Finance – Third Reading of the Local Government Finance Bill

The Local Government Finance Bill had its Third Reading in the House of Lords yesterday.
The first amendment debated was moved by Baroness Hollis:

Amendment 1

Moved by Baroness Hollis of Heigham:

1: Before Clause 9, insert the following new Clause:

"Council tax reduction schemes

(1) The Secretary of State shall make provision for an independent review of all council tax reduction schemes made under the provisions of this act, to consider their effectiveness, efficiency, fairness and transparency and their impact on the localism agenda; and to make recommendations as to whether such schemes should be brought within universal credit.

(2) A review under sub-section (1) shall take place within three years after this act comes into effect."

She highlighted that many in the House were concerned with aspects of the bill, and there were a lot of unknowns. She therefore asked for a review in three years time, stating, "There are a lot of loose ends in the bill, a lot of unknowns and a lot of concerns, which is why the amendment, which is a modest one, ask for a review of these proposals. If what the bill proposes is sturdy and robust, a review will show it. If it is not and needs adjustment, a review will show it. If it needs more radical reforms such as moving into universal credit, a review will show it. The amendment seeks evidence, which is something that we should do…What are our concerns? We list them in the amendment. I suggest that they include effectiveness, efficiency, fairness and transparency…

All these concerns about effectiveness, efficiency, fairness and transparency may not be realised. I hope that I am wrong about that, but only an independent review will tell us if these schemes are robust, stable, well researched and fully claimed. If they bear fairly on the poorest and are collected officially and with dignity, then a review will confirm that. If local authorities need other sources of revenue, such as a single person discount, which the noble Lord, Lord Best, argued so powerfully for on Report, then a review could consider that. If, however, as I fear, we face something of a shambles, and local authority funding lurches from one transitional grant to another to cover non-payment, and if local authorities come in desperation themselves to favour a single, national scheme which can, and should, be incorporated into universal credit, then a review would tell us that too."

Lord Shipley then spoke in support of the amendment, "The Local Government Association – I declare my vice-presidency – thinks that the Government's package substantially underfunds the 8.5 per cent cap on what an individual household would pay and that councils will need to find another £100 million to make up their loss. Putting aside the problems of councils, the problems for individuals could be very severe in the face of so much change at once and the need, in particular, of many working age households to start paying some council tax.

I agree that as a minimum the Government should commission an independent review to report as speedily as it can, but certainly within three years, on how all the changes are working. I realise that the Government keep things under review but the problem is that more than one Whitehall department is involved and the Government need the support of an independent body, such as the Institute for Fiscal Studies or the Joseph Rowntree Foundation, to assess the impact in an independent way.

I regard this amendment as modest and the Government could and should accept it. I hope that the minister will accept it as a helpful contribution to our understanding across government of the impact of these substantial changes."

He was followed by Lord Best, stating that it will be important to review the effects of localising the council tax benefit system. "My own emphasis for a review, would be on analysing the consequences of the cuts to council tax benefit on the households affected and on those councils which find it necessary to start collecting council tax from the lowest income families who did not previously have to pay. What has been the cost in extracting these new taxes? What has happened to those who could not pay? It is a very serious matter deliberately to reduce the income of those who are trying hard to get a job, are not able to work or are in work but on the very lowest earnings. No Government would want to hurt those of our fellow citizens who are living on the breadline and finding life a considerable struggle.

Lord McKenzie of Luton then spoke in support, before Baroness Hanham refused to accept the amendment. It went to division and was then agreed. Contents 203; Not-Contents 165.

The next amendment debated was moved by Lord Tope

2: Before Clause 9, insert the following new Clause:

"Power to make grants discretionary

(1) Section 11 of the Local Government Finance Act 1992 (discounts) is amended as follows.

(2) After subsection (5) insert:

‘(6) Notwithstanding subsection (3) above, the billing authority shall have discretion to set the appropriate percentage at a rate between 20 and 25 per cent.

(7) In subsection (6) above, the discretion to set the appropriate percentage at a rate other than 25 per cent shall not be exercisable for pensioners.

(8) In subsection (7) above "pensioner" means a person who has attained the qualifying age for state pension credit.'"

He said:"My Lords, Amendment 2 stands in my name and in the names of my noble friend Lord Shipley and the noble Lord, Lord Jenkin of Roding. It has been drafted by the Local Government Association; reflects exactly the policy of the Local Government Association; and has the support of all four groups on the Local Government Association.

We had a long debate on this issue on report. As the matter was explained fully at that time, I do not intend to go through all of it again today. The amendment differs from the amendment that we debated on Report last Tuesday in two important respects, and, together, those two differences meet the objections that were raised in that debate. First, the amendment would restrict to only five per cent the discretion given to local authorities to vary the single person discount. At present that discount is 25 per cent; under this amendment, it could not be less than 20 per cent. Secondly, everyone of pensionable age would be exempt from the change. They would all remain entitled to a 25 per cent single person discount, as at present.

In her reply to last week's debate the minister commented that she herself received and welcomed the 25 per cent discount. I can reassure her that if this amendment is successful, she will continue to receive the 25 per cent discount, which I know she will welcome.

Perhaps rather more significantly, the minister also pointed out that an unrestricted amendment – an amendment which would have allowed local authorities, in theory at least, to get rid of the single person discount altogether – could represent a potential tax increase for more than eight million people. Although I do not think that that would ever have happened, this amendment will ensure that it cannot happen. A very high proportion of people currently in receipt of the single person discount are pensioners and will therefore be exempt from this, and not all local authorities will need or choose to vary the current discount. Therefore, the number facing a very small tax increase will be very significantly less than those maximum figures quoted in the previous debate on this subject.

