Second Reading

Local Government Finance Bill – in the House of Lords at 3:05 pm on 12th June 2012.

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Moved by Baroness Hanham

That the Bill be read a second time.

Photo of Baroness Hanham Baroness Hanham The Parliamentary Under-Secretary of State for Communities and Local Government 3:06 pm, 12th June 2012

My Lords, creating growth, reducing debt and handing back power to local people go to the heart of the Local Government Finance Bill. It is a limited Bill, confined to two issues: the retention of business rates, which appear in Clauses 1 to 8, and council tax, in Clauses 9 to 15. The remaining clauses, Clauses 16 to 19, deal with general provisions.

The new local retention of business rates will for the first time in a generation allow local areas to share in the proceeds of growth. The Bill incentivises local government to encourage growth through increased business and economic activity by directly linking financial benefit to the decisions that it makes. The Bill also provides a framework to allow local councils to design their own schemes for council tax support, replacing council tax benefit, which will be abolished by the Welfare Reform Act. There is wide recognition that welfare spending needs to be targeted better. Part of the way we can achieve that is for councils to have control over council tax support and for local authorities to have the freedom to decide how to help provide for the most vulnerable in their communities.

I shall spend a little time in explaining the background to the Bill and outlining the scrutiny and consultation prior to the proceedings in this House. The Bill originates in the core principles and agreement of the coalition Government and has evolved through extensive consultation. Local retention of the business rate emerged as part of the local government resource review in early 2011. The consultation on its provisions was published in July 2011, along with eight technical papers to explain the thinking behind the reforms. We have discussed the details of the scheme with local government through the Local Government Finance Working Group and its sub-groups, which have met frequently since January. Localising support for council tax is a pragmatic approach to delivering a spending decision to reduce expenditure on council tax benefit by 10%. That originated in the spending review of 2010. The welfare reform White Paper published in autumn 2010 set out the Government's broad intentions. The department undertook pre-consultation engagement with local councils and other groups to consider the issues. Events were held in August and September 2011, and a full three-month public consultation took place from 2 August to 14 October 2011, which generated over 400 responses.

Set against this background of consultation and information-sharing, while the Bill was in the other place we published a series of statements of intent to provide clarity and assurance to both Parliament and councils about how all these reforms will work in practice. We have also published our proposals for funding localised support for council tax.

The Bill was considered at length in the other place and debate was extensive, having proceeded through a Committee of the whole House. As a result of this debate, the Government made a number of changes which we believe improve the Bill and reflect the views of Members of the other place.

On rates retention, the process for distributing any surplus levy income to local councils is being speeded up. The basis of distribution will now be set out in regulations which, once made, will enable the money to be distributed immediately to local authorities without having to wait for the next local government finance report. This change followed concerns expressed during Commons Committee stage that the process originally set out in the Bill was too long-winded and would mean that even when the Government had taken a decision to distribute some, or all, of any levy surplus to local government, authorities would have to wait between six months and a year before they received the money. Additionally, there were concerns that holding back some surplus levy income from one year to another potentially created a problem if there was a deficit in the levy fund in the early years, before any surpluses had built up. We have therefore amended the Bill to provide that, instead of holding back levy income, any deficit would be met by additional money being paid into the levy account.

Despite the Government's assurances to the contrary, there were still concerns that the 50% central share would be seen as a cash cow and that the Government would use the money for their own purposes, avoiding returning it to local government. The Bill was therefore amended to define local government-namely, those authorities which are able to raise local taxes, precepts or levies, and to which the central share will be distributed in year.

We have also taken steps in the Bill to make things easier for local councils to press ahead with delivering local support for council tax. We have clarified that billing authorities can consult precepting authorities to produce a draft scheme and can consult more widely before the Bill receives Royal Assent. This will enable councils to start the process now if they choose to do so.

A little time might usefully be used to explain the key features of the main policies within the Bill-first rates retention, and then reforms to council tax. Business rates retention proposals represent a fundamental shift in the way that local authorities are funded, giving councils a strong financial incentive to drive local economic growth. There are some key elements to this policy, which I want to be clear on now, and I should like to take this opportunity to reassure your Lordships on a number of issues.

We will ensure a stable starting point so that no council is worse off as a result of its initial business rates base at the outset of the scheme. This will be achieved through a system of tariffs and top-ups, with councils with a business rate income that exceeds their local need paying a tariff to top-up those councils with a current tax base that is below their level of need. These payments will be fixed in future years so that councils can benefit from any growth in their business rates.

Tariffs and top-ups will be uprated by inflation to ensure, for example, that a major part of a top-up authority's income is not eroded in real terms. We have also proposed further protections, including a safety net funded by a levy on councils with a disproportionate gain from business growth. The safety net will help to ensure that service provision does not suffer as a result of a sudden and significant drop in a council's business rates base-for example, from a major employer going out of business. We have announced our intention to set the safety net threshold at a level between 7.5% and 10% and the proportional levy ratio at 1:1, subject to consultation this summer. I know that noble Lords will be reassured to know that where councils want to pool their business rates, sharing the rewards and risks with their other local authorities and thinking together strategically about them, the Bill will allow them to do so.

Lastly on rates retention, through this system the Bill establishes the framework to deliver tax increment financing, allowing unfettered access to TIF 1 for all councils, without government control or interference. However, the Bill also allows for a second tax increment financing project. The 2012 Budget confirmed that the Government will make up to £150 million available from 2013-14 through additional funding for larger-scale projects in a number of core cities, to be financed through tax increment financing, which is known as TIF 2, if I may use the acronym.

I shall now address the measures in the Bill that relate to council tax. As your Lordships know, the Welfare Reform Act abolished council tax benefit. However, the Government are committed to retaining council tax support for the most vulnerable and the Bill therefore legislates for councils to develop their own local rebate schemes. This reform is part of the decentralisation agenda, making support for council tax an integral part of the council tax system and creating stronger incentives for councils to encourage people back into work.

Council tax benefit expenditure more than doubled between 1997-98 and 2009-10. Localising support for council tax will include a requirement for local authorities to achieve a 10% saving on council tax benefit expenditure and give them control over how this saving is found. The Government believe that councils are best placed to understand the needs of their vulnerable residents. This reform enables them to take local factors into account when deciding on levels of support. At present, councils can put up council tax without considering the impact on the cost of council tax benefit. Localising council tax support will change this and encourage greater local financial accountability.

Making councils financially responsible for addressing an individual's need creates stronger incentives for them to encourage and assist people back into work. This reinforces the positive benefits of driving economic growth in their areas, provided through the retained business rates system. Together with the introduction of local council tax referendums, this helps make local authorities fully accountable for decisions over council tax levels and strengthens the incentive to provide value for money for the taxpayer.

I am also keen to provide reassurance that we are providing the detail and support required to ensure that councils are well placed to press ahead with the implementation of their local schemes by April 2013. For example, we have announced and paid out £30 million of initial funding to help councils meet the cost of planning and analysing draft schemes. We have also published detailed statements of intent on key regulations, including pensioner protections and the default scheme policies, so that councils understand the intended parameters of the new rebate support system.

The Government will put local authorities in the best possible position to develop and consult on their own local schemes. I stress that local authorities can make their own decisions about how they develop their schemes for working-age council tax payers, what protection they choose to offer and how they choose to fund that protection. Different areas face different challenges and will make different decisions, but that is localism.

I know that we will spend time going through the detail of the Bill but I hope that I have provided a certain degree of clarity and reassurance on the Government's reforms. I reiterate that these reforms are designed to promote growth and decentralise power away from central government to local councils. All money raised through business rates will continue to be spent on and by local government, which will also now share in the proceeds of growth. No council will lose out on day one as we will ensure a stable starting point for all, so that no council is worse off as a result of its initial business rates base at the outset.

On council tax support, the Government have explained what the fallback default system will be if authorities do not make a local scheme in time; and in terms of administration, this is a continuation of the existing arrangements. Councils should not be phased by using a system with which they are already familiar. Indeed, councils can build on this foundation with full flexibility to develop their own tailored schemes to support vulnerable people in their own local area. My noble friend Lord Attlee and I are keen to work with the Committee to examine the Bill in detail as it progresses through your Lordship's House.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Communities and Local Government) 3:20 pm, 12th June 2012

My Lords, first, I thank the noble Baroness, Lady Hanham, for her clear introduction of the Bill. This may be a short, technical Bill but it has profound consequences for local government and millions of our fellow citizens. It is a framework Bill, which we would contend has been rushed through the other place-it was hardly considered at length-with implementation dates for some of its proposals, such as April 2013, which are wholly unrealistic. Despite the release of further information in the statements of intent just a few days before Report stage in the other place, there is still much that we do not know about the detail. Part of our job in Committee will be to get as much on the record as we can.

I will concentrate my remarks on the business rate retention scheme and council tax support proposals but should make clear that we have been advocates for tax increment finance initiatives and will support the progress in the Bill. However, the dead hand of the Treasury in limiting this to £150 million of infrastructure for option 2 of the TIF 2 schemes has blunted its prospects. Greater discretion over council tax and empty properties, such as second homes, are matters we can support. For some authorities, but certainly not all, the extra revenue might help to plug the funding gap that this Bill will generate.

The Government contend that their business rate retention scheme will provide a strong financial incentive for local authorities to promote growth. We do not agree. A policy to incentivise growth is entirely reasonable but it must be credible in terms of its effectiveness as an incentive and fair on its impact on outcomes for local authorities. We accept that local retention of business rates by local authorities can clearly be an incentive to grow the business rate base and to foster close relationships with the business community. How this translates into growing the local economy in terms of jobs and adding to national output is more problematic. Where is the trade-off between competing developments, one of which produces higher business rates but lower employment and less added value than the other? We need to give these sorts of issues an airing in Committee, together with an understanding of the consequences of excluding rental value increases, a matter on which we have received representations.

While an effective business rate retention scheme can help, it is entirely false to assume that local authorities have been sitting idly by in the mean time, careless of their local economies and employment. Up and down the country local authorities are already striving to regenerate and develop the economies of their areas, and seeking to redress the ravages caused by the economic failure of this Government-for example, the lack of a strategy for growth and jobs. But the cuts already imposed on many local authorities are making it difficult for them to sustain their economic development budgets.

The Government's analysis of the economic benefits of local business rates retention acknowledges that whether a scheme could have a significant economic impact depends on the precise way in which the incentives are structured. Among the matters considered important are the need for simplicity and transparency, predictability, being long term and credible. It cites the need for such considerations to be optimised while protecting the funding needs of authorities.

So how does the Bill measure against the Government's criteria? Any fair system of funding for local government with hundreds of authorities with different needs and resources is bound to be complex, and this is certainly true of the formula funding approach. But it is also true of the business rate retention scheme on offer, which is fiendishly complex in the words of London Councils, with its multiplicity of levers.

True to his localism form, the Secretary of State has included a raft of new powers to control these levers centrally. Ministers can set the local and central shares of the business rate, and can vary this. They will determine the level of the levy ratio and the parameters of the safety net. Ministers have ultimate control over the frequency and method of resets-the updating of the baseline. All these factors reduce the effect of the incentive, but perhaps none more than the 50-50 local-central split, and the continuance of this beyond 2014-15.

There are also the complexities and uncertainties around revaluations and appeals. We should recognise that the system may also introduce disincentives, and we would wish to examine concerns raised with us about leisure trusts, and what impact the Bill could have on them.

Of course, what this also entails is the shift from the allocation of local government funding solely on the basis of an assessment of need and resources to future increases in funding being on the basis of local economic growth, or, more precisely, the increase in the business rate base. There are major concerns that this will increase inequality, over time, opening up gaps between the wealthy and poorer areas. For a start, the baseline for the redistribution, which will determine tariffs and top-ups, reflects the 2012-13 formula grant applied to later control totals. This means that it reflects the consequences of two years of spending cuts under which the 10% most deprived areas lose four times as much in spending power as the least deprived 10%. Locking in this level of cuts will for some create real, unsustainable pressures on vital services.

Even if the baseline were a fair starting point, it does not mean that all local authorities have an equal ability to generate additional business rates going forward. This is not because of a lack of will or expertise; it will reflect in part the current state of local, regional and business infrastructure, and it may reflect the extent to which there is land available for development. It would be heavily influenced, say, by being close to a university research facility with existing business clusters nearby. Levies may dampen the effect for some, but it looks as though protection of the safety net will be available only for significant loss of the business rate base. Indeed, the risk of a reduction in the level of business rate income will in future fall on councils and will need to be taken account of in setting reserves.

Government retaining 50% of the business rates as a means of controlling overall levels of local authority spending means that reductions in the future, from 2015-16, are more likely to be met by reductions in grants, which are of course distributed between authorities in a completely different way to the formula grant, therefore hitting the neediest authorities the hardest. So a policy with decent intent is being undermined by obsessive control from the centre and lack of understanding of the needs of many of our communities.

The manner in which the Government are seeking to localise council tax benefit is especially pernicious. It combines two policies: a shift in financial risk from central government to local authorities and, at the same time, a cut in resources of at least 10%. It takes support for council tax outside of annual managed expenditure, meaning that demographic changes, adverse economic circumstances, and just greater take-up-because it is no longer a benefit-risks local authorities having a shortfall of funds.

At present council tax benefit provides nearly £5 billion of support for low income families. As the IFS points out, it has 5.9 million recipients; even with relatively low take-up rates, this is more than any other means-tested benefit or tax credit. It is all the more surprising therefore that the Government have set their face against including support for council tax within the universal credit. Failure to do so undermines the simplification which universal credit seeks to achieve. A coherence between council tax support and universal credit can be complex, particularly around work incentives.

Alongside universal credit there will be hundreds of different local schemes with different taper rates, applicable amounts, treatment of capital, income disregards and so on. During transition, council tax support will have to sit alongside universal credit as well as the existing benefit system. It seems from recent announcements that the introduction of universal credit is slipping. It was meant to apply to all new claimants from October 2013. I understand that this will not now happen until the middle of 2014. Will the Minister confirm that? Will she assure us that the reduction in support will be 10% of actual closing council tax benefit expenditure, reflecting the increase in case load because of increased unemployment and short-time working, and not the OBR's assumed reduction in case load? As the IFS points out, the funding cuts will be larger in areas where council tax support is higher-the most deprived areas. It is estimated at £5 per dwelling in the City of London and £38 in Haringey. What else would we expect from this Government? Because pensioners are to be kept whole, it is calculated that nationally grants will cover only 81% of working-age claimant costs; and in one in 10 local authorities less than 75%.

As we have heard, local authorities that cannot get a local scheme in place by 31 January will have a default scheme imposed on them which will be equivalent to existing arrangements. This means that local authorities in this position will have to find the 10% shortfall because there will be no reduction in individual entitlements. For some there may be cover in additional empty rates charges, but for many it will mean further cuts in services.

The Government are also requiring that localised schemes protect vulnerable groups without offering their definition of who should be included. We will press them on this in Committee. In the mean time, local authorities are having to endure the breathtaking hypocrisy of being reminded of their equality duty and obligations under the child poverty and homelessness legislation, and this from a Government whose own policies caused them to preside over increasing homelessness and rough sleeping, growing child poverty, and whose cuts to disability benefits have created a climate of fear among disabled people.

