Council Tax Benefit Localisation

Yvonne Fovargue Excerpts

Wednesday 27th June 2012 Westminster Hall

[Yvonne Fovargue (Makerfield) (Lab)]

It is a pleasure, Mr Howarth, to have this debate under your chairmanship. I requested it because of my concern about not only the impact of council tax localisation and the 10% cut in subsidy to already hard-pressed local authorities such as mine in Wigan, but the cumulative effect of the welfare benefit changes disproportionately impacting on people in low-paid work. Council tax benefit is widely claimed; some 5.9 million low-income families claim it, more than claim any other means-tested benefit or tax credit in the United Kingdom. It is a crucial benefit for people in work who are struggling to pay rising bills for food and fuel, and contributes hugely to making low-paid work pay.

A consultation paper published in August 2011 made it clear that although no detailed regulations had been published—they have not been published even today—current claimants of pension age will see no reduction in support and that their entitlement will continue to be protected by national rules. Will the Minister say whether any more categories of claimant are likely to be protected by statute? In Wigan in 2010-11, there were 34,000 claimants, and the Department for Work and Pensions paid a grant of £26 million. On current expenditure, a 10% cut would obviously lead to a £2.6 million shortfall, on top of swingeing cuts of more than £66 million already being made to Wigan council’s funding from central Government.

Another issue to be considered in Wigan is the number of pensioners claiming council tax benefit. More than 40% of people of pension age are claiming it, so the burden on those of working age becomes disproportionately higher with a potential 20% reduction across all working-age customers, and that is before the protection provided to any other groups that the authority might wish to protect—carers, for example.

It is worth reminding hon. Members that council tax is one of the few debts for which the final penalty is imprisonment. Even with council tax frozen and no cuts in council tax benefit, the number of people seeking help from the debt charity, Consumer Credit Counselling Service, because of council tax arrears rose by more than a quarter in 2011. The cost, both human and financial, of collecting more money from people who are already at their wits’ end and struggling to pay their bills must be factored in by local authorities. My council has identified that collection will be difficult and involve a high level of direct contact. In effect, it is saying that it could cost more to collect than the amount collected.

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

I congratulate my hon. Friend on securing such an important debate. She echoes many of the points that have been made by my local authority, Trafford council—particularly about the cost of collecting council tax and management of the benefit. It has pointed out that as housing benefit moves to universal credit, the current team that processes both benefits in the local authority will not be able to shrink by the same sort of proportion as the value of council tax benefit will, so it will become extremely inefficient. Some 80% of current benefit staff will have to be retained, but only for a rump of processing. Does that make cost-effective sense for councils?

[Yvonne Fovargue]

No, it is not cost-effective, and another factor is that council tax benefit offences are imprisonable. Does it do anyone any good to put people into prison for a short time for a very small debt?

[Stephen Timms (East Ham) (Lab)]

I welcome this debate. Has my hon. Friend seen the announcement by the Institute for Fiscal Studies on this very point? It said:

“The poll tax experience showed how difficult it can be to collect small amounts of tax from low-income households that are not used to paying it.”

Is that not the scenario that we are getting back into?

[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.