Nearly all those people will also have benefited from a freeze in their council tax for the past two years, and they will probably do so for a third year, next year. I do not pretend for a moment that this is easy or welcome – there are many in receipt of the single person discount for whom any tax increase will be difficult – but we are talking about a few pence per week from people who are already paying council tax. Surely that is better, or less bad, than local authorities having to take rather larger sums, and certainly much larger sums as a proportion of their income, from the poorest members of their community, many of whom have not previously had to pay any council tax.

The bill already gives power to local authorities to vary the discounts that they give on empty properties and second homes. Although that is welcome, in many areas it is nowhere near enough to bridge the gap created by the 10 per cent reduction – or as my noble friend Lord Shipley said in the previous debate, more likely, in effect, the 12.5 per cent cut in funding for council tax support. Areas with large numbers of claimants tend not to have many second homes. If the Government are so willing to allow local authorities to vary these two discounts, why has the Secretary of State so resolutely refused even to discuss allowing them to make a small variation in this third discount scheme? The Local Government Association calculates that if this limited discretion were given to local authorities, all but 14 local authorities would be able to meet the funding gap fully without making any charge on claimants.

If the amendment is not agreed and implemented, the LGA states that 90 per cent of the schemes currently being consulted on by local authorities intend to charge working-age claimants generally between 15 per cent and 25 per cent of their council tax.

He was then supported by Lord Jenkin, Lord Jenkin of Roding: "I made my main point when I supported the similar but different amendment moved last week by the noble Lord, Lord Best. I will not repeat it but will instead make two points. First, in the debate on the previous amendment there was a reference to this issue being "poll tax number two". I spoke about the poll tax on 16 October. The difference is that, for whatever reason – and people may want to criticise it fiercely – it was part of the original poll tax concept that "everybody should pay something". In the circumstances, that was not acceptable to the public. In the present circumstances, the proposal by the Government is not intended deliberately to do that – but inadvertently this will be the result unless the amendment or something very like it is agreed. As was said in the debate on the previous amendment, and as my noble friend Lord Tope said, large numbers of people who hitherto have not had to pay council tax because they were given council tax reliefs will find themselves having to do this. This is something that we should try to avoid.

Lord Tope then spoke against the amendment, stating that "it does not address certain fundamental points of principle".

Lord Best then outlined the reasons why this amendment addressed the arguments that were used against the original, wider flexibility, version debated at Report Stage. My Lords, I rise to support this amendment. Indeed, it would be very strange if I did not support it since I have worked on this issue for some months. With help from my indefatigable colleagues at the LGA, we have formulated this revised version of my earlier amendment after last week's debate. So perhaps I should explain why it is not me who chose to bring this back before your Lordships.

The original amendment would have given full discretion to local authorities to vary the single person discount. This would have enabled councils to raise the necessary funds to compensate for the Government's 10 per cent cut to council tax benefit, making it unnecessary for them to start levying council tax on the poorest non-pensioner households. The modifications in this new version of the amendment, as set out by the noble Lord, Lord Tope, seek to address the criticisms raised in the debate last Tuesday. They limit the flexibility for councils to reduce the single person discount from 25 per cent to no less than 20 per cent and maintain the full 25 per cent discount for single pensioners, regardless of their income. These constraints would very probably have been adopted by local authorities in any case, but having them in the bill means there can be no cries of, "It's a widow's tax" or "It could mean lone parents being asked to pay another £5 per week". The revised amendment means that most widows would be excluded and virtually everyone paying council tax in the bottom council tax bands would be charged well under £1 per week more. The relatively few single people in the most valuable properties, those in the top council tax bands, would be likely to see an increase of only a little over £2 per week if their council chose to use the discretionary power to the full. Since the single person discount reduction would come in a year when the Government are requiring another freeze for the overarching level of council tax, the reduction from 25 per cent to 20 per cent could not be even a fraction as painful and problematic as cutting council tax benefits by £3 to £5 or more for the poorest.

I had hoped very much that the Government and those of your Lordships who were hesitant to support the more open-ended amendment would be brought on board by the modified version. The LGA has articulated the very strong support of council leaders for this amendment, most particularly those leaders representing less affluent areas where more people are in receipt of council tax benefit and there are fewer opportunities to raise more taxation from high-value empty properties or second homes. This is the lifeline that could save councils from having to cut services or support to the most economically and socially vulnerable.

I promised my Cross Bench colleagues, who have been incredibly supportive, that if I failed to secure any movement in the position of the Government or the Labour Benches, I would not try their patience further and take up the time of the House with a battle that could not be won. Sadly, the minister has made clear to me that despite the strength of feeling of the LGA and local authorities of all political persuasions, the Government will not budge. Equally, noble Lords on the Opposition Front Bench have remained adamant that despite the strongest representations by Labour councils, they cannot support any change to the fixed 25 per cent single person discount.

Lord Smith of Leigh, Lord Shipley and Lord Palmer of Childs Hill all then spoke in support of the amendment.

Baroness Hanham refused the amendment on the grounds that:

Let us be clear: "the amendment is a tax rise on millions of single people, even in the reduced form that now comes before us. An amendment to give local authorities complete discretion over the level of discount was discussed for over an hour and a half on Report, but ultimately was not pressed. The Government were opposed to any change in the single-person discount then, and our position has not changed now. The single-person discount was part of the regional council tax system. It was part only of the system, not of anything to do with what was then council tax benefit. It is correct that it was not included or considered as part of the consultation on changes to support for council tax benefit.

Lord Tope then pressed proceedings to a vote, with the amendment being rejected by 299 votes to 64. 

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20 November 2012