Council Tax Benefit Localisation

Sheila Gilmore Excerpts

Wednesday 27th June 2012 Westminster Hall

[Yvonne Fovargue]

My right hon. Friend must have read my notes, because I am coming to the Institute for Fiscal Studies. It warned that limiting spending will give councils an incentive to discourage low-income families from living in the area. As in the past, they will be left to chase desperately poor people through the courts for small amounts of unpaid tax. During the 1990s, I worked in an advice agency; I can honestly say that I do not want a repeat of the poll tax debacle. That policy, like the current one, involved the poorest people paying the most in the most deprived boroughs.

When I look at the options being considered by Wigan council, I despair. Wigan has an excellent council with an enviable track record of working with employers, and a very active local chamber of commerce that provides new employment opportunities and supports existing businesses. However, given the difficult economic climate, and despite active promotion of employment and growth, Morrisons recently announced the closure of Rathbones bakery, with 160 job losses. Any closure or relocation of a major employer places an increased burden on already hard-pressed councils, and insisting that they collect a small amount of council tax from people adds to that burden and puts them in an impossible position.

The issue is compounded by the fact that the grant is predicated on the amount of benefit in the previous year, so any large influx of people into the council tax benefit system will have a destabilising effect on the council’s budget. Indeed, there may be a perverse incentive to encourage such people to leave the borough—a return to the poll tax scenario.

Wigan and similar local authorities have stark choices. They could abolish backdating for working-age customers, but savings would be minimal. They could abolish the second adult rebate, but the savings would also be minimal. They could establish a weekly minimum payment of £1 upwards, but again the savings would be minimal. They could change the capital disregards on a sliding scale, penalising people who save, but, once more, the savings would be minimal. They could disregard income from child benefit, maintenance payments and disability benefits, but that would hit the most vulnerable the hardest and could be open to challenge on grounds of discrimination.

Such a move would certainly save money, albeit with the greatest cost falling on the most vulnerable. Awards could be capped at a percentage of liability, which could deliver savings, but, as my right hon. Friend the Member for East Ham (Stephen Timms) said, given the huge increase in the number of council tax bills, collection would be very difficult because some people would be paying council tax for the first time. That would lead to an increase in collection costs. Again, there are echoes of the poll tax.

The new scheme would have to be in place by January 2013 with the IT changes completed and ready to go online. Is the Minister confident that the IT systems will be in place in time for an introduction in 2013? My local authority certainly has worries about that. It wants to know how progress of the IT systems will be monitored, and how they will be supported in their introduction.

Another issue that localisation of council tax benefit raises is its relationship, or not, with the universal credit. The credit is supposed to simplify the benefits system, reducing the number of different benefits and means tests. Keeping council tax support separate and allowing it to vary throughout the country surely undermines that simplification. Universal credit was supposed to rationalise work incentives by replacing the jumble of overlapping benefits with one single means test. That may vary throughout the country, so how will people judge how well work will pay, if it does, in different areas? Will the Minister explain how work will always pay, given that a localised scheme will be introduced prior to the universal credit? How will the two line up and interrelate?

That is not the only change that will affect working families in April 2013. For those who also claim housing benefit—let us not forget that seven out of eight housing benefit claimants are in low-paid employment—the outlook is even more bleak. The under-occupation penalty or bedroom tax will also come into effect. Wigan has a shortage of one-bedroom properties, and more than 8,000 residents are under-occupying. They will be unable to move, because we simply do not have one-bedroom properties, so they will face a minimum 15% reduction in housing benefit—approximately £12 a week.

The increase in deductions for non-dependants is already increasing by approximately 30% a year. In 2013, the deductions will be almost double what they were in 2010.

[Sheila Gilmore (Edinburgh East) (Lab)]

It is interesting that my hon. Friend mentions the non-dependant deduction in relation to housing benefit. Was she as surprised as I was that the Prime Minister said in a speech on Monday that it was dreadful that housing benefit was lost if an adult child went into work? He did not seem to realise that his own Government had just substantially increased the deduction.

[Yvonne Fovargue]

Yes, that was somewhat surprising.

This is a difficult period in which to be a young person. The single room rent changes for the under-35s looking to rent privately are coming in, limiting housing benefit to £57.73, when a one-bedroom flat in Wigan costs approximately £90 a week.

Singly, any one of the changes will affect people on a low wage in a way that is extremely hard to cope with; cumulatively, they could well deliver a fatal blow. It is well reported that only a small decrease in income will push a struggling family from the position of just about managing to pay their bills to that of not coping, and sinking into unmanageable debt.

