Local Government Finance Bill

Baroness Sherlock Excerpts

Tuesday 10th July 2012 Grand Committee

I am absolutely sure that we will all regret this—central and local government alike—just as we did the poll tax. For me, the only question is: how long will it take before the Government recant? I beg to move.

[Baroness Sherlock]

My Lords, the Institute for Fiscal Studies, in its excellent report, Reforming Council Tax Benefit, states rather drily:

“It is difficult to think of reasons why the government’s original plan to integrate CTB into Universal Credit was inferior to what is now being proposed”.

Later on, the report says:

“There is no simple way that making only minimal changes to CTB will allow the new council tax rebate systems to interact with Universal Credit in a coherent way”.

I and a number of other noble Lords here spent months sitting through the stages of the Welfare Reform Bill, now the Welfare Reform Act 2012. This country is spending billions of pounds to create it, and the Government are now creating a scheme that will not interact in any coherent way with that thing that the whole country has now been told to expect.

A number of questions need addressing, many of which were raised by my noble friend Lady Hollis in her very powerful speech; I will ask just a couple. First, how is universal credit as income to be treated in the new system? Do the Government propose to give any advice to local councils? There is nothing very straightforward about this, and it is one of the many questions that every council will have to address. If universal credit is not treated as income, that would be much simpler, but it means that people facing the withdrawal of universal credit in addition to the withdrawal of council tax support, as well as paying national insurance and tax, would stand to lose at least 90p of every extra £1 earned, as my noble friend Lady Hollis pointed out. The alternative is that councils face putting incredible pressure on those who least can afford to bear the burden.

My noble friend Lady Hollis pointed out very well, I think, why council tax benefit and its successors are not basically local benefits. The only thing different about them is the extent of the liability. The reason why council tax benefit is national is because all of the assessments made are related to the extent to which the individual needs help in paying that liability, and that, of course, is shown out. For example, in working out how much somebody should get in help or council tax benefit, the starting point is the applicable amount, as I am sure the Minister is only too well aware. I recommend to him the Welfare Benefits and Tax Credits Handbook, which shows that the applicable amount is the same for income support, income-based jobseeker’s allowance and income-related employment and support allowance; indeed, it is used as the basis for housing benefit and council tax benefit. The point is that council tax benefit is a national benefit because it is designed on exactly the same basis as all the other elements of a social security system related to the need to assess what help somebody needs to meet their outgoings.

It is also based on a national assessment by central government of the amount of money that somebody needs to live on. Separating that out from the rest of the system creates fractures in what has previously been a coherent system. Ironically, it is going in precisely the opposite direction of the creation of universal credit. The point of universal credit was meant to be to bring all the component parts together in one place in order to simplify it both for the individual and for those administering it. Yet now we have a fairly important part of the system that has been broken off entirely and done in a different way.

On 8 March, welcoming the Royal Assent granted to the then Welfare Reform Bill, the right honourable Iain Duncan Smith, Secretary of State for Work and Pensions, said the following:

“The Universal Credit will mean that work will pay for the first time, helping to lift people out of worklessness and the endless cycle of benefits. Whilst those people who need our help and support will know they will get it without question. Universal Credit will, from October 2013, replace the current complex myriad of means-tested benefits with a single benefit system. It will be simpler for people to navigate and harder for people to defraud, but most importantly it will make work pay. No longer will it be possible to be better off on benefits than in work”.

If I were a council leader, I would be asking the Minister this question: how can I structure my scheme of council tax support to do both of the things that Mr Iain Duncan Smith pledges on 90% of the funding? I can see that I could simply cut support to all but the poorest, but that would have the effect simply of reducing work incentives. I could try to protect work incentives, but that would have an effect on the poorest. That is the choice I have. So the question for the Minister is: how can a council structure it so that it can help the poorest to get the help and support they need “without question” and ensure that people are always,

“better off in benefits than in work”?

Can the Minister explain? I have every confidence that councils all around the country are waiting to hear the answer because those that I have spoken to have not been able to figure it out for themselves. If the Minister cannot answer the question, is she going to break it to Iain Duncan Smith, or shall I do so?

[Lord Smith of Leigh]

My Lords, I support my colleagues in their contributions, which covered some of the points that I was going to raise. We thought that in Greater Manchester, where we worked together closely, we would try to work out a scheme of council tax benefits covering the 10 authorities. It has proved to be absolutely impossible. The reason is that we all start from different financial positions and we therefore approach the onset of the council tax benefit scheme from very different situations.

