Council Tax (Benefit Claimants)

Debate between Roger Gale and John Hemming

Tuesday 29th January 2013 Westminster Hall

[Sir Roger Gale (in the Chair)]

Order. I am sorry to interrupt the hon. Gentleman. He does realise that he can speak until 5.15, does he not? The time has been extended.

[John Hemming]

Thank you, Sir Roger. I am trying to ensure that I can make my speech and allow time for interventions, but I will slow down a little.

On council tax benefit, it may be that that relationship can be changed, but I would expect it to be needed for at least a decade. Any additional funding could be only by discussion, not through automaticity, as has previously been the case. The old system gave people such as Sir Albert Bore a local hand in George Osborne’s central Government pocket.

Thereafter, local councils will have the difficulty of a 10% cut in that support, but they will have the ability to raise additional costs from empty properties, flexibility as to how to provide support for people on lower incomes and the offer of grant support, which would be £2.1 million for Birmingham. There is an argument that it is a good idea for everyone to contribute something towards local government spending. A contrary argument is that it is silly for all of someone’s income to come from benefits and for there also to be an additional tax transaction.

My own view is that we need to look at things from the perspective of someone on £56.25 or £71 a week after rent. They have certain fixed costs, such as water and energy bills, for which there is no support. Without a phone, such a person will have more difficulty getting a job. I was uncomfortable about their falling behind inflation by 56p or 71p, but Labour is proposing to charge those in band H—some people in band H are on benefits—up to £8.50 a week in Birmingham. The food budget is about £20 a week for somebody on £71 a week, and Sir Albert is asking for more than a day’s worth of that budget for the council. Furthermore, food costs are expected to increase and energy costs do not look as though they are on the way down.

It is true that the average stay on JSA is about four months, but we must have a system that enables everybody to cope. I accept that some people have no recourse to public funds. We cannot say with certainty that everybody who cannot get a job in 12 months is a scrounger. There is a baby and bathwater problem—if we make the system too tough, we start hitting a lot of people who are trying hard to get a job and just find the economic situation too tough.

The good news, if it can be called good news, is that the courts will only attach benefits of up to £3.55 a week—5% of the 25-plus JSA figure—for council tax and so on. Hence, in the end, the council can only get £3.55 a week, but that is five times the cut that the Opposition opposed last week. The figure of £3.55 a week includes the £65 summons fee. Hence on Birmingham’s figures after collection costs, there would even be a cash shortfall for people in band A. The council has not taken that into account in its calculations.

It is worth looking at the figures behind the calculations. In 2012-13, Birmingham expects £88.2 million of council tax grant, and it is likely to get £79.5 million in 2013-14. That is a shortfall of £8.7 million. Using a 98% collection rate for the new charges, the council can get £6 million from additional empty homes charges, with only an 80% collection rate on the 150% charge.

The council is offering a grant of £2.1 million, which leaves a shortfall of £600,000. That can be covered by changing the rules on backdating, which will potentially bring in £883,199. In any event, that allows the council to cover the costs of the cut without charging people on JSA a penny. The Government grant allows a charge of between zero and 8.5%, and I believe that the passing of the Welfare Bill justifies the zero charge.

We then come to the sting in the tail of Sir Albert Bore and Birmingham Labour’s approach on charging people on JSA council tax. They put out a misleading consultation that argued that they should keep support costs within the level of Government funding. That means taxing poor people to pay for benefits for the poor. They estimate a 1.45% increase in the cost of council tax more generally, an increase of £1.3 million. The real sting in the tail, however, is the taxing of a “contingency” figure of £882,316 on those people on JSA.

The absurdity of such a policy is obvious in the long term. It will require a further increase in the proportion of tax on those on JSA for each year that the council tax is increased by 1.45%. However, the key is that we should ask for the burden to be shared, not simply hit those people on the lowest incomes with a tax to pay for people who also have low incomes. Yes, that does mean that somehow the cost of £1.3 million should be found from the general fund. Furthermore, the contingency risk, which could go either way, should be borne by the general reserves. However, the general fund is getting an additional £1.4 million from an increase in the tax base in any event.

Sir Albert, in his “jaws of doom” graph, says that inflation will go up by £18 million from £8.2 million in 2012-13 to £26.2 million in 2013-4. He has recognised that that is too high by more than £5.3 million, but there is still an increase of £12.7 million. That is more than a doubling in the council’s assessment of inflation and easily allows the £1.3 million needed to avoid taxing the poor to be found.

There is a problem with low pay. The biggest problem is the driving of wages down towards the minimum wage and it may be worth having visas for Romanians and Bulgarians from 2014 to reduce that effect. However, Sir Albert Bore’s “jaws of doom” graph suggests a cost to the council of £11.5 million in 2016-17 for increasing the pay of the employees of contractors. That is a nice thing to do, but when we are taxing the poor—including those people affected by that increase—in part to pay for it, that has to be questioned.

Those on the minimum wage are not paying council tax, and Labour’s proposals would increase their costs also by the full amount of 20% of JSA. Given the wage increase and the tax increase, someone in band C would get an additional £28 a week after tax, but lose £9.46 in additional council tax. Those who do not work for contractors would just pay the additional tax.

The Government, however, cannot come out of this without having to think carefully about the future. The funding provided in this year should also be provided in future years. This issue may not have got the media attention of the cut in child benefit for higher earners, because inherently very few people in the media are on JSA—they have jobs—whereas quite a few are affected by the cut in child benefit. It is, however, a very important issue for those people facing this tax. I do not think the Government can use financial constraints to justify this tax while increasing foreign aid.

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[Sir Roger Gale (in the Chair)]

Order. There is a limit to what I am prepared to permit.

[John Hemming]

I thank the hon. Gentleman for his questions. On the first one, which is fighting for the city, the right hon. Member for Wentworth and Dearne (John Healey) and I campaigned considerably, including in this Chamber, for an increase in fire funding, because the proposals from the Government were unfair. The Government indeed changed those proposals, and it is now accepted that the new proposals on fire funding are completely fair. However, when the city does relatively well out of the funding settlement, I will have no credibility at all if I go around whinging about it, which is what Sir Albert Bore does whatever happens. On the first point, of course I will fight for the city, but when we get a reasonably good deal I will say just that, because it is foolish to complain about things when we are actually doing quite well.

I accept that I have gone through a lot of figures. I can give hon. Members the spreadsheets if they want to see them. If the Government grant is £2.1 million, it is true that £1.3 million is needed from the general fund. However, if houses are built and people move into the city, there is more council tax. The estimated figure for next year is £1.4 million more. The Government grant leaves a shortfall of £1.3 million. If we then use the £1.4 million of extra council tax to prevent ourselves from having to pay the poor, we are far better off.