Local authorities are being set a near impossible task to produce a truly localised council tax support scheme by January next year-just seven months away-and the Government know this full well . Those that cannot carry the burden of the 10% cut are being encouraged to adopt a scheme based on the existing architecture, hacking away at components where they can. That is just a crude approach for the Government to escape responsibility for their decisions, which are designed to cut support or services and to cut the income of the poorest. As the IFS points out, there is a trade-off between protecting those on the lowest incomes and incentives to work.

The timetable is tight in terms of necessary consultation, scheme and system design and forecasting the council tax base. In addition, we shall wish to discuss in Committee issues around consultations, disputes and risk sharing between billing and precepting authorities; the interface with universal credit and work incentives; and the challenges of collecting small amounts of council tax. We will further scrutinise the clauses relating to information sharing and tackling fraud, which were introduced late at Report stage in the House of Commons. Localised schemes for council tax support are not what we most wish to see. However, if this is to be the way forward, we will seek common cause with those who seek to defer the date of implementation so that local authorities have the chance properly to implement arrangements which are practical and as fair as funding will permit.

This is a rushed, ill-thought-through Bill which has the potential to cause great hardship to many. We will do our best to change it where we can and resist it where we cannot.

Photo of Lord Tope Lord Tope Liberal Democrat 3:35 pm, 12th June 2012

My Lords, I thank the Minister also, not only for the full and careful way in which she explained the Bill's provisions but for reminding us of the extensive consultation that took place before the Bill was produced and the papers that have thus far been produced through the process. I am a little surprised to hear the noble Lord, Lord McKenzie, describe the process as "rushed". The Bill was, I believe, actually introduced in the other place before Christmas and had its Committee stage in January. It seems to me to have been a very slow process until now, when it is perhaps about to speed up rather dramatically. Like the noble Lord, Lord McKenzie, I look forward to a Committee stage when we will be considering-I am sure in the constructive way in which we always do-the many issues to which he rightly alluded. I do not wholly share the language he used but the issues are real and proper, and I hope that we will work constructively to try to produce the best solutions that we can.

As always, I should start by declaring my interest as a serving councillor in the London Borough of Sutton. Indeed, I was the leader of that council when the business rate was nationalised. Since then, successive opposition parties have pledged to repatriate it to local authorities, and successive Governments have failed to make any move to do so. I therefore very much welcome these first steps by the coalition Government towards returning the business rate to local authorities. However, they are first steps and, as usual, they are cautious and tentative with still too much central control retained. True localism would be returning the right to local authorities to set the business rate, but I recognise that that would be more of a great leap than a first step. It is not going to happen, at least for the time being.

It was always going to be a challenge to design a business rate retention scheme with the right balance between just and fair equalisation between local authorities and providing strong enough incentives for local authorities genuinely to drive for, and benefit from, economic growth in their local areas. I am not convinced that the scheme as currently proposed has yet got that balance quite right or that the incentives are yet as good and as strong as they should be. As the noble Lord, Lord McKenzie, has signalled, I am sure that we will spend much time in the remaining stages of the Bill considering that issue-not least the proposed reset and, in particular, the proportion that is intended to be retained by central government. These are important issues that have a fundamental effect on the success or otherwise of the good intentions of the Bill. I am sure that we will continue to do this in a constructive manner, as we did last year during the Localism Bill, with the Minister listening to as well as hearing what is being said.

I turn now to the provisions in the Bill for tax increment financing; I hope that we will all refer to it as TIF, which is a lot easier to say. My noble friend Lady Kramer is very knowledgeable on this subject and is taking a keen interest. Unfortunately, other unavoidable commitments prevent her taking part in this debate, although she expects to be able to do so in the remaining stages. However, I think that I can reflect her views accurately. As your Lordships will know, the Bill takes a significant step forward in creating the framework for tax increment financing-a mechanism that allows the financing of infrastructure and regeneration by capturing future value. The Bill is so shy of admitting this that the words "tax increment financing" do not appear in the Bill, but ironically, rather than it being an idea imported from abroad, TIF has its origins in the great cities of the UK and financed much of the infrastructure that made them the powerhouses of their day. We need that same economic drive again.

The Bill anticipates two kinds of TIF. TIF 1 is hampered by the reset period of the business rate to the extent that it will function more as a minor expansion of prudential borrowing. It will certainly not permit transformational schemes. TIF 2 can be ring-fenced against resets in the business rate but is to be rolled out with a national cap of only £160 million, which will not buy much across the country as a whole. The Treasury is also counting TIF borrowing as an immediate cost against the public finances, unlike enterprise zone financing, despite both using the same financing mechanism, so TIF 2 is ending up as a cash-limited competition between core cities. Surely government should consider schemes with each city based on the merits of the case. In Committee, we must flesh out these issues. Both the localism agenda and the growth agenda require that we make the most of TIFs, not the least.

I turn now to what is undoubtedly the most contentious part of the Bill-the proposals for the localisation of council tax support, on which I am sure we shall hear much more today. Views within local government about this have been divided. Initially it was welcomed-at least, in principle-by the Local Government Association but it has always been strongly opposed by London Councils, representing the 32 London boroughs and the City, which felt, as I did personally, that it would have been much better with universal credit. However, it is clear that that is not going to happen and, as the realities of the proposed scheme have become clearer, there has been a coming together with common concerns shared by all who will have responsibility for implementing and operating the council tax support scheme.

Those concerns are, in the main, twofold: the implementation timetable and, much more importantly in the longer term, the effect it will have on many of the poorer members of our communities. This so-called "localisation" comes with a 10 per cent cut in funding from central government and a central government directive to exempt pensioners and the most vulnerable, who together make up three-quarters of claimants. Inevitably, therefore, the full brunt of this funding cut must fall on the remainder of those currently in receipt of council tax support, sometimes referred to as the "working poor".

Many councils will be able to mitigate this wholly or largely by the very welcome greater freedoms being given in the use of the various council tax discounts, and I hope that all authorities will take whatever advantage they responsibly can of the discounts that become available. However, the higher the proportion of pensioners in a local authority area, the greater the effect. My own authority is one of those where there is a negative effect, even with the maximum possible use of discounts, but I must say that I am very pleased not to be the leader of a rural district council in the south of England, where the effects will be very serious indeed.

We all accept, to a greater or lesser extent, the need for deficit reduction and the fact that this must mean difficult cuts in public expenditure. It is, sadly, inevitable that these cuts will be felt hardest by those most dependent on public funding. However, what work has been done or is being done to determine the cumulative effect on the poorer members of our society of the cuts imposed not only directly by central government but by local government and the many other publicly funded agencies? Government in our country still works so much in silos that I fear that nobody has any real idea of the cumulative impact that the range of different and separate budget cuts, and other changes, at national and local level will have on poorer people, especially as many of these cuts are not yet fully implemented. I can well understand why a Government who have to make these difficult but necessary decisions may prefer not to know but I do think that we need to know-and to know soon before it is too late.

The other concern that I mentioned is the timetable, and the noble Lord, Lord McKenzie, also alluded to it. From the outset, the timetable for implementation next April has been seen as "challenging". Initially that concern focused on the need to have new software up and working by then, but I gather there is now more confidence that that can be achieved, although the software suppliers would still like to see the full regulations. When she replies, can the Minister say when those drafts will be available?

However, for me the far greater challenge has always been the need for each local authority to publish its proposed council tax support scheme by the end of January. Before they do that, they must have full and effective consultation, not least on their equalities impact assessment. There is now even more nervousness among local authorities about this, given that all those who lost in court on proposed library closures did so because their equalities impact assessments were held to be inadequate. That nervousness was there when it was expected-rightly or not-that this Bill would be enacted by the end of July, with the necessary regulations following shortly thereafter. Only in the past few weeks has it become clear that this Bill will not be enacted before the end of October/early November at best. The deadline of January seems even more fraught with difficulty and danger. I hope, therefore, that the Minister will say something helpful in her reply about the timetable, both for the further consideration of the Bill and for its implementation.

The Secretary of State for Communities and Local Government has been quoted as saying that the Local Government Finance Bill is not as interesting as it sounds. A couple of weeks ago, the leader of a Conservative-run London borough council told some of us that he thought it was the most far reaching local government legislation in his 16 years as a councillor. Probably the truth is somewhere in between. Just as with the Localism Bill last year, this Bill arrives in your Lordships' House still in need of some improvement and with questions still to be answered. However, just as with the Localism Bill last year, I am sure that it will leave this House, whenever it does, in a much improved condition, and I look forward to achieving that in the same constructive way with the help of those on all sides of the House.

Photo of The Earl of Lytton The Earl of Lytton Crossbench 3:48 pm, 12th June 2012

My Lords, about 25 years ago I stood before your Lordships and spoke for the first time on a local government finance Bill. I do so again with about as much trepidation as I had then. My interests are well known. I am a practising chartered surveyor and a member of several professional groups with an interest in non-domestic rating and property development. I am also president of the National Association of Local Councils.

Before I go any further, I pay tribute to the excellent quality, if somewhat overexuberant quantity, of the briefing material that has been produced-in particular, the briefing papers produced by the Library of your Lordships' House and the Library of the other place, which have been enormously helpful.

A Bill about the way in which local government is financed when a significant part of that finance is sourced from charges on the occupation of property falls sort of within my bailiwick-a domestic one in the form of council tax and a non-domestic one in the form of business rates. It is certainly right to try to get this nearer to residents and voters and to reconnect businesses with the levying of non-domestic rates at the local level, but that would result in a very heavy reliance being placed on the valuation base for the tax.

Once upon a time, well within my professional memory, we had a unified system of domestic and non-domestic rates. It fell under something called the General Rate Act 1967. While the process was a bit lumpy, particularly at the edges, by whatever benchmark of fairness you would wish to import it was cost-effective, efficient, transparent and pretty much unavoidable, and people understood it. Since then various things have changed because there has been a succession of attempts to tinker with the system. None of the obsolescence of the concepts within the system and its architecture has been dealt with. The resources to refresh and modernise have not accompanied successive tinkering. While we have a system that is still administratively very efficient, it is incomprehensible to voters and ill serves business interests.

We come to the latest set of proposals embodied in the Bill. I welcome the fact that it is part of the localism agenda of moving more responsibility and resources to communities. That is extremely welcome, as are the coalition's other localism policies, except that for a certain sector it does not fulfil much of the promise. There is nothing in it for the most numerous part of local government-the 9,000-odd parish, town and neighbourhood councils-nothing by way of financial benefit to match the promise of additional powers and responsibilities, and nothing to improve national guidance or co-ordination to increase the capacity of the sector. This stands in stark contrast to the resources made available to other comparable sectors. Therefore, I hope that the Minister will tell me that somewhere else, something will be done about this.

It is for others with much greater knowledge of the hard core of local government finance to explain how this rests with the difficulties that billing authority finance officers will have in balancing costs and risks, and in dealing with the tax base on which the finance will be based. With a revenue cut of around 10% that will have to be made good elsewhere, I do not see any prospect of offsetting it any time soon by expanding the tax base. Therefore, it will produce short and possibly medium-term problems that will have only an adverse bearing on the administration of the system or the services provided. Without other measures, the premise on which the add-back to billing authorities is put forward here seems very optimistic. Cutting costs is one thing; adding value is quite another. In that breath I pay tribute to local authorities that do add value and that are very successful at it. However, I suggest that it will not be of very general application, at least for some considerable time.

I referred to the tax base. The Bill bolts on a degree of additional complexity to an already complex system. It does not do anything to remedy the fundamental problems arising from the constant failure over many years to maintain and manage the tax base-I refer for instance to the council tax-or to resource the problems with non-domestic rates appeals. The impression given is of an out-of-date system being required to yield more than it is capable of.

Council tax was supposed to be a temporary measure. The bandings are 21 years old. The appeals system operated by the valuation tribunal deals with about 97% of business rate cases-I forget the exact figure-and about 3% of council tax cases. The system is creaking. The valuation tribunal's forward business plan assumes a normal temperature and pressure scenario and makes no allowance for the backlog already accumulated, nor for the likely increased transfer from the social services appeal tribunal to the valuation tribunal. Depending on whose estimates you believe, there will be anything from a threefold to a tenfold jump in council tax appeals. They will start becoming quite significant, in particular because benefits will be challenged and people will realise that they may be faced with a cut and will have to justify things in much more detail, so the obvious default will be to look at the basis of the liability for the charge and the basis on which it is computed.

I flinch a little at devolving things from the centre, where the power to modernise the system rests, by having a series of measures bolted on to something that was designed for another age. However, we are where we are. I must leave that in park and hope that the Minister will be able to reassure me on that. My fellow members of the Institute of Revenues Rating and Valuation are most concerned, and my co-members of the Rating Surveyors' Association equally fear a progressive gridlock in the appeals system.

It is not for me to refer to the obligations, risks and greater collection of uncertainties that will fall on billing authorities. That must be for others more learned than I am in this field. However, there are some significant problems. Contrary to the received wisdom about Governments internalising societal risks that the market will not underwrite, I perceive a raft of risks being transferred to where they cannot fail to inhibit growth, increase costs and devalue project outcomes. I hope I am wrong.

There are many aspects of detail in the Bill, including in areas where there is fundamental unfairness, where out-of-date elements of the tax base are manifest, and where the management systems that lie behind the maintenance of the valuation lists, the council tax banding and the appeal systems will come back to haunt us at a future stage. I make no apology for flagging them up because it will fall ever more increasingly on the billing authorities to deal with these matters as they go forward.

Next year, 2013, will be the antecedent year for the 2015 non-domestic revaluation. The likelihood is that, on the present count, values will fall. I hope that someone has factored that into the equation because, as the noble Lord, Lord Tope, mentioned, there are large numbers of variables involved. The need to get robust predictions and budgetary measures in place to take us forward in very uncertain times, and over some quite extended timescales where all kinds of things could happen before a 2020 reset, means that we should look at the Bill most carefully. I look forward to it being in a good deal better condition than it is at the moment.

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative 3:57 pm, 12th June 2012

My Lords, I hope that my noble friend on the Front Bench will listen carefully to what the noble Earl has said. He speaks with great authority on these matters and probably knows more about aspects of rating than anyone else in the House. He was very modest about his own knowledge but he was quite wrong: he is in fact extremely knowledgeable and we need to listen to him.

I, too, declare my interests: I am a joint president of London Councils and, like many other noble Lords, a vice-president of the Local Government Association. I offer a warm welcome to the main objectives of the Bill. The retention of local business rates is intended to and will, to some extent, provide an incentive to encourage development, and therefore provide increased employment and increased yield of rates. Another aspect, which has not been mentioned, is that it will, or should, help to build relationships with the business community in its area. It has certainly been so looked at by the London Chamber of Commerce, with which I have been in touch, and it has raised one or two points to which I may return in Committee. However, that is certainly one of the objectives.