The point that my noble friend Lady Hollis raised about the poll tax is something that we should not forget. In the days of the poll tax, the cost of collection took a huge amount of the revenue that was collected. That was the law, we had to encourage people to pay, and if they did not pay we had to go for them in ways that were not as satisfactory as one would have liked, but that was the only way we could go forward. It created the problems that my noble friend mentioned. The unintended consequence was that a whole load of young people disappeared from Wigan and neighbouring authorities. They never registered for the poll tax; they never registered to vote because that would have exposed them as being liable to the tax; and most of them were probably not too bothered about voting. Someone said they had all moved to Spain. Well, not that many Wiganers were moving to Spain at that time. Again we are introducing a system whereby local authorities will be collecting very small bills from people who find it difficult to pay. In her response, the Minister might provide us with a calculation of the estimated extra costs of collection.

On the point about risk, my noble friend Lady Hollis made it clear that for a local authority the situation is very unpredictable as regards council tax benefit. We can devise a scheme for it, as I am doing at the moment, but I can tell noble Lords that that is not an easy task. The outcome of that scheme is unpredictable because we do not know, even when we set it to start on 1 April, how many people will be eligible to claim the benefit during the year. Clearly, treasurers will be advising local authorities that they have to cover that risk with additional balances. They cannot make an assumption. My authority covers 300,000 people and is therefore relatively large compared with other authorities. The noble Lord, Lord Greaves, comes from a smaller authority, but if, as we mentioned last week, one of the factories in his area were to close, the impact upon the scheme in Pendle would be huge. The money would have to be found for that and, at the same time, as noble Lords will remember from last week, the authority would not be receiving the business rate to cover the increase in benefit—so there would be a double impact.

At Second Reading, the Minister suggested that we can pay for this scheme by the new proposal to end discounts on empty properties and second homes. It may come as a surprise to your Lordships but there are not many second homes in Wigan. It is not a preferred choice for people who want to buy second homes. Unfortunately, that is not a source of revenue that I look forward to collecting money from. What about empty properties? We have empty properties and some have been empty for some time. I therefore asked for some information, and the number is less than the Government seem to think it is. Empty homes in Wigan are a reflection of a number of things. One is the state of the housing market, which is in great difficulties and people who need to sell their houses cannot do so. Maybe they want to move away for work, or have done so and left the house empty, and still cannot sell the property because there is no demand; I notice that the noble Earl’s organisation, the Royal Institution of Chartered Surveyors, has today announced that house prices are going down, revealing the state of the housing market. It is not there. They cannot sell the properties that they wish to sell. Many are people who have inherited properties from their parents and, again, cannot sell the property. Many of these properties are on terraces, so not desirable for modern couples. I cannot believe that there will be a huge amount of money there.

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[Earl Attlee]

My Lords, I am quite confident that my department has done its homework, but inspiration may arrive.

Local government has previously expressed concerns about ensuring the ongoing direct payment of council tax support funding to councils if it is integrated with universal credit. Localisation ensures that funding is allocated directly to local authorities. We recognise the importance of helping local authorities to develop and administer schemes that support universal credit. In answer to the noble Baroness, Lady Sherlock, it will not be in the interest of local authorities to establish schemes that fail to provide positive work incentives and which risk locking residents into low aspiration and poverty. Universal credit will not be sabotaged, as was suggested by the noble Baroness, Lady Hollis.

The noble Baroness, Lady Sherlock—and many other noble Lords—asked me how universal credit income will be taken into account in local council tax support. I will respond to this point in more detail in relation to Amendment 79B. It might be helpful, however, if I made a few points now. In relation to its own local share, it will be up to a local authority to decide how, if at all, universal credit income is to be taken into account for working-age claimants. In relation to the default scheme that will come into effect if a local authority fails to adopt a scheme by the deadline of 31 January, universal credit will be taken into account in the following ways: either the income assessed under universal credit, with some adjustments, is less than a defined minimum income amount, in which case the claimant will receive a 100% rebate; or their income exceeds this amount and a means test is applied. In both cases, the assessment will use, with some adjustments, data from the universal credit assessment of the income needed to live on. I will explain these points in more detail when we get to the relevant amendment.

The Government have published guidance on how local schemes can support improved work incentives, and we are working with the Department for Work and Pensions to enable data from universal credit to be shared with local authorities for the administration of local schemes. The noble Baroness, Lady Lister, and the noble Lord, Lord McKenzie, talked about calculations on universal credit. The noble Baroness helpfully read out a Written Answer on whether the calculations can take into account universal credit income. As the noble Baroness will be aware, the second half of that Written Answer explained that the default scheme will take account of universal credit income. We will be publishing draft regulations setting out that approach shortly.