Mr Howarth, you would not expect me to miss an opportunity to remind hon. Members that the advice agencies that were hitherto there to help people and rescue them from that struggle are also struggling, and that the removal from the scope of legal aid welfare benefits and most debt work will have a significant impact on those agencies. That is coupled with the local authority reductions in funding, which could be even larger given the measure under discussion and the cuts that local authorities may have to make. There may be little or no support for people who could face the loss of their liberty due to council tax arrears.

As the Select Committee on Communities and Local Government stated:

“The proposals for the localisation of council tax support seem to us to provide an illusion of delegation with a minimum of real discretion, virtually guaranteeing that the funds available to support working-age…people will be squeezed.”

These hard-working families are already squeezed; councils are squeezed; and it is inevitable that, yet again, the poor and the vulnerable will suffer.

--- Later in debate ---

[Sheila Gilmore (Edinburgh East) (Lab)]

Thank you, Mr Howarth, for giving me the opportunity to speak. I also thank my hon. Friend the Member for Makerfield (Yvonne Fovargue) for calling this debate. My contribution will follow on neatly from that of the last speaker, the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), because I will talk a bit about the situation in Scotland.

When I came into the House two years ago and this whole debate about localism began, I was wont to go around saying to my colleagues, “Huh! We’ve had this for the last three years”—I think that was how long it had been by that point—“and it isn’t working.” That was because the Scottish nationalist Government had introduced in 2007 a policy of localism, although they did not quite call it that and they did not perhaps talk about it in quite the same way as others. However, the impact has been exactly the same as elsewhere.

The problem is that talking about delegating decisions to local authorities is all well and good, but if at the same time the financial squeeze is put on, that is not real delegation of power. That is what we have seen in Scotland; we have now seen it for five years. We have had a council tax freeze, which nobody has been able to break out of. It is a very populist notion. I know that people think, “Oh, that’s great, you’re freezing the council tax,” but we must remember that those who receive council tax benefit—the poorest and most vulnerable people—got absolutely nothing from it. The measure is actually highly regressive, and it is also cumulative year on year.

In that financial strangulation, a council tax freeze is applied. Then, as has happened in Scotland this year, local government starts to be given less money and is told, “There you are, it’s over to you for all sorts of decisions.” That has been very damaging and very difficult for local government. Although some local councils in Scotland embraced the notion of a council tax freeze at the outset—wrongly, I think, and my own Labour group on the City of Edinburgh council, although they were then in opposition, pointed out the flaws in the notion right from the beginning—most of them have now realised that the situation is very difficult for them indeed. Without a local area having the power to raise its own resources and have control over its finances, localism is not really localism, and that is the root of a lot of the problems that we have discussed this morning.

Obviously, Scotland faces the same situation as other places, in that the money is simply being cut by Westminster. What the Scottish Government have done about that so far is disappointingly limited: they have said they will not impose the 10% cut, although the cut will be coming from London. That sounds good on the surface, but only half of that money is coming from Scottish Government funds; the rest will come from local government. Therefore, local government in Scotland is experiencing the squeeze in exactly the same way as local government in other places.

The Scottish Government made that announcement shortly before the local government elections in May and said, “We will be saving Scotland from this 10% cut,” but they did not say that that will have an impact on other services, and that half of the money to deal with the cuts will be found from local government, which already has reduced resources. To anybody who thinks that the Scottish Government have some magical way out of these difficulties, I would say, “That is just not the case.”

I regret the fact that, at the moment, there is still a lack of clarity in Scotland about how the proposal will work in future, how it will be developed and how a new form of benefit will come out of the present situation. It is all too easy for the Scottish Government. Their line on most things at the moment is to say, “Well, if you vote for separation, everything will be solved.” It’s land of milk and honey stuff, but a lot of the problems that I have mentioned will still be there.

I hope that in the next few months the Scottish Government will not wait for this nirvana that they claim is to come but instead will start to think seriously about how we create a proper benefit in Scotland for all the groups who receive council tax benefit. For example, the current system for council tax benefit has some details that we do not want to lose. On carers, the current structure of council tax benefit includes a carer’s premium, which makes a difference to many households with caring responsibilities. We have just had carers week, and a lot of warm words have been said about carers. Let us hope, however, that all local authorities up and down the country that will be affected by this change—both the Scottish Government and the Welsh Government will be creating a new form of benefit—do not forget carers.

[Mr George Howarth (in the Chair)]

Order. Three Members still wish to speak. If they can each confine themselves to speaking for three to four minutes, we should be able to get everyone in.