I support the localisation of council tax reliefs although, as my noble friend Lord Tope has said, it is not supported by all the local government associations. In particular, it is not supported by London Councils, of which, as I said a moment ago, I am one of the joint presidents. I accept the argument that local authorities should know better than central government the people who need support and the best way of supporting them in the context of the local situation. It cannot be right to operate a one-size-fits-all policy. When there are great variations right across the country, a single system does not make sense. However, the broad objective of returning to local authorities some responsibility for this is something I support.

My noble friend mentioned tax increment financing, which should improve the basis on which local authorities can raise money to finance infrastructure investment. It has been asked for for a long time and I welcome its proposed introduction.

However, I must go on to confess to a good deal of disappointment and a few real concerns. Perhaps I may take these three elements in turn. On the question of the retention of local business rates, I should start by saying that I was the Secretary of State who, in the phrase used by my noble friend, nationalised the business rates. I did so for a very pertinent reason: businesses were expected to pay, but they had no votes. There was huge indignation right across the country and it was seen as unfair. But, of course, it is now central government which sets the rates, but that does not mean that it has to keep the proceeds. The point has already been made by the noble Lord, Lord McKenzie, that it is disappointing that the Government still intend to keep 50% of the proceeds. I think that that is far too high a proportion. It means that the Government have to retain a large measure of central control and influence, whereas the whole process of localisation is intended to reinforce local accountability. There is clearly a conflict here. Ministers will not be surprised to hear some of the same arguments they had to listen to from me and others on the Localism Bill as it was going through, but happily on that occasion we did secure some quite significant changes. I hope that we may be able to do so here.

Perhaps the main argument about retaining 50% is that it substantially weakens the incentive to encourage local development. There is no question about that. Anyone would say that that 50% must be less than 100% or something in between. The Government have themselves published figures that in effect admit this in their paper, Business Rates Retention Scheme: The Economic Benefits of Local Business Rates Retention. I am not going to weary the House by quoting the figures, but the fact is that the Government's own departmental analysis states that the incentive for councils would be greater if there were no central share. The paper sets out a very complicated economic analysis based on a number of assumptions and other work. The middle case of the scenarios predicts that given a 50% local share and a seven-year reset period, which has already been referred to, an additional £10.1 billion of GDP could be created. That is not to be sniffed at, but in the lowest case scenario it would be only £1.7 billion of GDP created over seven years. The best case would be a great deal higher, at nearly £20 billion. The size of the incentive is very much related to the proportion of the business rates that are to be retained centrally. The Government justify opting for the central share of 50% on the basis of the cost whereas the local authorities argue that the Government are putting,

"controlling local authorities' funding above the objective of promoting economic growth".

That is something which this House should challenge and it is an issue that we will want to explore in Committee.

The noble Lord, Lord McKenzie, referred to the system as being "fiendishly complex". I also have that phrase in my notes since it is London Councils' own analysis. But it is worse than that because so much still needs to be announced and published. Many vital factors still have to be decided. For example, the long list of current grants that are to be rolled into the system is a very welcome simplification, but it is not at all clear whether central or local government is going to pay for that. The Government say that further details are going to be consulted on in the summer. The precise definition of business rates income is again to be the subject of a summer consultation. It is quite difficult for the House to consider this complex legislation with these sorts of things still to be announced. The operation of the levy and the safety nets provisions have also been mentioned by a number of noble Lords. Many of the parameters there are still to be decided and will be the result of a consultation "in the autumn".

Of course, it is a sensible aim to have all these complications to prevent cliff edges and perverse incentives but the effect is to expose local authorities to a degree of volatility in their income that will make it extremely difficult in the early years for finance officers to draw up anything like a clear, firm budget. I have to say to my noble friend that that is one of the major anxieties that the local authorities have about this. It is a good idea, but in practice it is going to be extremely difficult.

The main worry with the localisation of council tax reliefs is that, as the noble Lord, Lord McKenzie, said, it is being combined with a 10% cut in council tax support but also with a very long list of mandatory reliefs that have to be carried over. To say that local authorities have a great deal of discretion over how the system of council tax reliefs should be operated is something of an exaggeration. It does mean that the element over which they still have consideration may experience very substantial burdens and effects because so much of it is being prescriptively insisted on by central government. If you are going to have local reliefs for council tax, surely it is important to give local authorities the maximum degree of flexibility as to how this is going to be done, especially if it is being combined with a 10% cut in the funding of the whole benefit. If it goes through unchallenged, some people will be very hard hit and there may even be further cuts in front-line services.

The second main worry, which has already been mentioned, is that this is all being introduced at the same time as the reforms under the Welfare Reform Act and the universal credit. I have to say that I did not take a full part in the proceedings on that Bill but there are many who did. These reforms are complicated enough and are giving rise to a very considerable worry as to how local authorities, particularly their IT systems, are going to be able to cope. I am grateful to my noble friend for having met me the other day to discuss some of these things. It is here that there is the greatest danger of a serious breakdown unless something is done to ease the problem. It may be a question of timetabling. It may be sensible to delay the phasing-in of this so that the local authorities can deal with these things rather more effectively.

Finally, there is TIF, as my noble friend Lord Tope called it. Huge hopes were aroused when the Deputy Prime Minister made an announcement as long ago as September 2010 that TIF would be introduced, to the great advantage of local authorities. The Core Cities Group had campaigned for this for a long time and warmly welcomed the announcement. However, the high hopes that the Deputy Prime Minister aroused at the time are clearly not going to be delivered in the way in which people were led to believe. I cannot possibly go into the details today. I have, however, discussed this with officials in London Councils. One very senior official said to me:

"We've largely given up on TIF, it's a theory with lots of potential but the government is so tightly constraining it that it's difficult to see that it will make much difference on the ground".

He went on to spell out why. I am afraid that that is a harsh criticism, but it is one with which I have some sympathy.

I end with two queries, again to reinforce my question as to the timetable for taking this Bill through. We were originally told that it would be committed to a Committee of the Whole House, with a few long sittings, going up to 10 pm or later, in which we could have got through it; now we are told that the Committee stage will take place in the Moses Room-and, of course, the House rejected the idea of much longer sittings there. What is going to be the timetable? I have heard it said with some authority that the Bill is unlikely to end its Committee stage in this House until the Summer Recess. Is that what the Government are aiming at? If so, it strengthens the case for an extension of the timetable.

I ask my final question with some feeling. The Government have made it clear that they do not think that Mr Speaker will regard any part of what we are likely to put in as subject to financial privilege. I look back at the Planning Bill, or Planning Act as it is now, and the local infrastructure levy proposals. We had to put it through in statute and then the other place decided that we could not have anything whatever to do with the regulations. Is there any risk of that happening with the regulations which flow from this Bill? Will we be told by the other place that we can have no role in the regulations? We need to have an answer to that.

I am sorry if I have appeared a little critical, but I have looked at the scheme from the angle of the local authorities which will have to operate it. I must tell my noble friend that many of them are very worried.

Photo of Lord Smith of Leigh Lord Smith of Leigh Labour 4:12 pm, 12th June 2012

My Lords, I declare my interests: I am leader of Wigan Council and chairman of the Greater Manchester Combined Authority. I am also a vice-president of the LGA and the vice-chairman of SIGOMA-I shall not explain what that is, but it is concerned with local government finance.

It is 30 years since I took my first significant role in local government as a chairman of finance. I have remained over that period one of the small, select band of people who are interested in local government finance. In those 30 years, there was one exceptional moment when local government finance became a major topic of interest, which of course was the period of the poll tax. Given that it was so significant a change, I offered to do a road show around the different areas of my authority and found myself invited to a number of clubs of an evening. The clubs were always packed. They wanted an explanation and were not very happy with what they heard. I later heard that I was being organised in this, because it was very good on a quiet Wednesday night to get the poll tax road show in place and fill a club up. I remind Members that the poll tax ended because of the riots. That is a lesson for us to learn about local government finance: it may seem pretty boring to the Secretary of State, but if we get it wrong it can have serious consequences.

I am a localist, so I should want to welcome localisation of business rates and the council tax support system, but, unfortunately, I feel that this Bill is fundamentally flawed. It is not built on a firm, fair foundation, and it lacks the necessary consensual approach for it to be long-lasting. The financial basis of the measure, as my noble friend Lord McKenzie indicated, is unfair in two ways. First, it is based on the highly partisan 2012-13 settlement, with the wide variation in support that local authorities gained in it; and, secondly, it continues to dampen down about £380 million-worth of cuts. People understand that there are needs in authorities such as mine, but they have been dampened in this settlement and the cuts will be locked in for a further seven years. The basic building block of the Bill is uneven and its whole structure must therefore be insecure and unsafe.

I do not oppose the idea of setting business rates as an incentive to increase growth; in fact, one of the authorities in the Greater Manchester Combined Authority is talking to the Government about TIF. I am concerned that, however good a local authority is in attracting new businesses to its area, that will be marginal compared to the overall economic impact across the country. Looking back over the decade of 2000 to 2010, GVA growth across England was just over 50%, but that masked a wide regional variation. London grew by 65%. All of the south grew more than the England average; all of the north grew significantly less. Are we going to change the history of the imbalanced nature of the UK economy? Are we to assume that this change to business tax will do that? There will be a geographical bias to the implications of this tax.

Further, the ability of local authorities to raise revenue through business rates is unequal. In Kensington and Chelsea, as the Minister is probably aware, 1% growth would raise £22 million, but my authority area would have to grow by 3% to raise £22 million. Even that comparison is unfair, because, in terms of population, Wigan is bigger than Kensington and Chelsea. Therefore, if we take it on a per capita basis, Wigan would have to grow at five times the rate of Kensington and Chelsea to gain the same value for each of its residents. I do not think that that is fair. The Bill is institutionalising unfairness across local authorities.

The transfer of council tax support will further exacerbate financial problems for areas with more claimants, which will tend to be the areas with more dependents in the population. Members have talked about the passporting of the 10% cut, but what can be cut if we are allowing pensioners not to have their income cut? In Wigan, 50% of council tax benefit recipients are pensioners; therefore they will not be touched. Those with children will not be touched. That leaves a smaller base on which to achieve that 10%, so the cuts could effectively be well above 20%.

If we are honest, we know that the take-up of council tax benefit in the past was estimated at 70% of those eligible, with up to 40% of pensioners not claiming entitlement to that benefit. The value of that could be as much as £2.4 billion. Local authorities will probably be more effective at running the system than the present one, so there could be an increase in the number of people coming forward to claim benefits-support-to which they are entitled. If the estimates are right and 40% of pensioners are not claiming, that could be significant.

As many Members of your Lordships' House have said, the effect of that in the risk to local authorities is enormous. For some local authorities, the impact is large. For Liverpool, for example, 32% of the council tax receipts currently come from benefits. That is the biggest proportion in England. The cut for Liverpool will be £6.1 million. We are relieved to know that in the City of London, only 4.8% of council tax comes from benefits, so the cut will be £27,000.

Authorities such as mine are already thinking about the future: how will we implement such draconian cuts in services? Frankly, it cannot be done without significant effects on the most vulnerable people in our society. Single people and families without children will bear the brunt of these cuts, in addition to the reduction they will have under the welfare changes.

Perhaps your Lordships can imagine this scenario. We have recently dealt with what became the Health and Social Care Act in this House, which would introduce competition between hospitals so that it could well be conceivable that a local hospital closes. For a local authority, not only would it have the loss of the services of that hospital but have a significant loss in business rate because hospitals are usually large owners of land and would be paying a significant amount. Yet it may not add up to 7.5% of the total and therefore will not come under the safety net. At the same time, hospitals are large employers of people and the number coming forward who would be entitled to council tax benefit would therefore be increased significantly. The secondary impact of changed spending patterns and a loss of spending would have further impact on the local economy. It could be a perfect financial storm for local authorities so, as many noble Lords said, treasurers are getting really nervous about all of this. I know that they, being worried about what might happen, are going to recommend that we increase the amount we keep in reserve.

I want to be consistent because in every opportunity that I have had to discuss local finance in my years in this House, I have never not taken the opportunity to talk about council tax-the noble Earl did that-and why we do not revalue it. Council tax is based on a system of values made in 1991 and, with all due deference to the noble Earl's profession, I do not think it was done in too serious a way. From what we understood, the then Secretary of State sent estate agents around in vehicles to size up a street and say, "Band A", "Band C" or whatever it was. This has been continuing forward, so that if a house is built in 2012 somebody has to say what its value would have been in 1991. A house might these days have wi-fi connectivity, thermal insulation, solar panels and integrated electrical equipment. How on earth is that to be done on a scientific basis-again, with due deference to the noble Earl-when it is not science but alchemy? We are just making a guess at what is going on.

The price of properties has increased fourfold since 1991 but those rises are not consistent across the country. We ought to reflect that in the actual valuations to make them understandable to people. When an ordinary person comes to me and asks, "Why is my council tax in this band?", and you have to explain the system, they just find it incomprehensible. We should not be frightened of the media. If a revaluation increased the worth of a house by four times, it will not mean a fourfold increase in the council tax at all. We ought to start thinking how we are going to do that and moving forward to make the council tax a proper tax rather than something that was introduced hurriedly, to get rid of the poll tax, and now lacks a lot of credibility.

I share a lot of the sentiments, which again were expressed by noble Lords, about the timescale here. My reading of the whole House's discussions in another place was that they were not what I would call serious scrutiny of this Bill, so this House has a job of work to do if it is going to get anywhere near making this acceptable legislation. That should be our prime aim. We should not try and meet a timetable that gets it imposed and able to be introduced by March or April of next year. We ought to be doing it properly and wisely, and doing the thing that this House does best.

Photo of Lord Palmer of Childs Hill Lord Palmer of Childs Hill Liberal Democrat 4:25 pm, 12th June 2012

My Lords, I must also declare my interest as a serving councillor in the London Borough of Barnet, and currently as chairman of its audit committee.

The principle of the changes to business rates is to incentivise economic growth and to enable local authorities to benefit financially from such growth. As such, this aspect of the Bill must be welcomed, and I agree with this laudable aim. My problem is that I am concerned whether the Bill as drafted achieves that aim.

Central to the business rate retention is the real potential for it to be hugely and unnecessarily complicated, as some other noble Lords have mentioned. Councils will not simply retain the business rate income; it will be part of a complicated system where some elements will be retained, some will be paid to the Government and some will be used to fund councils that raise lower business rate yields. I hope that the Minister will say how the proposals can be simplified and what protection there will be against significant top-slicing of business rates by central government. After the current review period, in 2014-15 and beyond, it would be encouraging if the part taken by central government were progressively reduced from the starting rate of 50%. In fact, I would prefer that we did not start at 50%; as my noble friend Lord Jenkin mentioned, the Government must aim to reduce that, at least progressively.

The aim must be to financially encourage local authorities to increase their income from business rates by the expansion of business in the local area. That extra income can then be used for the encouragement of enterprise and jobs in the private sector. As drafted, the amounts available locally will be based on the increase in the physical number of new buildings, whereas any increase in existing commercial property valuations, which we have heard a lot about, will not be available to the local authority in terms of increased business rate income. If a local authority so increases the valuations of commercial property by the way in which it improves the desirability of trading in that local authority or borough, the local authority receives no financial recognition for its success in contributing to the increase in the valuation of those buildings.