Amendment 83, in the names of the noble Baronesses, Lady Hollis and Lady Sherlock, would extend the requirement for local authorities to consult on schemes under the current benefit structure or universal credit. At present, council tax benefit is centrally prescribed, with very limited local authority discretion, and it is not clear what purpose a requirement to consult would serve. We are clear that council tax will not form part of universal credit in future.

Members of both Houses, and from both sides of the House, have expressed their support for the principle of localisation. We trust local government to administer the key services that make a crucial difference to the lives of the most vulnerable in society. It is right that we trust it to take greater responsibility for the administration of local taxation in relation to those groups. Obviously I have not been able to answer every point asked of me, but I will write and place a copy in the Library.

[Baroness Sherlock]

My Lords, I thank the Minister for that answer and for his attempt to address some of the questions raised in the debate. I asked how we would advise a council to construct a scheme that would manage to protect both the poorest and work incentives. He answered half that question in the sense that he assured me that a council would not wish to do anything that would damage work incentives. He did not answer the other half, and crucially he did not explain how one might construct a scheme that did both. Perhaps he could elaborate on that.

[Earl Attlee]

My Lords, I believe it will be possible for a local authority to do both, but of course I will write in greater detail.

[Earl Attlee]

My Lords, that is a matter of detail for local authorities to work out.

[Baroness Sherlock]

My Lords, I am very grateful. I look forward to receiving a letter outlining a scheme that might meet those criteria. There will be a lot of interested people waiting to read it. I thank the Minister.

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[Lord Tope]

My Lords, I am not a vice-president of the Local Government Association and I certainly do not claim to speak for it. I said in a debate on an earlier amendment that the views of local authorities within the Local Government Association, as most are, have differed on this issue, regardless of political control. There are certainly Labour-majority councils that have supported what they thought was the localisation of council tax. There are some in my own authority. However, as people have come to realise the implications of what we are debating today, that support has become more questioning. I shall put it no more strongly than that. The briefing that I imagine we have all had from the LGA today states:

“The LGA supports the principle of localising responsibility for decisions about the incidence of council tax”.

The question is whether that is what we are getting now but maybe that is for another debate.

I support my noble friend Lord Jenkin. My noble friend Lord Shipley and I have added our names to Amendment 73A, which the noble Lord, Lord Jenkin, explained very well. The concern that we address with this amendment is the expectation that, for a range of reasons, the cost of council tax support will increase. More people are likely to claim it because, sadly, they will fall into that category, perhaps because the change in wording from “benefit” to “support” will—wrongly, maybe—encourage more people to feel able to claim it. Therefore it is highly probable that the costs will increase in years to come. We seek from the Government an indication of how they intend to deal with that and, more particularly, an assurance that it will fit under the new burdens doctrine and that the increased costs, assessed annually by the Government, will be met in full in accordance with the doctrine. That is the purport of the amendment in my name and that of the noble Lord, Lord Jenkin. We seek reassurance from the Government.

[Baroness Sherlock]

My Lords, unaccountably I have never been invited to become a vice-president of the Local Government Association—

[Lord Tope]

The noble Baroness is in very good company.

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[Baroness Sherlock]

But I hope that the letter will arrive any day now, despite the fact that I have never served as a councillor.

I do not support the principle of the localisation of council tax benefit—as my earlier speech may have made clear. Even if I did, under these terms I would not be happy about it. I would think that I had been sold a pup. One reason for differing views within local authorities—I hope that the Minister will help me understand this better—is that potentially there will be significant regional differences in the impact of this policy.

I will refer again to the report on council tax benefit of the Institute for Fiscal Studies. The IFS note that the pain of this cut will fall disproportionately on poorer areas. It states that in cash terms, the cut in funding will be larger in areas where council tax benefit spending is highest—the more deprived areas of Britain. The report goes on to point out that almost 90% of local authorities face a funding cut of between £10 and £25 per dwelling. It would seem that the risks described by other noble Lords are all downside. That must be of serious concern to local authorities. What does the Minister envisage happening? Will the Government be able to take account of the different positions?

I will give an example. The OBR forecasts a reduction in the number of people claiming passported benefits as a result of the combined effect of presumed economic growth and welfare reform—an increase, therefore, in the number of low earners. The effect on CTB would be to see fewer people claiming maximum council tax benefit or its successor, and more people claiming partial council tax benefit as a result of moving into work. Has any work been done by the OBR to see how even those cost assumptions would be? The most recent quarterly Northern Economic Summary from IPPR North showed two things that spring to mind. First, the number of young people not in education, employment or training is highest in the north of England, at 19%, compared to an average of 16% in England. Given the trends in youth unemployment, that could see more people moving into the unemployed category rather than out of it.

