council tax, this figure should be a source of deep shame. More than 2.25 million households are being required to pay an average of almost £3 a week extra in council tax purely because of the Government’s actions, and £3 a week is a significant amount to those living on the edge of poverty.

As the Joseph Rowntree Foundation report points out, there is ongoing uncertainty for households who may face further cuts in future years as the system that the Government have put in place not only gives local authorities the option to change the scheme, but provides an incentive to cut council tax support further in future years. If they cannot increase council tax because the Government have blocked that option, a further cut in council tax support is the only available option to increase their council tax revenue. Such perverse incentives to cut help to the poor is a shameful outcome, for which the Government are wholly responsible.

Not surprisingly, the impact of the cuts on entitlement to low-income families has led to increased debt, arrears and bailiff action to recover debt. The New Policy Institute research suggests that the growth in arrears has been most marked in areas where a minimum payment obligation has been introduced. As yet, the detailed evidence available from different parts of the country is patchy, but Citizens Advice believes that council tax debt now accounts for around 10% of all its debt inquiry work and the debt charity, StepChange, reports 45,000 people seeking its help with council tax arrears in 2013—a staggering 78% increase on the previous year.

As we know only too well, the cuts to council tax support are only one of a series of benefit cuts by the Government, and problems become even more acute when there is a cumulative impact of two or more benefit cuts hitting individual households.

[Grahame M. Morris]

My right hon. Friend is being generous in giving way. Does he share my concern about the increase in the amount of bailiff action? I have seen figures indicating that almost 100,000 cases have been pursued by bailiffs as a consequence of the Government’s pressure on council tax increases. Does he agree that, in particular, people who are disabled and housebound are vulnerable and should be protected and that the Minister should take steps to protect those groups from intimidation by excessive action?

[Mr Raynsford]

As my hon. Friend rightly highlights, there is concern about substantial increases in bailiff action to recover debt. We do not know the full extent because, frankly, the available figures are patchy, but there is a lot of anecdotal evidence suggesting increased demands, and that in some cases and in some areas that is affecting many people, including precisely the ones my hon. Friend highlighted—the vulnerable and disabled—who are being threatened with bailiff action.

I referred to the fact that council tax can be cumulative with people suffering cuts in other benefits. Two new reports that are due to be published later this week, from Ipsos MORI and Cambridge university, were commissioned by the National Housing Federation and cast further light on this. One involved a series of interviews with housing association managers, and the other involved interviews with tenants affected by benefit cuts.

The housing associations reported that although they viewed the housing benefit cuts as having the largest impact on their tenants, the changes to council tax benefit were also significant. Housing associations are concerned about the cumulative impact on some of their tenants with changes to council tax benefit, housing benefit cuts and rising utility costs placing an ever-increasing burden on their tenants.

Two case studies in the Ipsos MORI report illustrate that. The first states:

“In addition to being affected by the size criteria, Bob has also been required to start paying a proportion of his Council Tax, whereas this was previously covered in its entirety by his Council Tax Benefit. Prior to the reforms, Bob and his wife had been putting aside about £5 per week, in case they needed to pay for something unexpectedly, but they have stopped doing this now, as well as reducing their food shopping expenditure, in order to make ends meet. Bob notes that energy costs have increased, so he and his wife are being extra careful with the heating, which he explains as follows: ‘Once, say, about half past six comes, we just come upstairs then, put the radio on or the computer on upstairs where it’s warmer, so we’re not using electricity downstairs...so we’re sort of... managing, but it’s difficult’.”

The second case states:

“A further impact of the welfare reforms on Gareth has been that his household is now required to pay £8 per month on council tax. Although Gareth said he was expecting this, when we interviewed him prior to the introduction of the reforms, he says that this places an additional strain on his finances. He explains this in the following way: ‘we pay £8 a month Council Tax...but when you’re on limited funds and you’re stretched anyway and then, you know, you’ve got to cut back to do other stuff, it’s hard to find’.”

Such cases are repeated time and again throughout the country, and I suspect that every hon. Member in the Chamber will have had many cases of constituents with experiences like the two quoted in the report for the National Housing Federation.