The Bill, though welcome, tries to do too much by the overinvolvement of central government in taking a large slice of this new income, and the perceived need to share the additional revenue among less fortunate councils. The noble Lord, Lord Smith, talked about how the effect of the Bill was disproportionate in various parts of the country, but the fact is that business is disproportionate. The Government's idea is to incentivise business-get more business, and you will benefit. The trouble is that by spreading out the benefit, you are reducing the incentive to those local authorities that can so do.

The proposals for council tax localisation come, as many noble Lords have said, with a 10% cut in the budget, which creates a significant funding issue. For the London Borough of Barnet, which is of course the one I know most about as I am still a councillor there, this means at least £3 million per annum. The figure of 10% is based on the historical amount of benefit for last year-in other words, at a given date-and it is very likely that, with local caseload growth, in real terms the 10% will be more like 15% of the historical figure. Local authorities will be substantially at risk for future caseload growth in benefits.

Like other councils, Barnet is required to pull together a local scheme that can pass some or all of this cut on to benefit recipients. One of the major concerns that noble Lords have mentioned is the timescale available to implement a local scheme, consult on it and then work with system providers to make the changes in the IT systems so that bills can be prepared and sent out, which is a practical necessity. I disagree with the noble Lord, Lord McKenzie, about the councils and local authorities that are not able to get a scheme together and have one imposed upon them. To my mind, it is imperative that every local authority gets a scheme, although the difficulty is how to send the bills out in the time available-it may be early 2013.

We then come to the thorny issue of which of the current council tax discounts can be changed in order to recover all or part of the 10%. The reforms will hit those in receipt of benefits, often-in fact, mostly-poorer people, whereas there is no scope to review, even if I wanted to, single-person discounts. Could local authorities be allowed some discretion to remove this discount in some way from affluent single occupiers? Why should they get a discount?

There will still be the sizeable anomaly where a house full of students attracts full council tax relief. However, no one will want to hit students further than they have already been hit by changes in university funding. What is the Government's thinking on this? It seems that whereas home owners and home renters will pay council tax, landlords with a house full of paying students will continue to be free of any council tax liability. Although I am not advocating that students should pay, there could arise a gaping dodge-a gaping avoidance scheme-by which people put a student into an otherwise empty property so that no council tax is payable for that property. Councils will need to concentrate on reviewing discounts for empty properties and second homes.

Many local authorities will say that there is a problem with the proposal to give local authorities the ability to abolish or partially abolish the empty property exemption. The fact that a property is vacant could be due to a delay in the sale of the property; to a gap between tenants occupying an unfurnished let; to new owners having to do remedial works before moving in; to tenants moving out to sheltered accommodation; or to the fact that although the former tenants still have the lease, they have moved elsewhere possibly because of work commitments. In my view, taxing empty properties and removing the discount from second homes will not only produce revenue but bring empty properties back into use and free up second homes. I hope that local authorities will take the opportunities in the Bill so to do.

One city in the south, with a population of 207,000, reckons that if the empty property exemption were completely removed it could produce as much as £1,161,000. In my own borough it could raise about £1 million-although I think that the treasurers are, as usual, being cautious-whereas the 10% gap, the 10% reduction in benefits, will amount to about £3 million at current values, and that will go up as time goes on.

There is a great fear that the benefits case load will increase substantially because of the number of people unemployed. A significant number of pensioners who currently do not claim council tax benefits, although they could, will also be more likely to accept relief in the form of a "discount"-which is what it will now be -than as a "benefit". In other words, do the Government -my Government-accept that there will be a substantial increase in the take-up of the pensioners' discount because discount is not as bad a word as benefit?

My overriding concern about the localisation of council tax support, which I hope the Minister will address, and which my noble friend Lord Tope mentioned, is whether council tax support should not be incorporated within universal credit, with a system of direct payment to local authorities. The Bill is trying to do too much. Its provisions are laudable and necessary, but if the money which local authorities receive from ending the exemptions for empty properties or second homes is not sufficient, as it almost certainly will not be, then it will have to come from somewhere else in order to fund the 10% reduction. Where will it come from? You have two choices. It can either come from reducing benefits for poorer people lower on the ladder-those who are least able to afford it will receive less council tax benefit from the local authority, because the council will have to make up the difference-or the council will have to close more libraries, leave more holes in the road and so on so that it can reduce council expenditure. Localisation is great, but when it puts this sort of duty on to local authorities it creates a financial problem that is difficult to deal with whether you are in Wigan or the London Borough of Barnet.

Photo of Lord Warner Lord Warner Labour 4:34 pm, 12th June 2012

My Lords, I do not usually speak in local government finance debates, and I feel slightly as if I may have intruded into a private party, but I spent six years in local government as a chief officer and I well remember the annual scraps over setting budgets and a rate, as it was then.

I will speak briefly about the risks of unintended consequences from the Bill and the way that it is being rushed through on a tight implementation timetable. I very much agree with my noble friends Lord McKenzie and Lord Smith of Leigh about the Bill's likely institutionalisation of unfairness. It is unfairness that I want to talk a little about. My particular concern is the possible consequences of the Bill's proposed changes for the challenging problem for local authorities of funding adult social care with the inadequate resources that they have. The uncertainties and volatilities raised by several speeches in this debate only increase my concerns.

I briefly remind the House of the parlous state of adult social care funding, which consumes a growing proportion of local government expenditure. It is this serious situation that requires us to be extremely careful that, in adjusting the rules on non-domestic rates and making some of the other changes in the Bill, we do not make a bad situation even worse-possibly without realising that we are doing so.

It is clear from the Minister's opening remarks that these changes to the rules have not been straightforward and that there is still a lot of detail to be worked out. At present, according to the Local Government Association, councils allocate more than 40% of their budgets to funding care services for vulnerable, elderly and disabled people. The current care funding bill to the taxpayer is around £14.5 billion a year but, with an ageing population, the adult social care bill is rising extremely rapidly, eating into discretionary services that local authorities have often provided. The latest LGA estimate is that this £14.5 billion bill will rise to £26.7 billion a year in less than 20 years. Councils have already raised their eligibility thresholds for services so significantly that eight out of 10 councils that provide social care services now do so only for those with substantial or critical needs. Increasingly, councils are unable to meet the true cost of care of those placed in residential care and funded by the state. The funding of social care is in crisis, while the Government continue to dither over a better funding system, yet we are introducing a Bill that may destabilise that system further.

I will not make a speech today about social care funding or the merits of the Dilnot commission report. I declare my interest as a member of that commission. I raise the social care funding crisis because of my anxiety that the provisions in the Bill could inadvertently worsen the situation for some councils. This is where things start to get somewhat technical. We are certainly in territory that is not a subject for a Second Reading speech and may, in any case, be well without my technical competence. Therefore, I will try to keep it simple.

It is clear from the Minister's opening remarks that the complexity is considerable around local retention of non-domestic rates and how this interacts with the revenue support grant and the various levy and pooling arrangements. Without going into the mysteries of these computational arrangements, after those processes have been completed, somewhere along the way a figure emerges for local councils to spend individually. It is at that point that we must be concerned because we cannot tell what the mysteries of those computational arrangements are at the moment. We are creating a set of serious uncertainties among many of the councils for which social care accounts for a huge proportion of their budgets.

Given some of the timetables being considered under this Bill, it is possible that some of these councils will find themselves, very late in the day, unable to know in advance what they have got to juggle with in terms of their budgets for social care or whether, at the last moment, they are going to have to adjust many of their eligibility criteria for services and how they are going to fund the residential providers of care for vulnerable elderly and disabled people.

I want to pose a few questions for the Minister to think about, not necessarily today but certainly before Committee stage. Will she tell us whether she accepts that there is a risk that provisions in this Bill will adversely affect an individual council's ability to fund adult social care beyond the day one protection, especially if business growth is not forthcoming in those councils which are trying to implement the Government's policy in this area? What real-world road-testing of the new scheme has been or will be undertaken to check these possible inadvertent, adverse consequences? What is the Local Government Association's assessment of the impact of the changes in this Bill on the ability of councils to fund adult social care?

Will the Minister write to me and other interested noble Lords before Committee stage setting out in detail the arrangements that will be in place to ensure that a council's ability to fund adult social care will be in no way jeopardised as a result of these changes? Even better, will she spring a surprise on us and say that the 50% of business rate retention at the national level will be used by the Government to improve the funding of adult social care? I agree that that would be an unexpected bonus but I am always open to surprises.

We need to understand what this Bill will or could do for this important area of services for vulnerable people. For my part, I would want to consider her responses before deciding whether to put down amendments to safeguard levels of social care funding in council budgets after discussion with interested parties.

Photo of Lord Best Lord Best Crossbench 4:42 pm, 12th June 2012

My Lords, I declare my interest as president of the Local Government Association and I express my appreciation to the LGA for its briefings on this Bill. The Bill has much to commend it in advancing the cause of localism. However, as others have made clear, there are ingredients which need the input of this revising Chamber. Most worryingly perhaps is the seemingly impossible timetable for implementing the new fiendishly complicated arrangements.

For my part, however, I want to concentrate on the changes to council tax benefit and the measures which the Bill will introduce for council tax support for those on the lowest incomes. Some, including London Councils, as the noble Lord, Lord Jenkin, has noted, have argued that council tax benefit should be determined centrally by the Department for Work and Pensions. However, the LGA believes that the localising of decisions about who should receive what rebate off their council tax should be a matter for locally elected politicians. Decisions about raising additional tax from properties left empty for extended periods, and from second homes, should be taken in the places where these are significant issues. The LGA is not so happy with the Government constraining this local decision-making by pre-empting local consideration with some significant centralised diktats.

My concerns are about the accompanying reductions in help for poorer households that are part of these arrangements. Councils must achieve an overall reduction of 10% from the council tax benefits currently paid. This is calculated to save the Exchequer £500 million per annum. Well over 2 million households will each lose an average of £247 per annum-£5 a week. A 10% cut in this benefit, which currently covers all the tax that most recipients would have to pay, may sound relatively trivial but it is the compounding effect of this reduction in support, on top of the cuts in the other forms of benefit, that adds up to a very severe reduction in living standards for those already struggling on extremely low incomes. Those affected will have to allocate a proportion of their other benefits, such as jobseeker's allowance, to pay the tax. That means taking an average £5 a week from the benefits that have been calculated to cover food, heating, clothing and so on, and which, quite specifically, do not include anything to pay local taxes. Moreover, for those affected, the cut will not be just 10% of the support they currently receive. To the disapproval of the LGA, central government will limit the discretion of local government in how they cut council tax support to save the required amount by insisting that pensioners and other vulnerable groups are excluded from these benefit reductions, which mirrors the similar exclusion of pensioners from having to pay the "bedroom tax" when they underoccupy larger homes. As other noble Lords have noted, the full weight must fall on the remaining recipients, mostly younger, unemployed people, and those working part time and for very low wages. Because half of the recipients of the benefit, in some areas, will see their current rights protected, the other half will often be looking at a 20% cut. On average, the Institute for Fiscal Studies estimates that those affected will see a 19% reduction in the support that they receive.

I understand the Government's reasoning on this-that everyone, including those on the lowest incomes, must play their part in reducing the nation's deficit. This is the same argument as that made for the cuts to other benefits. But during the passage of the Welfare Reform Act, many of your Lordships expressed the view that the poorest in our society should not be asked to reduce significantly their standard of living or shoulder a disproportionate share of the burden of deficit reduction. This latest cut to previous benefits exacerbates the problem. It is worth remembering that, as the recent IFS analysis has made clear, the improvement in living standards in the UK since the previous royal jubilee in 1977 has been far less for those on the smallest incomes than it has been for the rest of us. I find it hard, therefore, to accept that this extra reduction in support to poor households can be justified on the grounds that all citizens are facing comparable falls in living standards.

The other argument for cuts to benefits, and therefore now to council tax benefit, is that these measures will provide the necessary push to get people into work, always assuming work is available, since it will be increasingly untenable for them to try to live on social security benefits. I applaud the efforts by the Secretary of State for Work and Pensions, Iain Duncan Smith, to make sure that "work pays" by tackling the taper-the rate of withdrawal of benefits-as income is earned. His universal credit, with its joint architect, the noble Lord, Lord Freud, aims to ensure that never again will earning £1 mean a loss of 80p, 90p or even more, before paying transport costs to work and so on, as benefits are withdrawn. It is hugely discouraging if a very steep taper means that getting a job and working hard leaves you no better off than you were on benefits. The taper for the universal credit seeks to make sure that people are always noticeably better off in work. But here is the problem with the cut to council tax benefit: this support, of course, will now fall outside the DWP's universal credit; local authorities, as they withdraw this help from those who move into work, will find themselves in danger of recreating the employment trap-the work disincentive-whereby households that manage to get into employment are no better off for their labours.

Councils will not be able to borrow more to compensate for this further central government cut, on top of the 28% budget cuts already experienced; there will be very limited opportunities to raise large amounts from taxing empty and second homes. As the noble Lord, Lord Warner, has just made clear in relation to the social care crisis, they cannot further cut services. Few will be able to raise extra council tax to cover this. They are boxed in and will be forced into the invidious position of further impoverishing their poorest citizens and pushing those on the edge of employment into a poverty trap, whereby the loss of benefits will mean that work does not pay.

My questions on this issue to the Minister are twofold. First, will local authorities be provided with guidance, technical advice and IT support when devising local systems for cutting council tax benefit? In particular, will they be helped to ensure that they create a taper-a rate of withdrawal of support which does not wreck the key principle of universal credit that no one should lose more than about 70p in the £1 they earn? Secondly, if the maths simply cannot be made to work-this cut would break the back of one of the welfare benefit's central and worthwhile purposes-will the Department for Communities and Local Government make available a specific fund for local authorities, just like the discretionary housing payments for those worst affected by housing benefit cuts, to keep the Government's flagship policy for welfare reform on course?

The LGA would welcome more discretion for councils to model a discount scheme that could give protection to those in dire financial circumstances. However, the underlying problem is that the Government are taking this opportunity to extract further contributions to deficit reduction from local council budgets. My fear is that the outcome of the Local Government Finance Bill is that local authorities could be blamed for causing extra suffering to those trying to get by on the very lowest incomes and for undermining the best intentions of the Government's Welfare Reform Act.

Photo of Lord True Lord True Conservative 4:51 pm, 12th June 2012

My Lords, I declare an interest as leader of a London borough council, though not the one who served for 16 years, and as a member of London Councils' Leaders' Committee and of the assembly of the Local Government Association. That may be enough to make most people's hearts sink. We all know that mentioning local government finance in the 21st century is like mentioning the Schleswig-Holstein question in the 19th. Almost nobody understands it and, given all the changes we have seen over recent decades, some of the few of us who thought that we understood it will soon find that we have forgotten it all. I may be told that later in the debate by my noble friend when she winds up.

