Local Government Finance Bill

Robert Syms Excerpts

Tuesday 31st January 2012 Commons Chamber

[Mr Betts]

My right hon. Friend is right to say that the time scale is incredibly tight and there are so many potential problems associated with the measure that Ministers really ought to think them through. In the end, the problems will be created not for councils, but for people on low incomes who need benefits simply to sustain themselves. They are the ones who will be damaged if this is got wrong.

Altering the responsibility for any future changes in the number of people claiming council tax reductions is a fundamental shift. Now, if more people claim the reductions, the Government pick up the bill; in future, councils will. The present arrangements, with the Government picking up the bill, make council tax revenue very stable for local authorities. One of my criticisms of previous Lib Dem proposals to scrap council tax and introduce local income tax was that it would make local councils’ revenue unstable, putting them at risk in times of recession, as we had in 2008, and undermining their financial base if unemployment rises. That is a real problem.

Some of us went on a parliamentary trip to the United States after the recession. We talked not only to local authorities, but to states whose budgets were cut to shreds by the recession and the associated decline in their income tax and sales tax revenues. They became unstable because they could not borrow for revenue, just as our local authorities cannot. The current compact between central and local government is that although local authorities cannot borrow for revenue, they know that their revenue will be stable. They set their council tax and they know they will receive the money—council tax has a very low rate of non-collection. That is why I understand the amendment tabled by Labour Front Benchers to compensate councils for changing revenue in-year. There is a real risk not only of longer-term instability for councils, especially those in areas that start to experience economic decline because of the collapse of a particular industry and more people therefore claiming reductions, but in the increased uncertainty for councils year on year. Councils will no longer have certainty. If they do not know whether unemployment will rise in their area and they do not know how successful a campaign to persuade more people to take up the reduction scheme will be, councils cannot forecast their revenue with the normal degree of accuracy.

Ministers do not appear to understand that. Until now, there has been a clear system in this country in which councils cannot borrow for revenue, but they can be sure that revenue will come in so they do not have to borrow. They can set their budget for the year with a good degree of certainty. Ministers appear not to have tackled that issue at all. Local government in this country has been absolutely sound and stable throughout all the recent economic difficulties. The proposed scheme introduces an element of doubt at a time of great turbulence in local authority revenues, when grants are being cut and there is great pressure on services. The Government should think carefully before adding this extra potential for loss of revenue—this extra risk—by pursuing the scheme in such a short time scale.

[Mr Robert Syms (Poole) (Con)]

I do not support amendment 79, but think it a useful vehicle for debate on an important subject. In my experience, local government is good at adapting to change, provided that it is given sufficient time to do so. I am sure that local authorities will be able to adapt to the Government’s timetable, but there are many pressures in different areas. First, most authorities are cutting spending; secondly, they will have to grapple with the 10% reduction; and thirdly, the Government have stated clearly that that should not affect pensioners. In an area such as Poole, with a heavy preponderance of pensioners, the burden will fall on a small minority of those claiming that benefit. Fourthly, as most local authorities will have to freeze their council tax, or will freeze it anyway, and have limited balances, they may well err on the side of trying to ensure that they get their figures correct and that there is no cross-subsidy in terms of the benefit falling on the council tax payer. A perverse incentive may arise to make larger reductions in support for the vulnerable than the figures necessarily entail, because authorities do not want to take the risk.

The current system is predictable in the sense that it is running and the Department for Work and Pensions can transfer money equally on a monthly basis. The direction of travel in localisation is fine and I am sure that many local authorities can draw up good schemes, but in year one the new arrangements will not be as predictable. Some authorities will draw up schemes that turn out to be more generous than they thought, and others will draw up schemes that are less generous than expected. Ministers have to consider what will happen when a scheme is got wrong, because as sure as eggs are eggs, there will be one authority that gets its figures substantially wrong and has a problem.

[Mr Kevan Jones]

The problem for authorities such as mine in County Durham, where a large number of people receive council tax benefit, will perhaps be bigger than for some of the smaller authorities, where there are relatively few council tax benefit recipients.

[Mr Syms]

I am certain that the measure will have a different effect on different authorities. We need a little bit more clarity from Ministers: will there be emergency funds that can be drawn on if there is a difficulty in the short term?