Secondly, the report found that the amount of time people are spending on jobseeker’s allowance is increasing. Almost half—47%—of those claiming JSA in the north have been doing so for more than six months. The average time people have been claiming benefits is more than double what it was during the previous 2008-09 recession. Here I am trying to tease out an understanding of whether the assumptions underlying the costings of the impact on local authorities, and the extent to which they have been future-proofed, have taken account of north-south divides and differences, and what assumptions have been made about changing patterns.

Finally—I will come back to this when we debate later amendments—the Minister will be aware that 85% of council tax benefit at the moment goes to the lower-income half of households, and that almost half goes to the lowest-income quintile. Inevitably, any cuts are bound to be borne by the poorest households. Given the combination of poor households and poor areas being hit, is the Minister not concerned about what will happen to the economies of those areas? I know from talking to at least one northern authority that such a significant proportion of its households are in receipt of a variety of means-tested benefits that cuts in the Welfare Reform Bill alone will, it is anticipated, produce a reduction of demand in the economy as a whole. Have the Government modelled any of those impacts on a regional basis?

[Lord Shipley]

My Lords, first, I do not share the concern of the noble Baroness, Lady Hollis, about the capabilities of local government and councillors. Councillors are perfectly able to produce fair and equitable council tax support schemes. However, one problem we have is that timescales are driving the publication of draft schemes very quickly. Inevitably, draft schemes that go out to consultation will be different. After all, lots of things that local government does are different. Council tax rates are different. It would not be surprising, given differences between local authority areas that there may be differences in council tax support schemes. However, timescales are likely to prove too tight. I think that there will be a problem over equalities impact assessments and the timescales that they require. I would prefer a start date of April 2014, but we will come to that in a moment.

The real issues remain financial support, the level of financial support going into those schemes, and the new burdens doctrine. Amendment 73A matters quite profoundly because we are having a debate about the 10% cut and how it should be applied, and I absolutely subscribe to the view that it cannot simply be loaded on to the working poor. I would prefer it, if it is to be applied, to be spread across council tax payers generally.

Secondly, it has become clear to me that 10% is at the low end of what the reality will be. It will be significantly higher than that and, for the reasons that my noble friend Lord Tope outlined, demand is likely to rise and the change of title from “council tax benefit” to “council tax support” is likely to produce more people applying for it. Economic conditions remain difficult and will continue being difficult for the next two to three years; therefore, more people are likely to be applying.

Thirdly, the fixed-grant system that the Government are likely to introduce seems dubious in terms of who will actually decide on which data the government estimates are based. I fear that the estimates of demand over the first two years of the scheme will prove to be understatement. Therefore, the Government should manage the risk. In the context of 28% front-loaded cuts in the current and previous financial years, which have had a great impact on councils’ ability to meet all their obligations, there is a major principle at stake. If we have a new burdens doctrine, it ought to be applied; otherwise there is no point in the Government having a new burdens doctrine. Given the sum of money involved—£500 million, 10% of the £5 billion annual commitment to council tax benefit—this is an acid test of whether the new burdens doctrine has a future.

I sincerely hope that the Government will look again at this whole issue. I have subscribed, in my role as vice president of the Local Government Association, to the view that if you are going to localise—we are trying to devolve and localise—it is entirely appropriate for local government to take responsibility for this. They are the ones who set council tax. Therefore, they are the ones who are capable and should be responsible for setting the level of council tax support, but they have to be able to do it in the context of knowing that that cash will be available and the risk will be managed against rising demand by a Government that is supportive of them.

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[Earl Attlee]

No, my Lords, I am not saying that. People should claim the benefits to which they are entitled. I am saying that the system is designed to encourage local authorities to go for local growth in order to reduce the claimant count. I fully accept the noble Lord’s point that people should claim the benefits to which they are entitled. The local authority may—

[Baroness Sherlock]

I just want to check that I have not misunderstood the Minister. Since council tax benefit is payable to people in work as well as people not in work, economic growth could still lead to people in work claiming benefits. Is he saying that an objective of localisation is to reduce the number of people who claim the successor to council tax benefit?

[Earl Attlee]

Not quite, my Lords. One of the objectives is to encourage better quality work, with better quality employers in higher technology businesses using a more skilled and higher-paid workforce, to still reduce the cost of the council tax benefit.

[Baroness Sherlock]

This scheme was designed to encourage the creation of high-tech work? Could the Minister explain that? I am sorry but maybe I have not understood the connection between those two things.

[Earl Attlee]

My Lords, there is an incentive for local authorities to encourage businesses which tend to pay higher salaries into their area. One of the complaints about the localisation of business rates is that it encourages retail outlets which tend not to pay very high wages. If a local authority can encourage higher paying businesses into its area, it will be able to reduce the expenditure on council tax benefits.