None the less, this is an important Bill which affects many people, as other noble Lords have said. I join those who welcome the moves on TIF, albeit some have said that they do not go far enough. I also warmly welcome the first steps towards localisation of business rates. Business rates were nationalised a generation ago at a time of fear over soaring demands by some local authorities. Today, the political life of Mr Ken Livingstone is, thankfully, over and the spirit of "force tax up as far as it will go" is largely spent. Most authorities, given more authority over business rates, would act wisely. We recognise the importance of business, growth and jobs. Shops and businesses define our local communities and it was high time for this power to begin to come home. The party opposite was wrong to resist that when it was in power. I hope that it will support it now that it is in opposition. I warmly congratulate the Secretary of State and my noble friend Lady Hanham on taking this step. Unlike some, I understand my noble friend's wish to retain 50% of the proceeds for the immediate future, but I join others in hoping that this Treasury derogation from localisation can be uncoiled a lot sooner than 2020, as I gather is currently suggested.

My noble friend stressed that no authority would lose. That is welcome. I understand the wish to base new approaches to local government finance on existing financing levels. It makes for a simple life for central government. However, as some have pointed out, fixing levels can fix many forms of rough justice. From my standpoint, those authorities that were long discriminated against by the old funding formula, or which, for spatial reasons, have limited capacity to increase business rates, should not be expected to suffer a decade-long financial penalty.

I hope that a way can be found to reflect the position of authorities whose residents make a huge contribution to economic well-being and growth, but do not make that contribution within their own local authority's borders. You can see who they are and which authorities those are if you go to any suburban railway station or stand by any major road outside the centre of London or our other major cities during the rush hour.

We need consideration for authorities that feed the growth of businesses, shops and factories in our major cities. We occasionally seem to be falling into the error of believing that you get growth only by pouring concrete into every given locality. Labour is dynamic and a good business-tax system should recognise that. It is one reason why I am open to positive consideration of pooling arrangements. I welcome what my noble friend said about that in her excellent opening speech.

I now turn, perhaps with less enthusiasm, to the other major aspect of the Bill-council tax support. I start by expressing thanks for the initial discussions that I and other noble Lords have had with departmental officials, and I look forward to future discussion, particularly with other noble Lords, when we get into Committee. That discussion is vital and, as others have said, cannot exclude consideration of the timetable for implementation.

As others have said, the Bill may not complete its passage until October or even November. Meanwhile, scores of local authorities are being invited to set up mini-welfare systems-with risks of employment trap, unintended effects and other effects that have been mentioned by other noble Lords-when many final financial decisions are yet to be taken and some critical information is still not available. In those circumstances, I must join my noble friend Lord Tope who said that the timetable for decision by January 2013 seemed challenging. It may even seem to be a little heroic to some. Heroism can be a splendid thing but can be rather unwise.

I support localism but share the regret-it is a done deal, as I understand it-that council tax benefit was not rolled into the widely supported scheme of universal credit, whereby the needs of a whole person or family could be reviewed as one. Instead, London, my city, may have 33 different benefit systems in place by next April, if the Government's plan works. The help that you may get may be different if you live on one side of the road than if you live on the other side. In such cases, the pressure will be on to equalise schemes up to the more generous ones.

Unlike many others who have spoken, I understand and support the need for spending cuts. Indeed, the Government's actions across the board have not been forceful enough. Current levels of public spending are unsustainable and no debate about the use of public resources can ignore the continuing explosion of public debt, which will have surged by £85 million during the time that today's short debate is estimated to take. However, I would have preferred the spending reduction to have been included in the rational and coherent whole of a national universal credit, or that if the money were to be required from local authorities-that is a perfectly legitimate demand from the centre-we had been asked to make a further cut of £500 million from overall spending rather than being invited to set it onto a narrow spectrum of residents who receive council tax support.

I do not want to repeat what others have said about the narrowing of the base from which savings are to be made. Pensioners, who in my authority account for more than 42% of claims, are already exempted by the Government's request, whatever their wealth. No doubt, other exemptions will be suggested in Committee by noble Lords. Therefore, the notional cut in the level of support for local non-pensioner claimants is already nearer 18% in my borough, which is roughly similar to the 19% figure that others have used. Richmond is not the hardest-pressed authority. We have to save only the equivalent of just over 1% of council tax. Yet, within those figures, we have 5,800 non-pensioner claimants, of whom 1,700 are working, with an average weekly claim of £21; 3,400 claim income support or jobseeker's allowance, with an average claim of £26; and just over 700 non-earners-people in receipt of benefit but who are not passported-with an average claim of £22 a week.

My noble friend Lady Hanham was right to point out the large-scale expansion in council tax benefit spending. Noble Lords opposite are wrong to say that any reduction in this area of spending must end in disaster. No doubt some of these payments could be reduced but-here I return to the timetable-fair decisions must be taken in possession of full knowledge of who is affected. Local authorities have been told, quite reasonably, that in designing schemes they must have regard to what are, as my noble friend Lord Tope said, still undefined vulnerable groups and to their duties to children, disabled persons and homelessness. Each local view of vulnerability may be open to legal challenge. Local authorities will need time to consult widely and fully consider the impact of any changes to their schemes as they come to decisions. This would include robust equalities impact and needs assessments. Given the potential for legal challenge, the timetable must allow time for authorities to complete this work. I urge my noble friends to reflect on this.

We are also urged to enhance work incentives-a principle that I strongly support. To do that local councils will, for example, need continuing access to details of universal credit claimants affected by the cap. An authority might, for instance, propose that, as with universal credit, no group earning over a certain level gets support. However, once we cease to administer housing benefit, we will have no need to access such information from the DWP. Therefore, the legislation will need to ensure that councils can access appropriate information to enable them to deliver on that objective.

All that must be considered, software must be designed, consultation carried out, EINA assessments made, decisions taken and published, and policy implemented against the ticking clock, described by many others who have spoken, while the Bill wends what now seems a rather leisurely way through Parliament. With these uncertainties in mind, and with the bait dangled before us in Clauses 10 and 11, as we have heard, many local authorities will decline to take the bold course and design the radical new schemes that Ministers may have had in mind, while the winners and losers tables are still shrouded in mist and the final shape of the law is still unknown. Instead, because of the pressure of time, many councils will, as we have heard, take up new and existing rights to limit council tax exemptions so as to raise new income to cover or offset the costs of running a council tax support system, which, if they can afford it, may turn out to be not too different from what we have now. If so, then instead of achieving a £500 million saving in overall public spending, much spending may be transferred from central government to local government spending, paid for by as large an extension of the tax base as councils can get away with.

I do not want to dwell further on the details. I simply want to add that the removal of exemptions, which will be attempted and considered by every local authority in this country, will not always offer easy solutions. For example, Clause 11 addresses long-term empty property. However, we have just 53 such properties in our borough. The richest seam for us, theoretically, would seem to lie in the so-called exemption C, awarded to properties unoccupied and unfurnished for less than six months. My noble friend Lord Palmer has addressed some of the potential difficulties with that. Many of these awards may be to landlords for short periods between tenancies. There is a risk that we will create a large number of small debts that are difficult and expensive to collect. The noble Earl, Lord Lytton, referred to related difficulties which may contribute to an overall decline in collection rates. Furthermore, landlords may simply add on the cost in higher rates to tenants.

My fear is that if it is left to every local authority to decide and publish a scheme by next January, we may reduce public spending by less than is needed, raise taxation-including in some places the council tax itself-by somewhat more, and, because we do not have all the facts at our disposal, risk unintended anomalies or, still worse, injustices on the way. I think that with careful thought many of these problems could be overcome but it will be harder to do and to implement safely within the compressed timescale consequent on the rate of progress of the Bill. That is why I am grateful to my noble friend for her typical willingness to engage in discussion, and I look forward to ways of ameliorating some of the potential consequences of the Bill before and during the Committee stage.

Photo of Baroness Donaghy Baroness Donaghy Labour 5:06 pm, 12th June 2012

My Lords, although I do not claim to be knowledgeable about local government finance, I think that the Bill is intended to encourage local authorities to mitigate the 10% cut in council tax support with various self-help projects. Mr Andrew Stunell, in reply to a debate in the House of Commons, said:

"The savings from localisation are a vital contribution to deficit reduction, and it is essential that we have a credible deficit reduction plan ... It would be much easier to have this scheme without deficit reduction, but it is an unavoidable part of the scheme".-[Hansard, Commons, 31/1/12; col. 744.]

The real question is: will the Bill achieve what it says? Have the Government considered any of the unintended consequences arising from its implementation, as other noble Lords have said? The Government set great store on the proposal to allow local authorities to raise revenue from empty or second homes. It is claimed that current discounts cost around £420 million and that if authorities exercise the flexibilities allowed in the Bill to maximise revenue, the extra revenue generated would relieve pressure on council tax to the equivalent of approximately £20 per Band D equivalent in England.

Three-quarters of the discounts or lost revenue are in exemption C housing which, as the previous speaker said, relates to a vacant dwelling that is empty and substantially unfurnished for up to six months. What constitutes "substantially unfurnished"? Under the new scheme a new dwelling could be liable to tax from the moment it is completed, or deemed to be completed -an important phrase. Who will do the deeming? It could incentivise owners to refurbish more quickly, as the Bill intends. However, the owner may not be able to afford refurbishment and will have to face the choice of trying to sell on a flat market at a huge discount, pay the council tax and keep the property empty for a couple of years until the market picks up, or be taken to court if he fails to pay the newly imposed council tax. Have the Government factored in the costs of chasing non-payment through the courts? The impact assessment states, with remarkable understatement:

"Collecting council tax from those who were previously exempted or who previously received a higher level of discount may be difficult. As a consequence, collection rates for these groups may be lower, reducing the revenues that may be raised from them".

The proposal for an empty homes premium, allowing local authorities to charge more than 100% of council tax in some circumstances might encourage some owners to sell or refurbish their properties more quickly. However, such a proposal is hugely complicated and will bring local authorities into conflict with mortgage lenders and building societies, which will resist increased cost liabilities from possessed homes and will be in a much better position than individual homeowners to take councils on. There is no impact assessment on this proposal and no indication of what costs will be passed on to borrowers. We see that the October 2009 figures reveal that 3.4% of dwelling stock is empty. Of that, 41% of properties were empty for six months or longer. Of course empty homes are a problem. Will the Bill solve it? The impact assessment says that,

"we are unable to measure the impact our proposals might have on reducing the number of empty homes".

We are heading into the unknown with the coalition Government. Is this a potential cash cow or a cynical diversion? Only 6% of dwellings receive the full 50% discount; 80% of local authorities already set the discount at the lowest level possible for at least some of their second homes; and 90% of dwellings receiving the second-home discount have a discount of only 10%.

On the council tax reduction scheme, it has been made clear already that pensioners and the most vulnerable in society will be protected from the proposed reductions. Pensioners currently account for 46% of council tax benefit expenditure. If overall expenditure is to be cut by 10%, the reduction can be met only by a disproportionate cut for the 54% of people of working age. Of course, this is a national average; there is a wide variation between local authorities in the proportion of claimants who are pensioners. For example, in my borough of Southwark the figure is 29%; in East Dorset it is 70%. East Devon Council calculated that there will be a shortfall of £800,000 for its working-age population compared with current expenditure. The council maintains that its existing working-age claimants will face a 25% cut in entitlement if it is to meet the Government's savings target. If other vulnerable groups are included, the cut in the existing entitlement will be nearer 28%.

What happens then? How will the shortfall be met? Under the poll tax, everyone was expected to pay 20% of their poll tax bill. This system could lead to a return to one of the worst features of the poll tax, with large sums of public money being wasted as councils pursue payments through the courts. Have the Government factored in the possible increased costs of pursuing council tax payments through the courts? The Bill represents an attack on the working poor by a Government who want to make work pay. Instead of the right to a benefit, we will get a grant that its cash limited and will vary depending on where a person lives. The Government claim that councils will have increased financial autonomy and a greater stake in the economic future of their area. However, I believe-as has already been said-that the Bill will simply transfer the financial risk to local councils and hit the working poor the hardest.

The DWP indicates that 1.7 million households-40% of pensioners-do not claim the council tax benefits to which they are entitled. The Government have said that one potential advantage of localisation will be to increase the take-up, but will provide no finance to local authorities to meet the additional costs. Instead, any improved take-up by pensioners will be paid for by reductions to people of working age or cuts in local services, or both.

The timetable was mentioned by many noble Lords. What assurances will the Minister give that the tight timetable for implementation and the absence of detail in the most crucial parts of the Bill will not lead to administrative chaos and the poorest in our communities facing real hardship? Secondary legislation has not yet been published, and the Government expect local authorities to design their own scheme, consult major precepting authorities, publish a draft scheme, adapt IT systems, procure and test software, develop claims procedures, train staff and adopt finalised schemes by 31 January 2013. Why is so little information available? The council tax reduction scheme was announced in October 2010-20 months ago. If the Bill becomes law in October this year, local authorities will have four months to produce a scheme. It is no use saying that the Government's intentions are already known and that local authorities can start planning; the crucial information is missing. What scope is there for raising money through empty homes? Will the amount of money an authority can raise through increasing its proportion of business rates be worth the candle?

On the business rate retention scheme, the Government plan a 10-year period for resetting, which is good. However, three major planks of this year's Budget were reversed in 10 weeks, so how much faith can we put in a 10-year plan? Local authorities have been treated with disrespect. In addition to the 10% hit in council tax reduction and the absence of any useful information surrounding the Bill, they will have to cope with the formation of local Healthwatches, police commissioners, the cost of care-mentioned by my noble friend Lord Warner-and the fallout from welfare reform. Yet the Government are expecting a productivity rate from local authorities which is five times greater than their own productivity record on the Bill.

We should not forget in our discussions that these proposals affect real people, those who are just about coping. Inflation and cuts in council tax benefit-let alone anything else that might be thrown at them by greater job insecurity and cuts in welfare benefits-might make the difference between coping and not coping. I was president of NALGO, one of the forerunner unions of UNISON, 22 years ago. I travelled the country meeting local government staff who were immensely proud to be working for local government. Not only will they be expected to implement the proposals in the Bill, some will also suffer financially from it. I have examples of cleaners and assistant caretakers who stand to lose up to £2 a week from council tax benefit. It may not seem a lot but it does not take much to provide a tipping point. This is not making work pay.

Debates about the Poor Law through the centuries has been what Derek Fraser called,

"the impossible task of marrying deterrence and humane relief within the same system".

There is a genuine debate to be had about the role of national and local government in social support systems, as William Rathbone described in 1867,

"to meet the conflicting claims of justice to the community, severity to the idle and vicious and mercy to those stricken down into penury by the visitation of God".

There is a debate to be had but it will not take place in the confines of this contradictory Bill, which promises local but leaves immense powers in the hands of the Government.

Photo of Lord Shipley Lord Shipley Liberal Democrat 5:17 pm, 12th June 2012

My Lords, I declare an interest as a vice-president of the Local Government Association.

I welcome, in principle, the proposals for business rate localisation. The key reason for that is that I want local government to have a clear responsibility for driving growth and then to secure the benefit of the financial rewards from doing so.