Of course, what makes it complicated is the fact that the Government are looking for savings because of the overall economic situation. We have to make savings; we are looking to make savings of £420 million, and that makes things much more difficult. Again, speaking from my experience of local government, it is sometimes in a position to deliver savings, given a chance, but as we have heard in this debate, if there is pressure on council tax and council tax benefits, something will have to give. I therefore have concerns about the Government’s direction of travel, and I hope that the Minister can reassure us that they have thought about what would happen in an emergency.

Clearly, if a local authority has to deal with a reduction and is given maximum flexibility to do so, sometimes it can deal with it, but if it is initially told, “You must protect pensioners,” the impact of the reductions may fall on a smaller number of people. We recently heard exchanges across the Chamber about universal credit; that credit may offset some of that, but that might mean that the non-working faced the worst situations. The issue needs careful thought. I am sure that the Government’s timetable can be kept to, but we have to think very carefully; if lots of new schemes are invented following consultation, some people will get them right, some will get them wrong, and some will over-egg the savings, and that may well have an impact on our communities.

The Library briefing says that the reduction might partly be an incentive for local authorities to create jobs, but I am not sure that local authorities can wave a magic wand and create jobs in six months, a year or two years. Over a period of time, if authorities have active economic development departments, build capacity on industrial estates and try to attract firms, they might be able to have some impact. However, from a practical point of view, when it comes to dealing with the problems that arise when the measures are implemented—and perhaps in the year or two after that, in what we all know will be quite difficult economic circumstances—I do not think that councils have the ability to change the number of people in or out of work in their area. That is a long-term thing, not a short-term change that can be made in months, so I have some concerns.

Poole borough council, my authority, is having to deal manfully with the need for a number of savings; dealing with the measure, on top of that, will be difficult. I hope that we get the scheme right in Poole, but if we do not, I hope that the Government have thought about how they will deal with the consequences.

[Helen Jones (Warrington North) (Lab)]

It is a great pleasure to be under your chairmanship, Mr Crausby. We have heard hon. Gentlemen on both sides of the House express real concerns about how the scheme will work in practice, and particularly about what will happen in authorities with a large number of pensioners. Hon. Friends have spoken about the need to start the scheme on the right basis—a neutral basis—and to ensure that councils are adequately funded for the scheme that they are being asked to bring in.

I want to speak about new clause 11 in particular, which seeks to address some of the real financial risks that are being transferred to local authorities. Many hon. Members will remember that last week we debated clause 3, which changed the requirement to pay a grant to a power to do so. In that debate, as in all our debates so far on the Bill, the Government refused to clarify how they would distribute money, fund local authorities and meet the costs of the duties that they seek to impose on them. That is exactly what the Government are trying to do with the localisation of council tax benefit. We are back to the old game of ensuring that the blame for their cuts is taken elsewhere. New clause 11 attempts to ensure that local authorities are reimbursed for expenses incurred as part of the council tax reduction scheme.

The 10% cut in funding that many hon. Members have referred to, along with protection for pensioners, which the Government rightly want to ensure, means that others will face much larger cuts in their benefit. We will debate many of those issues under the next group of amendments.

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[Annette Brooke]

I have given way several times, and I shall proceed in order to retain the flow of my speech. There are concerns, and it is right that we discuss how we address them.

A further concern is how the burden of the proposal is to be shared between the billing authority and any other authority that might be involved, such as a district or county council. I give the example of East Dorset district council, which last year had a revenue support grant of just £29 per head, meaning that it has very little flexibility with which to pick up any extra costs. So this is a matter not only of working with other councils, but of coming up with a clear solution to the issue.

I share the concern about whether the scheme can be introduced within the proposed time frame, which looks tight. The major software companies say that it cannot be done, but we know the timetable we are on: July for the Bill, October for the regulations and then the consultation on schemes. Can it be done? I want Ministers to address those questions and to give more thought to how the issue is going to be handled.

[Mr Syms]

There also needs to be consultation between local authorities. The hon. Lady represents two or three districts, and we in Dorset know that somebody can move from a home in Poole to one in Bournemouth or in east Dorset, but, if there are totally different housing benefit and council tax schemes in those areas, that too could have a perverse effect, so local authorities next door to each other will have to talk as well.

[Annette Brooke]

Yes, indeed. Such local authorities will need to talk to one another, and it will be difficult to get the right balance between a truly local scheme and work with adjoining authorities—I suppose I am talking about working across, horizontally and vertically. It is not clear from the Bill how a district council will cope with the issue

The string of amendments under discussion is about funding, and the concern all comes from the 10% cut. There are potential extra revenue streams, however, and they need to be addressed. I appreciate that point, given the modifications to the second homes and empty homes premiums, but it is unlikely that we will get an absolute match between the money that is lost and any money that might be gained, so we need to look at that aspect.