Against that background, it is hardly surprising that there have been several parliamentary inquiries into the operation of the new council tax support arrangements. The Public Accounts Committee conducted an inquiry into the localisation of council tax support and its report was published in March 2014. The Committee was highly critical of the degree to which authorities’ schemes had met the objectives of the Department for Communities and Local Government and of the Department’s knowledge of the impact of local schemes on vulnerable groups. The Chair of the Committee, my right hon. Friend the Member for Barking (Margaret Hodge) said:

“When the Government transferred responsibility for Council Tax support to 326 local authorities in April 2013 it intended that the reform supported the work incentives it seeks from its wider welfare reform. But we found in 19 local authority areas, up to 225,000 people could lose more of their earnings—as a result of Income Tax and National Insurance contributions combined with the withdrawal of Council Tax Benefit and Housing Benefit—than under the previous national scheme. This just goes to show, for some, work simply doesn’t pay under the new scheme. For them, work incentives have actually weakened rather than strengthened —the opposite of what the Government intended. Some of those 225,000 people stand to lose 97p for every extra £1 earned—a fundamentally perverse result.”

The PAC report also highlighted the extent to which the schemes introduced since April 2013 have failed to protect many vulnerable people. It flagged up the fact that in 133 local authority areas where all claimants under pension age are required to make minimum payments, no protection is provided to other vulnerable groups. The PAC concluded by calling for an independent review.

Of course, the independent review is already a statutory requirement; it was included in the Welfare Reform Act 2012 as the result of a House of Lords amendment. The Act requires the Government to conduct a review of all local council tax support schemes within three years of the Act taking effect. The Act was effective from October 2012, so the review must be completed by October next year—just 16 months away.

I put it to the Minister that the Government’s silence on the issue is a real cause of concern. Any serious review of the 326 separate local council tax support schemes and their impact on millions of households will take a significant period of time to conduct. If a report is to be presented by October next year, the arrangements need to be put in place without delay. When will the Government be setting out their proposals for conducting the review, and incidentally, when will they be responding to the trenchant criticisms in the PAC report?

The Select Committee on Work and Pensions has also conducted an inquiry, raising similar concerns to those highlighted by the PAC. It recommended that the Government commission research into the impact that local variations in council tax support arrangements are having on levels of poverty in different parts of the country. As yet, the Government have not responded.

Of course, the differential impact is only an issue in England, as in both Scotland and Wales, the devolved Governments have decided to provide financial support to their local authorities to enable them to maintain existing levels of support. In Wales, that has been accompanied by arrangements that allow a degree of discretion to Welsh local authorities on how they structure their council tax support schemes, but without any pressure to impose benefit cuts, as in England.

The Local Government Association, representing English councils, is advocating a similar approach. In its briefing paper for today’s debate, it states:

“Consideration should be given to returning to a 100% funded system for council tax support on the grounds of equity. This does not imply a return to the old council tax benefit arrangements; it simply means that councils should be funded to run the scheme without being forced to impose reductions”.

Both the LGA and London Councils also highlight the extent to which the arrangements put in place by Government for meeting parts of local authority costs incurred in providing council tax support are opaque. London Councils states that

“the Government’s decision to roll funding for local council tax support into wider funding for local government has made it almost impossible for individual local authorities to determine how much they are receiving for this policy. As such, a local authority will, each year, have to balance the spending pressure on its local council tax support scheme with the need to allocate resources to its wider services, particularly as local government funding continues on its current downwards trajectory”.

The LGA recommends:

“Central Government should adopt a more transparent way of funding the changes. Funding for the support should be identified through a non ring-fenced grant within the Settlement Funding Assessment”.

The LGA also adds its voice to all the others calling for further research, saying:

“The Government should publish its analysis of the cumulative impact of all funding reforms at an individual council level”.

To conclude, we have a scheme for supporting millions of low-income households, helping them meet their council tax obligations, which was introduced without proper analysis and evaluation. It has brought financial hardship, debt and worry to huge numbers of families, and it has created perverse disincentives to work and arbitrary variations in treatment between people in similar circumstances. It has manifestly failed to meet its objectives, and it has been condemned as harsh and unfair across the political spectrum.

At the very least, the Government should, as a matter of urgency, set in motion the review that they are, by law, required to commission, and in the short term, they should look carefully at ways in which the scheme’s harsh impact can be mitigated. I would like to believe that at the conclusion of this debate, the Minister will give us a commitment to do just that.

[Several hon. Members]

rose—