I have had doubts about council tax benefit localisation given the introduction of the universal credit. However, I understand the case for it, which, frankly, would be better made if it did not include a 10% cut in the resource available and which will prove difficult to implement fairly.

I was glad to hear the Minister refer to the issue of the funding baseline as a stable starting point in which no council would be worse off-except that that is not worse off today and into the future as opposed to not worse off than in 2010 when the budget cuts, which were front-loaded, began to impact upon local government. The setting of that funding baseline of government support is very important and will be subject to a consultation over the summer. I hope that we get it right because it will inform the calculation of the initial tariff or top-up. We will have the outcome of that consultation by the time we reach Report stage and it will inevitably inform our thinking on the Bill at that point.

We should remember that cuts in council funding support since 2010 have been higher in the poorer parts of the country, both north and south, and it will be important to ensure that council tax resource equalisation is protected in future both in principle and in practice.

Student council tax exemptions are also being consulted upon. It is important because some councils are now only 75% funded through the current resource equalisation mechanism, and that percentage is likely to drop further in 2013-14. Student council tax exemptions, which are statutory, are supposed to be fully funded. I hope the Minister will be able to give us an assurance, if not today then at Committee stage, that if student housing continues to be exempt from both council tax and business rates, there will be full recompense from the national pot for councils that have to fund local services for dwellings which, in some cases, can be substantial.

I move next to the localisation of business rates. I agree with others who have talked about the 50% central share. It seems very high and it is much higher than I had anticipated. It has the effect of reducing the incentive for growth and, in my view, it is too restrictive. Local growth in business rates should not be used to fund local government grants that currently come from departmental budgets because growth inevitably requires additional basic local government services, and these are likely to outstrip the 50% allocated locally. A better way forward might be to share the baseline at 70%:30% in councils' favour, but to allow councils 100% of future growth.

Mention has been in the debate about tax incremental financing, but the Treasury seems to have curtailed its potential: TIF 1 because of the 50% retention in business rate growth by central government, and TIF 2 because it is a very small sum, amounting to just £150 million of infrastructure costs to be competed for by the eight English core cities. It is not clear why the principles of enterprise zone financing have not applied to the TIF 2 funding. All 24 new enterprise zones are able to retain business rates over a 25-year period, so surely this accounting convention could apply to the TIF 2 schemes. This should not be seen as an immediate cost against government finances. It seems that the Treasury is putting control ahead of growth and treating TIF as a spending decision rather than as an instrument of growth, which is what it is intended to be. My fear is that, as currently configured, TIF is not going to deliver the growth we desire, so I hope that the Government will look at this again. It is most certainly in their interests to do so because growth delivered by local government delivers tax income for central government from corporation tax, VAT, income tax, national insurance and so on.

I turn briefly to collection rates, safety nets, reserve levels, reset periods and risk management. Risk is being transferred from central to local government, inevitably so since this is about localisation. But councils' unearmarked reserves will need to be higher, to deal with unintended consequences such as successful back-dated appeals against the 2010 business rate list or a decision by the district valuer to impose a general reduction in rateable value in between scheduled revaluation dates, which can happen, as it did recently in Leeds. Given that a council will itself need to fund up to 10% of any loss, it is inevitable that reserves will have to rise, with a commensurate reduction in revenue spending as a result. Will my noble friend the Minister look again at that figure of 10% and consider whether, as the Local Government Association has suggested, a lower percentage might be more appropriate?

Could I also ask the Minister to look again at the problem with resets, because a full reset every seven to 10 years does not provide enough of a growth incentive? Councils will not feel secure about deriving longer term benefit from the growth it drives and will seek to delay starting schemes to the next reset period in order to get full value from the growth of an individual scheme. A solution to this would be a partial reset system, and I hope that Ministers will look further at that possibility.

Turning to council tax benefit, a 10% cut is inevitably skewed towards poorer areas. There is also a risk of future increases in the cost of this benefit being transferred to local government, which may prove to be higher than the 90% being transferred, even in the first year. As we have heard, the Government are offering powers to local authorities to make up the 10% reduction by reducing empty home and second home discounts. That is an acceptable proposal in principle, to give discretion locally for local councils to decide whether or how to do these things, but there are several problems.

First, the estimates of what can be collected are too high. In many places, second home totals are low, as are the number of empty homes. Secondly, many council treasurers think that collection rates will fall if a full charge is made, and of course recovery costs will rise. Thirdly, the impact on the housing revenue accounts needs to be considered because empty homes that are in council ownership will have to be funded by existing tenants, most of whom are not well off and are already subject to high rent rises. Fourthly, if a council cannot get enough income from reducing discounts on second and empty homes because it does not have enough of them, it will have to decide whether to load the resulting cut on to poor households or to spread it across all council taxpayers.

Local authorities with low numbers of empty and second homes and high numbers of pensioners and vulnerable people who could be exempt from any cut are clearly going to face some very difficult decisions. If councils consider the impact on disability and child poverty of a benefit cut-as they should-council tax bills could rise significantly for remaining groups, who will be working-age council taxpayers, by as much as £300 to £400 a year. For that reason, it cannot be right to load the cost on such a potentially small group of people who are themselves poor by any measure. As my noble friend Lord True has identified, inevitably many councils will adopt the default scheme from April 2013. That may be a good thing because it would enable the Government to understand better the implications of their policy change and what the noble Lord, Lord Best, referred to as the "compounding effect" across all welfare reform.

In conclusion, if the Government believe in devolution, they should do that. But in this Bill there are too many government controls still in place. TIF funding is inadequate and will not deliver government aims, and they need to act urgently on this. The Government should also examine carefully the case for including rateable value increases in business rate retention; and understand the need for local government, in its desire to drive growth and its willingness to manage risk, to have security in delivering this. This means the funding baseline has to be right, the reset period has to be right, the safety net has to be right, and the rewards for local government have to be right. There is a chance over the summer for consultation and discussion to take place. I hope that that will be productive, particularly on the crucial issue of pooling. Committee will be over by the autumn but I hope that the outcome of the consultation can be addressed satisfactorily when we return on Report after the Summer Recess.

Photo of Baroness Eaton Baroness Eaton Conservative 5:29 pm, 12th June 2012

My Lords, I declare my interest as an elected councillor on Bradford Metropolitan District Council and as one of the vice-presidents of the Local Government Association-many of whom seem to be here this afternoon. I add my thanks to the Minister for the clear way in which she presented this Bill to the House today. Knowing her vast experience in local government over many years gives me greater confidence and enables me to broadly welcome much that is in this Bill.

Many noble Lords have already mentioned the complexities of local government finance, and nothing tends to make friends glaze over more the minute you begin to talk about it. However, most of us who have spent many years in local government would still not claim to be experts, because the finance agenda is constantly changing. The most knowledgeable of us would say that local government finance is very complex.

Therefore, we all found it very refreshing to hear the coalition Government express their pledge of radical devolution of power to local government and greater financial autonomy, supporting sustainable growth and enterprise and balanced across the country. All those aims work with the philosophy of localism which has been pursued and championed by local government for a good number of years.

Full business rate localisation would be a powerful move towards localism and a great driver of economic growth. It has been long requested and supported by local government. When I was leader of large metropolitan authority, I felt that it was terribly important to have very good working relationships with businesses in the area. I always tried to further our shared agenda of the growth of business, the development of the economy and the creation of jobs. Business rate localisation will help enormously in this regard. The Government's policy is a first step towards this objective, but it raises a number of concerns, many of which we have heard expressed today. I have great confidence in your Lordships' ability to address those concerns in Committee.

As we have heard, rather than localising business rates in full, the Government intend to implement the Bill in a way which would give the Treasury half the proceeds for the foreseeable future. Taxes paid by local businesses for local services would be taken on the basis of national priorities instead of local ones. This appears to be so that the Treasury can continue to enforce an overall limit on local government spending. I know that the Local Government Association's view and that of its member councils is that this is a tax on local authorities. Naturally, I would be strongly opposed to it. The department's own published economic analysis states explicitly that the higher the central share of business rate income, the lower the growth incentive created. This gives the impression that the Treasury is buying control of council funding at the expense both of economic growth and of future tax revenue. There does not seem to be a sound case that can be made for this.

I know that my noble friend from London Councils and others in local government do not always agree with me on localising benefits, but I feel that it is a good idea and I welcome it. Local authorities have the accountability and the democratic mandate to decide what is best for their area. The localisation of responsibility for decisions about who deserves relief from local taxation could be a sensible approach. However, at the same time as localising decisions about council tax reliefs, the Government are, as we have heard, reducing by 10% the funding available and severely restricting councils' discretion about new local relief schemes. This was ably made clear to us by my noble friend Lord Jenkin.

Pensioners and the vulnerable account for three-quarters of claimants. Simple arithmetic shows that the Government's policy of mandatory protection for those groups means that remaining claimants face cuts in relief of a third on average and, in some cases, of as much as a half. The flexibility that the Government plan to introduce on some other council tax discounts and exemptions may help local authorities to mitigate these impacts but, in some places, it will fall short of what is required. It is therefore inevitable that some councils will be forced to reduce the services that they provide, raise council tax or penalise those most in need of benefit.

The tight timeframe for implementing those changes has already been mentioned and places even greater burdens on councils. I urge the Government to give councils the necessary time to do that in the most considered, flexible and cost-effective way. Councils need to be given as much flexibility as possible to reform council tax discounts so that they can manage the financial risk. Councils want to get this right and help the most vulnerable people who rely on their support. The process should not be rushed though.

The restrictive approach proposed by the Government is likely to have significant cost implications in later years. Pensioner numbers are growing and there is also the prospect of increased take-up of local discount to replace some of the national benefits. The cost of nationally determined commitments to retain existing levels of benefit is likely to rise.

The Department for Work and Pensions' current forecasts for the future cost of council tax benefit appears to ignore those impacts and to be out of tune with both recent trends in the cost of benefit and local authorities' experience of growth in claimant numbers. It is surely inappropriate for those burdens to fall on local council tax payers. The Local Government Association believes that the total resources given for council tax support after 2013 needs to be increased to reflect realistic forecasts of growth in claimant numbers, the overall increase in levels of council tax and the potential increased take-up of local discount schemes. It would be most helpful and encouraging if the Government could indicate a commitment to keep the overall level of funding under review to recognise those factors.

I look forward to the Committee stage, when I feel sure that the many concerns raised today by all of us will be addressed.

Photo of Lord Whitty Lord Whitty Labour 5:36 pm, 12th June 2012

My Lords, like almost everyone else, I had better declare that I am a vice-president of the LGA; I am also a vice-president of the Trading Standards Institute. However, my experience of local authority finance is much less than that of a lot of people who have spoken in this debate. I shall use most of my time to make a basic strategic point, which was referred to, among other things, by my noble friend Lady Donaghy.

The Minister, in her usual convincing and efficient way, presented this as a rather limited and technical Bill-important but nevertheless relatively straightforward. However, it is being introduced in a period of seismic change in local government: what the Government expect of local government and what the public expect of local government. We have a basic contradiction here. On the one hand, we have had serious cuts in finance from the centre to local government in both the general rate support grant and support for particular activities such as affordable housing. We also have a council tax reduction programme in the Bill. We have also had a clear determination to cut staff numbers, to reduce the staff pay bill and to impose other burdens on local authority staffing which have seriously affected morale in many parts of the country in the local government service.

We have also had a determination in other parts of the policy field to take away traditional functions of local authorities. I think particularly of education, where the role of the local education authority has been greatly reduced and the aim is to reduce it further by making most schools academies reporting to a central department. We have had reductions under the red tape agenda in the regulatory role of local authorities in relation to health and safety and environmental health.

On the other hand, we have had significant increases in the duties on local authorities. That is partly in pursuit of the localism and decentralisation agenda, partly as a result of the abolition of regional structures in England and partly as a result of other pieces of legislation. For example, the NHS Act places more duties on local authorities, particularly in relation to adult social care, as my noble friend Lord Warner said, on top of significant demographic pressures on that front. We have had other examples, as in the decentralisation of the OFT's responsibilities in the consumer field down to local trading standards teams-all without additional resources. The Minister's justification for the business rate changes in this Bill also implies a significant additional, or at least growing, responsibility on local government in relation to economic development.

We thus have a basic contradiction in the Government's approach to local government. On the one hand, in line with their "smaller government" rhetoric, we have the diminution of the local state and its resources and, on the other hand, in line with decentralisation and localism we are placing the local state-local government -as the driver of some of the strategies which the Government hold dear. That is in relation to issues which have previously been more centralised, although they were in some cases regionalised. We now have local government, with diminished powers and resources, nevertheless being designated as responsible for the prosperity, well-being, planning and the environmental side of their localities. We also have ever more complex interventions, as other speakers in this debate have underlined, placing ever more complex requirements in the financial area.

I will fully accept, before the Minister makes the point, that this contradiction is not unique to this Administration. However, it has become much more acute, partly because of the large-scale reduction in resources-both those already seen and, more importantly, those impending-but also, if I may trespass on private territory, because this Government have an internal contradiction themselves. That contradiction is not only between the coalition partners but to some extent between the metropolitan leadership of the Conservative Party and the Conservative councillors in the country, who have a different view of local authorities.

I come from a different tradition entirely. I make no bones about it; I am an unashamed statist. However, I have always recognised that the nature of the state in Britain-in this particular context, in England-is hugely overcentralised. Compared with almost every other western democracy, the level of powers, resources and political importance of local government in England is much, much less. I had hoped that, at least on the resources point, this Government's first Local Government Finance Bill would begin to turn that round because, to that extent at least, I agreed with some of their provisions in the Localism Bill. On the financial side, for example, I agreed with their reforms to the housing revenue account. In this Bill, I agree with the rhetoric surrounding the decentralisation of the business rates, but when one looks at its details it is only rhetoric.

The Bill is not all that clear-it is not all that clear in Schedule 1-but in reality the Secretary of State has huge powers to determine what exactly each authority will in practice get out of the business rate. Apart from the 50% cream-off, we do not know how or how that will be distributed. I would hope that the Minister could at least give us an assurance that before we complete the passage of this Bill, we will have an indication, in outline and in principle, of what kind of redistribution the Government have in mind for the 50% of the business rate that is to be rechannelled through the centre.

In reality, the position is that local authorities will not know how much they will get from the business rate. That is surely completely non-conducive to the alleged aim of this: to allow local authorities to stimulate local business and prosperity. Unless they know what kind of income they are going to get over a relatively long period, that kind of economic planning role will not be achievable. We have a Bill here which is probably going to be an example of the tensions within this Government and within any central government's approach to local authorities. Yet the tensions are becoming more acute and the local authorities are going to find it much more difficult to deliver that.

I have three further points to make, one of which is in the Bill and I support, one of which is in the Bill and I oppose, and one of which is not in the Bill. I support the measures relating to the powers to tax empty homes and, to some extent, second homes. They are sensible and, apart from being a revenue-raiser to a limited degree, may actually be able to contribute to the housing role of local authorities. Like other noble Lords, though, I am strongly opposed to the localisation of council tax benefit. Because others have already made them, I will not go over the arguments that the burden of this change, particularly in the timescale proposed, will fall primarily on the working poor and the young unemployed, but the timescale will be impossible logistically if we insist on a start date of 2013.