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The proposal is nothing other than a disincentive. How many of us would like to cope with losing £20 a week out of the minimum wage? How many of us would still believe that it was worth trying to continue to work? There is a disincentive, for which it is hard to find an excuse. I cannot. I hope the Minister can because I look to him to offer some wisdom about why people on a very low income, who will lose possibly as much as £20 a week, will not see the provision as specifically targeted at hurting them. I thought that we were elected to prevent that.

[Mr Syms]

I am listening carefully to the hon. Gentleman’s passionate speech. Clearly, apart from potential costs for software and computers, a scheme will have to be drawn up and publicised. All the schemes will be different, which means that there will have to be a lot of publicity locally to ascertain what people are entitled to. We need some answers.

[Mr Hancock]

I agree entirely. Some hon. Members like me, have close-knit communities that are right next to communities in other local authorities. People on one side of the road will have a different scheme from those on the other side. It will be horrendously difficult to explain why one scheme prevails in Fareham and another in Portsmouth. Indeed, the hon. Member for Meon Valley (George Hollingbery) will have great problems, given the different districts that his constituency abuts. I therefore ask Ministers to consider seriously coming back on Report with something that shows they have heard the cry from local authorities. It is heartfelt and not just for effect. The Local Government Association has not done all that work to sustain its arguments without a great deal of effort.

In the spirit of trying to be constructive, I hope that if we are to have a day—or even two—on Report, creative thinking in the Department will soften some of the provision’s effects. Otherwise, I shall vote against it not only tonight but on Third Reading.

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[Mr Howarth]

Yes. There might occasionally be disputes about the scale, but every demographer recognises that people are living longer and that there are therefore many more elderly people in the system.

[Mr Syms]

The right hon. Gentleman is making a powerful point, but is it not more likely that, rather than having a cut of 15% or 17% across the board, the numbers will be more limited, so some people will have a cut of 100% because not as many will qualify?

[Mr Howarth]

The hon. Gentleman is right. That underscores the point that he and others made earlier: to some extent, we are taking a leap in the dark. Several hon. Members have said that one of the difficulties with local government finance is that, when you change it, the impact is unpredictable. I do not need to rehearse the history of the poll tax to show that. The position that we are considering is exactly the same in that it is unpredictable and volatile.

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[Mr Howarth]

I am grateful to my hon. Friend. If he bears with me, I will cover precisely that point shortly in the context of the Liverpool city region, but I am sure the same trend applies in his constituency.

[Mr Syms]

Another question is whether we can differentiate council tax payers from non-council tax payers. What happens when there is a split household, in which one person is a pensioner and one is not? What happens when someone becomes a pensioner in-year? There will be so many months when they are not a pensioner and so many when they are. That also needs to be explained.

[Mr Howarth]

The hon. Gentleman, who is always fair and reasonable, makes a fair and reasonable point. I hope that the Ministers, who represent the two parties in the coalition, will at least take notice of the concerns that have been expressed from the Government Back Benches, even if they do not take notice of what Opposition Members say.

The Office for National Statistics estimates that pensioner take-up of Knowsley council tax benefit could be as low as 53%, but there could be a significant increase in take-up as a result of a localised scheme, which would place a disproportionate burden on other categories of people. If a greater number of pensioners take up the scheme, which is perfectly possible, the 18% I mentioned could be still higher.

My hon. Friend the Member for North Durham (Mr Jones) has been patient, so I shall speak about the effects of other measures. It is important that the changes are not taken entirely in isolation. We will talk about welfare reforms tomorrow, but a series of measures will combine to hit some of the poorest in society.

When Labour was in government, I remember the Opposition hammering us by saying, “Well, the Institute for Fiscal Studies says something different from what the Government say.” If that is good for Conservatives and Liberal Democrats when they are in opposition, it is good for Labour Members. “The Impact of Austerity Measures on Households with Children”—an IFS report published this month and produced on behalf of the Family and Parenting Institute—found that the planned changes in the tax and benefit system, including those to council tax benefit, will hit the incomes of families with children the hardest. The IFS estimates that the measures will increase child poverty by 2014-15, with the poorest families being around 10% worse off.