My view is that housing benefit and council tax benefit should be dealt with in the same place and in the same way. Both are based on the same passport arrangements, relate to local costs and are administered and delivered locally. It could be argued that it would be sensible to decentralise both, but I argue that it would be better if both were dealt with in the present way and taken together into the universal credit system. What is entirely illogical is to treat them differently, and that is what the Bill provides for. Taking all those things into consideration, that I predict some chaos in local authority systems and some serious injustices for recipients of council tax benefit. Not only will local authorities and recipients be in trouble but central government will as well.

My final point is not in the Bill. It relates to housing, and I declare an additional interest as chair of Housing Voice, the campaign for affordable housing. Noble Lords will recognise that housing is in crisis in all forms of tenure and in pretty much all parts of England. The Localism Bill in effect put local authorities in the driving seat with regard to housing but never gave them the resources that they would need. I support the central role of local authorities in this arena, recognising that it will mean differential outcomes in different local authority jurisdictions. Housing markets are different, as are the needs of different populations, and it is right that a lot of those decisions should be taken locally. To be a strategic authority in this area, however, local authorities need resources whether they are going to build social housing themselves, help housing associations to do so, go into partnership with the private sector to build affordable homes in their area or help first-time buyers to purchase in their area. This role is not covered in the present rate support grant calculations; it is inhibited by the restrictions on local authorities being able to devise their own systems of local taxation, or even to make marginal changes to the council tax provisions in relation to banding and designation, and, above all, by the Treasury-imposed restrictions on borrowing.

Again, in most other European countries, local authority borrowing to build houses, or indeed other infrastructure, would not be set against central government limits, as even the rather pitiful level of TIF in this Bill will be, and I see no logical reason relating to economic management why that should be the case in this country. I am not arguing for the complete relaxation of credit and borrowing controls for local authorities but, unless they have more flexibility to raise their own finance from the market, neither they nor the private sector nor registered social landlords will be investing sufficiently in housing when, as we all know, there is a massive unmet demand and severe dysfunction in the housing market. I fear that we will not see that in the Bill, but I register with the Minister that at some point in this Administration we have to make some radical changes in the resources and powers available to local authorities in the housing sector. If she cannot be forthcoming on that in the course of the Bill, I hope that she will at least persuade her colleagues to bring something forward later in this Parliament.

Photo of Lord Wigley Lord Wigley Plaid Cymru 5:50 pm, 12th June 2012

My Lords, as a committed devolutionist, I have every sympathy with the objective of giving local government maximum freedom. However, in doing so, we must surely ensure that we are not undermining their ability to deliver services to vulnerable people who depend upon them or adding financial burdens to such people.

The Bill applies to Wales, but not to Scotland or Northern Ireland, so it is the Wales dimension that I will mainly be addressing tonight. I hope that in Committee there will be an opportunity to go after more detailed aspects relating to vulnerable people, particularly disabled people.

In terms of its effect on Wales, this Bill has greatly changed since it was first presented to the House of Commons. This is because of the introduction of new clauses, apparently supported by the Welsh Government, at a very late stage in the House of Commons. Indeed, it was such a late stage that I do not believe a single Welsh Member spoke in the Chamber when they were discussed. This creates some concern about the timetabling of consultation and legislation between Westminster and Cardiff, especially as the measures involved, the change in council tax benefit arrangements from April 2013, were first announced as far back as the 2010 spending review, which was nearly 20 months ago. Was it the Welsh Government's fault that they had not responded in good time to be included in the Bill when it was first published or had the Government not consulted the Welsh Government in good time to enable that to happen? The amendments that have been introduced follow the Welsh Government's consultation earlier this year. A legislative consent Motion for this Bill is yet to be discussed in the National Assembly, which will be scrutinising these proposals for the very first time later this month. Frankly, this is a procedural mess, and it is not good enough.

Criticism of the Bill is generally not related to the measures proposed in it but to how the Bill provides the framework for significant cuts to council tax benefits which will fall on vulnerable members of our society. I suggest that this is part of a localism and cuts agenda and will involve the devolution of administrative costs as well as the 10% other costs. According to the Welsh Minister responsible for communities and local government, Mr Carl Sargeant, the recent figures for funding transfer represent in total a cut of some 13%. I do not know whether the Minister agrees with that or whether she has discussed this with Welsh Ministers. The Welsh Minister also said in a recent response in the National Assembly that he would shortly be meeting Mr Iain Duncan Smith and the noble Lord, Lord Freud, to raise profound concerns about the financial implications. Is the Minister in a position to confirm whether that meeting has taken place and what was its outcome?

People in Wales who have kept up with the Bill are concerned about the effect of these proposals. As noted by the Minister in the House of Commons, the Welsh Government will be setting out their proposals for council tax reduction schemes in due course, but they propose to introduce a single national scheme set out in regulations and to include the reforms necessary to meet the 10% reduction. The fear is that the Government of Wales will be helping the UK Government to implement a scheme that may be detrimental to poor communities and, particularly, to vulnerable people in those poor communities. The Minister in the House of Commons seemed to believe that the Welsh Government intend local authorities to be given an amount of local flexibility in the new scheme's delivery and that deviation from the national scheme will be funded locally. Their proposals will be scrutinised by Members of the National Assembly for Wales when they are laid before them. In England, following consultation, support for vulnerable pensioners will be delivered through a national framework of criteria and allowances, so pensioner council tax support will not be reduced. We must suppose that this means that the burden will instead fall on all working-age claimants of council tax benefit. As said earlier, the Institute for Fiscal Studies estimates that this will mean that on average working-age claimants, most of whom are already in poverty or close to poverty, hence their eligibility, will be losing almost a fifth of their current support and, in some areas, up to a third.

In Wales, around 330,000 households-nearly a quarter of all households-receive some form of council tax benefit. However, Welsh Ministers have already accepted that they will not be able to shelter Wales from these Westminster-inspired cuts. My party, Plaid Cymru, has called for the Welsh Government to follow the Scottish Government's example and protect vulnerable citizens from these cuts by using some of the recent £80 million Barnett consequential payment to prevent the cuts for 2013-14. This would at least allow enough time to work through the proposals and plan the way ahead.

I turn briefly to the non-domestic rating. Business rates raise some £940 million a year in Wales. This is an essential component of local government finance, which enables many vital local services to be delivered for communities. Therefore, any relief of business rates comes at a price and must be paid for. However, if we can use business rate relief as an economic lever to safeguard and create jobs, and to revitalise town centres, it is a price that may be worth paying.

In Wales, the business rates system is, uniquely, not devolved. There is a Welsh business rates pool at Westminster, which I believe will remain as a result of the Bill, even though the English system is being changed and despite local government and economic development being devolved responsibilities. Welsh Ministers are currently not empowered to design a Welsh business rates system that is substantially different from the present system in England. With business rates devolved in Scotland and Northern Ireland, and being localised in England, Wales will have a unique system of having its rates pooled at Westminster. If the UK Government insist on devolving council tax benefit, they should also give Welsh Ministers full control over the Welsh business rates pool. Leaving the system as it is would be an enormous anomaly.

At present, the Welsh Government are allowed only to fund varying levels of rate relief. They cannot alter rates in any other way or configure rate levels to meet policy objectives. Full powers over the business rates regime should surely be put in the hands of Welsh Ministers. In a recent speech to the Institute of Welsh Affairs at an economic conference in Cardiff, Professor Brian Morgan, who leads the Welsh Government's review of business rates, which was published today, said that an expert whom the review had consulted had described the business rates situation in Wales as "ridiculous".

In Scotland, local authorities retain 50% of any business rates income that they generate on top of a nationally agreed base. In Northern Ireland, Ministers use their control over the non-domestic rates to place an extra levy on large out-of-town retailers and redistribute the proceeds to town centres. Professor Brian Morgan's report on how the business rates system in Wales can be reformed to streamline and stimulate economic growth calls for full control over business rates in Wales to be transferred to the National Assembly. Therefore, in conclusion, I ask the UK Government to discuss the implications of this report with the Welsh Government to see whether they can amend the Bill further at a later stage to ensure that the proposals put forward by Professor Morgan and his colleagues can be put into effect.

Photo of Baroness Lister of Burtersett Baroness Lister of Burtersett Labour 5:58 pm, 12th June 2012

My Lords, it is always a pleasure to follow the noble Lord, Lord Wigley. I rise to speak not as an expert on local government finance-perhaps I should also say that I have no links to the LGA-but as a survivor of the marathon that was the Welfare Reform Bill. Clause 9 of today's Bill, which provides for council tax reduction schemes, forms a coda to the Welfare Reform Act but it is a discordant one. As my noble friend Lord McKenzie of Luton has eloquently argued, it threatens to undermine some of the key objectives of that Act in the name of localism, although whether this represents genuine localism is disputed. I will focus my remarks on this issue but will also briefly mention another legacy of the Welfare Reform Act that has implications for local government finance-the localisation of key elements of the discretionary Social Fund.

During the passage of the Welfare Reform Bill, my noble friend Lady Hollis of Heigham, who unfortunately could not be here early enough to take part in this debate, delivered what the late and much missed Lord Newton of Braintree described as a "devastating critique" which demolished the rationale for localisation of council tax support set out in the original consultation paper. I am tempted to provide noble Lords with the Hansard references and say, "I rest my case". But in the role of understudy I will make some of the arguments that my noble friend might have made.

First and most fundamentally, for those below pension age we are turning a nationally determined social security entitlement, paid out of a demand-led budget, into a local game of roulette, the rules of which will be shaped by the effects of a shift to a cash-limited budget that, as we have heard, incorporates a 10% cut on current expenditure. Instead of a clear entitlement which changes only in response to changes in a claimant's circumstances, which will be the same regardless of where the claimant lives, there will be a patchwork of schemes in which the help for which a person qualifies will depend on the demographic make-up of the local population. As we have heard, the greater the number of pensioners whose entitlement is protected, the less there will be for other groups. The support available will be vulnerable to economic shocks, such as a factory closure, and the scheme could change from year to year. Instead of forming part of the overall structure of social security, council tax reduction schemes could spell financial insecurity. Low-income households will be the main losers, as many noble Lords have already pointed out.

As has already been noted, the Institute for Fiscal Studies calculates that unless councils find additional money from elsewhere, which seems unlikely given the pressures that they are under already, the requirement to protect pensioners in England will imply an average 19% cut in support for working-age claimants, which could be as much as 25% in some areas.

Citizens Advice has warned its bureaux that this means that the poorest non-pensioner claimants, who would have received full council tax benefit under the present system, will probably have to find about one-fifth of their council tax from their weekly income-a point made by the noble Lord, Lord Best. It reminds bureaux of the trouble that paying a 20% minimum caused in the days of the poll tax or the community charge. It said:

"Many claimants could not make up the shortfall and were pursued for arrears. We expect a similar scenario to develop".

Similarly, the IFS warns:

"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".

That point was made very well by my noble friend Lady Donaghy.

The Explanatory Notes assure us that:

"The Government is committed to ensuring that local authorities continue to provide support for council tax for the most vulnerable in society".

But that is not being enforced for groups other than pensioners and there is some ambiguity as to who exactly counts as vulnerable. The impact assessment gives the example of disabled people or carers. The DCLG document Vulnerable People-Key Local Authority Duties refers local authorities to the public sector equality duty, including specifically relating to disabled people; to their duties under the Child Poverty Act and homelessness legislation; and to the Armed Forces covenant. That is quite a range of duties which local authorities must bear in mind when drawing up their schemes. Perhaps the Minister could tell us what the consequences will be if they do not meet those duties.

To take just the duties under the Child Poverty Act, a recent survey by 4Children found that fewer than half of English local authorities have a child poverty strategy in place and that 35 of those without a strategy do not even have a needs assessment in place, as required under the Child Poverty Act. If they do not have a needs assessment, it will be difficult to take proper account of these needs in any local council tax reduction scheme that is devised. The evidence from a JRF survey of local authority spending cuts states:

"It cannot be assumed that the needs of disadvantaged residents and communities will inevitably be to the fore as councils manage budget reductions".

While there is evidence that strategies are being devised to try to ensure that the needs of disadvantaged places and people can continue to be met, there is also evidence of tensions emerging around the degree to which such needs should be protected and prioritised. Then it says that only half of the sample of authorities had adopted,

"protecting the needs of the most vulnerable clients or communities", as a principle guiding budgetary decision-making. In other words, this does not augur well for government assurances that protection of the most vulnerable will be safeguarded when council tax support is localised. The study highlights the potentially divisive consequences of the policy-divisive as between different vulnerable groups and low-income council tax payers and the rest.

There is also a tension between the supposed commitment to protecting the most vulnerable, vaguely defined as they are, and the policy objectives set out in the impact assessment to support the improved work incentives to be delivered through universal credit. The repeated assertion of this objective takes on a Lewis Carroll-like quality in the face of the widespread view that the opposite will be the case. This is policy-making through the looking glass. It is widely believed that if local authorities are to observe the various duties relating to vulnerability, low-income working council tax payers are likely to be the losers. In other words, this policy change has the potential to create a significant work disincentive and, as the IFS points out, to the extent that local authorities try to protect those on the lowest income through the use of aggressive means-testing, the greater a disincentive it will create to the extent that some people could be worse off with a pay rise, recreating the very worst excesses of the old poverty trap.

Moreover, the overlap with the universal credit taper, mitigated but not removed by a more generous income disregard for the latter, undermines universal credit's policy objective of rationalising overlapping means tests and, again, improving work incentives. To quote IFS again, separate means tests for council tax support has,

"the potential to reintroduce some of the extremely weak work incentives that universal credit was supposed to eliminate".

It also points out that the policy "severely undermines" the simplification that universal credit was intended to achieve.

The noble Lord, Lord Freud, was quoted in the Financial Times earlier in the year as saying that the Government were,

"not going to let a ha'p'orth of tar around council tax benefit undermine the universal credit".

But with a 10% cut built in, we are talking about £500,000 of tar, and the consensus is that it will undermine universal credit.

Having worsened the work incentives within the benefit system, the Government then turn round and tell local authorities that the reform will create stronger incentives for them to get people back to work. That argument was given pretty short shrift by the CLG Select Committee report, Localisation Issues in Welfare Reform. It commented:

"We have seen little evidence to support the hope that new and better-paying jobs for individuals, immediately sufficient to off-set the 10% reduction in the benefit budget, will inevitably follow from these incentives".

Or as was argued in the House of Commons:

"I am not sure that local authorities can wave a magic wand and create jobs in six months, a year or two years".-[Hansard, Commons, 31/1/12; col. 726.]

That was a Conservative Member, by the way.

Localising council tax support in this way could create some new perverse incentives, as the IFS has pointed out-an incentive to discourage low-income families from living in the area, with shades of the Poor Law, and a disincentive to take up the support. In addition to the principled arguments against the policy, in the interests of good policy implementation-as a number of noble Lords from all over the House have argued-we have to raise concerns about the reckless speed with which it is being pushed through, as did the CLG Select Committee, which therefore recommended a year's delay. As the IFS has argued, councils face a difficult task in squaring a number of circles in devising their schemes, yet they have little experience or expertise in designing means-testing support schemes and very little time to do it. We also have to question why a Government committed to reducing bureaucracy are increasing it as myriad local schemes are developed.

The more I look at this policy, the more it seems fraught with pitfalls. A big hole is being torn in the social security safety net, all in the name of localism, yet the CLG committee disputed whether this can,

"be considered a great advance for the policy of localism", when in fact it provides,

"an illusion of delegation with a minimum of real discretion".

Those points were made by the noble Lord, Lord Jenkin, and the noble Baroness, Lady Eaton.

Personally, I am not opposed to local authorities continuing to administer a national council tax reduction scheme because there are dangers in lumping all financial support together in one universal credit payment, which may not be paid into the account of the person responsible for making the payment and which is highly vulnerable should anything go wrong with that universal credit payment. However, it needs to be a national scheme, dovetailed with universal credit.

Finally, and very briefly, not only are local authorities having to take over responsibility for implementing their own local council tax reduction schemes, they are also being made responsible for elements of the discretionary Social Fund. Again in the name of localism, another hole is being torn in the social security safety net, threatening the well-being of some of the most vulnerable members of our community, who currently can turn to community care grants and crisis loans for assistance in times of emergency or acute need. The money currently spent on this assistance is being devolved to local authorities but without any duty being placed upon them to use it for the intended purposes. When this was debated during the passage of the Welfare Reform Bill, there was considerable disquiet on all sides of your Lordships' House as to the likely consequences. I hope that we will be able to return to this issue during the passage of this Bill as it is very much an issue of local government finance and is part of the localism agenda-an agenda which, as currently framed with reference to social security matters, spells insecurity and unfairness for many people living in poverty.

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Health) 6:12 pm, 12th June 2012

My Lords, like other noble Lords I have to declare an interest as a vice-president of the Local Government Association, although whether I will be able to do so in future depends on the reaction to some rather critical remarks which I may make later. Along with other noble Lords, I also have to declare an interest as a member of a city council-in my case, Newcastle city council. Like the noble Lord, Lord Shipley, I suspect, I am grateful for the extensive briefing we received from the very respected treasurer of that authority.

I suppose that local government finance is the political equivalent of the Schleswig-Holstein question, which perhaps accounts for the fact that there are only 17 speakers in this debate. The paucity of numbers, however, does not reflect the quality of the contributions from all sides of the House. Indeed, I echo the compliments paid to the Minister for the way in which she introduced it. Whether I will be able to compliment her on her reply remains to be seen, but I am sure that she will endeavour to meet the various points that have been raised.

The Government claim that the Bill decentralises control over finance, gives local authorities a strong financial incentive to promote local economic growth and, with the localisation of council tax benefit, gives councils increased financial autonomy while providing continued council tax support for the most vulnerable, including pensioners. Taken together, this prospectus is about as inflated as that which saw Facebook's shares tumble on the closer inspection which followed that celebrated flotation a few weeks ago. To begin with, as the noble Lord, Lord Shipley, pointed out, it completely ignores the savage cuts in financial support for local councils willingly proferred to the Treasury by the Secretary of State, on which the funding baseline which will govern the progress of implementation of the Bill depends, and the full effects of which have still to be seen. For example, I cite the apparent recent decision of the Department for Education to cut children's social care needs assessment by a third, or about £1.3 billion, plus funding for youth and community services, while, incidentally, protecting its own central departmental budget. There was also the Department for Transport's decision to cut its contribution to concessionary travel by a fifth. Both those decisions will impact further on local council expenditure and require money to be found elsewhere, and there is much more to come-even without taking into account the consequences of demographic change and the rising tide of adult social care, which, as my noble friend Lord Warner reminded us, threatens within a decade to swamp the entire territory of local government services. Costs are not likely simply to reflect increases in the RPI, to which the business rate will be linked.

As my noble friend Lord McKenzie and others have pointed out, the proposals for business rates do not match the Government's claims. What they actually mean is that government grant is effectively to be wholly replaced by business rates, localised only to the extent that part of what is raised locally will be retained locally but with a complex system of tariffs and top-ups. Moreover, the basis on which business rates will be distributed, as we have heard, will be fixed initially for seven years, and eventually for 10 years, with little flexibility for adjustment if circumstances should change in the mean time, save that the Secretary of State-and this particular Secretary of State is not known for his flexibility-can make changes, but with no apparent requirement for any objective assessment or review. I agree with the views of the noble Lord, Lord Shipley, on this; there should be more regular reviews to reflect changing circumstances.

There is also an issue around the relationship of enterprise zones and the new business rate provisions. Businesses in enterprise zones will not initially have to pay business rates. Eventually, when they are paid, my understanding is that they will go not to councils but to local enterprise partnerships. There is a potential conflict at the outset in local authorities promoting new business, because if a business is within an enterprise zone there will be no financial benefit to the authority initially, or perhaps at all, whereas if a business is not in an enterprise zone, there would be at least some additional funding. I invite the Minister, not necessarily today, to look further into this issue of the relationship between enterprise zones and the general operation of the business rate scheme.

Further, the assumption that economic growth can be incentivised simply by local councils is flawed. In the 1980s the converse argument was put-that business rates were impeding economic growth and development. The Cambridge studies of that era demonstrated that that was not the case. I do not know on what basis it can be said that local councils in particular can be made responsible for economic growth. Most local councils, as we have heard, already do their best to work with and promote local business. Under this scheme, however, there might be a temptation to enhance business rate income by encouraging retail or service sector development, because that sector produces eight times as much in the way of rates as manufacturing does, whereas manufacturing is the very sector that we as a nation need to encourage most. The whole thrust of the new system pays little attention to needs-the needs basis for formula grant effectively disappears-as opposed simply to crude numbers, and it builds on a substantial shift of resources away from the less well-off areas to the better-off areas over the past two years.

However, it is in the area of council tax benefit that the crudity of the Government's approach is best seen. It is some 45 years since, as a newly selected young candidate in the council election in Newcastle, in the ward that I continue to represent, I put out a leaflet promoting the then Wilson Government's rate rebate scheme. It was the ancestor of council tax benefit and to a degree, therefore, of the council tax support that the Bill adumbrates. The rate rebate scheme was an innovation and brought considerable help to many people. As we have heard, that help has grown over the years. The take-up is far from complete but, nevertheless, in recent years in particular, the amounts paid out have been considerable. However, the Government are now not only slashing central government funding in this area by £500 million or 10%, they are confining that expenditure within a cash limit. Hitherto, if claims increased-legitimate claims-then the Government paid up. No longer will that be the case because the cap limit will be brought into effect.

It is already far from clear that the amount currently estimated for expenditure on council tax benefit will prove accurate-the 10% cut could indeed be greater than the £500 million that the Government will be providing. That £500 million sits a little oddly with the £250 million that the Secretary of State was willing to spend on weekly waste collection or the £450 million which, he announced yesterday, will be devoted to his new initiative on problem families, as he describes them, with £150 million over three years. As others of your Lordships have pointed out, including the noble Lord, Lord Shipley, only £150 million for TIF 2 being available between the eight authorities puts those figures into some perspective.

The fact is, as my noble friend Lord Smith pointed out, that none of this recognises that much benefit goes unclaimed, even though the total paid out has been rising. I think that the estimate is that around £1.8 billion of entitlement is not claimed, much of it by owner-occupying pensioners. It may be that as a result of these changes more such pensioners will be induced to claim but, in answer to a question that I raised some time ago, the Government have made it clear that they have no intention of promoting take-up by either pensioners or anybody else.

Further, as the grant is not ring-fenced, councils which receive more than they need will be free to retain the surplus, while others which receive less grant will themselves have to meet any claims that they receive, funding the gap by cutting other services or increasing council tax, or by cutting even more benefits from non-protected groups. As we have already heard, roughly speaking, if you take just the amount relative to pensioners-approximately 50% of claims-a 10% overall cut translates roughly into a 20% cut for other claimants, but that is without taking into account other vulnerable people.

The Government ever so helpfully remind councils of their duties in relation to child poverty, the disabled, the Armed Forces covenant and equalities issues generally, implying that those groups should also receive protection. Of course, councils would be anxious to extend that protection, if at all possible. However, the corollary is that the even greater cuts in benefit would then be inflicted on those not counted among those groups, and in particular by people of working age on low incomes-in other words, the working poor.

The depths of intellectual understanding underpinning these proposals is revealed in some remarks by no less than the Housing Minister, Mr Grant Shapps-or "Grant Stops", as he is known pretty universally in local government. He puts it in this way:

"if somebody is in work they will not be receiving the [council tax] benefit because they will not need to ... The culture of 'Let them rot in the houses while we pay them benefit' must come to an end".

I have two slight differences of opinion on that statement. The first is that people in work on low wages can and do receive council tax benefit, and so they should. The second is that the implication that councils of any political persuasion simply allow people to rot in their houses while we pay them benefit is, frankly, a disgraceful slur for any Minister to make on local government.

The position in which we are left is that, unlike with the business rate, which the Government will fix, councils will be free to devise their own schemes for the new council tax support with the default mechanism which has been referred to. Therefore, we are likely to see a rash of different schemes producing a pattern of different local benefit levels, effectively emulating the Poor Law regime of the 19th century, and here is where I take issue with the Local Government Association. I find it astonishing that the LGA should approve of this deeply divisive approach, which, as my noble friend Lady Lister pointed out, undermines the whole notion of national entitlements. Of course, it fits with the Government's calls for regional and local pay determination. One has to ask whether this variable geometry will next be applied to universal credit-perhaps to be renamed "locally adjusted universal credit"-or to other national benefits. As others have asked, what is the logic of two separate systems, given a universal credit standing alongside?

There is another aspect to this lottery that is worth bearing in mind. Most noble Lords who have spoken hail from London boroughs or metropolitan authorities, but of course, in the shire counties, we have a two-tier arrangement. It will fall not to the county council, which is responsible for something like 80% of the expenditure, to devise the council tax support scheme for its area; it will be for each individual district council to devise a scheme. In some cases, they may come to an agreement and there may be a scheme common across the county, but that cannot be guaranteed. We could therefore have a significant difference just across a district boundary when most of the money that has been paid by the council tax payer goes not even to that district but to the county council. There is a question not only of fairness but of accountability.

In fairness to the LGA, the association has never directly involved itself in distributional issues because of different interests in different groups. The association facilitates the presentation of a case by a particular authority or groups of authorities, but that is all that it does. That is quite reasonable. However, I was a little surprised that the briefings do not set out the differential impact of the changes either to the flow from the business rate change or in relation to council tax benefit. The average loss per head of population is £8.31 in England, with a range of £11.71 for the north-east to £6.65 in the south-east. Of course, the average loss for claimants is significantly higher. Inner London, northern and West Midlands authorities do particularly badly. Their local economies will suffer as a result of reduced spending power in those areas and it is in those local authorities that the constant strain on council services is likely to rise. The same is true of the function of the pattern of business rates, to which the noble Lord, Lord True, referred.

The Government suggest that the gap may be closed by removing second home discounts and all reliefs for empty properties. As an illustration, the former of those moves would save Newcastle all of £54,000. Contrast that with Westminster's gain of £750,000, or that of Kensington and Chelsea, which is presumably dear to the Minister's heart, of £1.125 million. The latter-relief on empty properties-on the face of it looks more tempting and more useful, but as has been pointed out by the noble Lord, Lord True, and my noble friend Lady Donaghy, it is somewhat unpredictable in what it will yield. Others, including the noble Lord, Lord Shipley, referred to collection costs, which is certainly a factor. There are problems and in referring, I suspect, to the briefing that he and I received, the noble Lord, Lord Shipley, spoke of the potential impact on housing revenue accounts. It is not only local authority housing revenue accounts. We must think of registered social landlords who might have properties that are empty for a time or which are being repaired. They either have to meet the cost, as the council might have to meet it, or tenants might have to meet the cost, in which case we will see rents rise. That is another call on the working poor with knock-on effects on the local economy.

In any event, a study carried out by UNISON shows that many councils will remain substantial losers even if they sought to remove all the reliefs. The warnings from Members on the government Benches, such as the noble Lords, Lord Shipley, Lord Palmer and Lord True, should be taken into careful consideration by the Government.

Another area to which the noble Lord, Lord Shipley, referred, was the question of funding of student council tax exemptions, which are estimated to be underfunded by some 25%, as he rightly said. This affects a large number of towns and cities, as well as county areas where universities are outside metropolitan areas and student housing is a significant issue. This matter was not touched on in consultation and I join the noble Lord, Lord Shipley, in inviting the Minister not to make any definitive announcement tonight but to look into this as we go into Committee.

Finally, there is the issue of process. At this stage the Bill is unlikely to reach the statute book until October at the earliest. How can there be effective consultation with a range of interested parties over local schemes for benefits and changes to reliefs in a way that still leaves time to gear up IT, train staff and deliver a fully fledged system by the start of the new financial year? It would be sensible for implementation to be deferred for a year.

The Bill is not about localism per se. It is about localising blame for painful decisions affecting household incomes and local services. The Government are intent on passing the buck without passing the bucks. This House must seek to improve the Bill, and in particular to mitigate the hardship it portends for hard-pressed communities and householders.

Photo of Baroness Hanham Baroness Hanham The Parliamentary Under-Secretary of State for Communities and Local Government 6:32 pm, 12th June 2012

My Lords, I thank all noble Lords who took part in the debate. As I expected at the outset, it covered not just principles but details, and I will not be able to answer every point made. I think that some speakers recognised that as we went through. However, all the points raised will be noted, and I have not the slightest doubt that we will return to them in Committee.

One of the first criticisms made was of the timetable. Perhaps it is worth dealing with that first. We recognise that because of the time taken for the Bill to get through the other House and this, the process will be challenging-but we are quite clear that it will be achievable. Local authorities have already received statements of intent and impact assessments. They are well apprised of what will be involved. We have published guidance to all local authorities for them to understand what their responsibilities are and are likely to be, particularly in relation to vulnerable groups and the setting out of general principles of incentives. Therefore, they can start consulting, forming schemes and thinking about discount schemes. The noble Lord, Lord Beecham, shakes his head, but the information is there. Local authorities know the purpose of the Bill; they were involved in local working parties; and while they may not all agree with the outcome, there is not the slightest doubt that they will be able to go forward and start on implementation.

I hope and expect that we will be able to discuss the issues that have been raised. I will make an offer immediately: anybody who wishes to discuss points with me and my noble friend Lord Attlee, who will deal with some sections of council tax benefit, may do so. We are open to discussion. We may not entirely like or agree with what you say, and we may not conclude that what you say is right, but it is important that Members of the Committee should know that we are available if that is what is required.

I cannot cover all the points, but there were one or two that I cannot overlook. The retention of business rates is something for which local government has asked for ages. When I was a local government leader, I thought it would be a very good idea if we were able to retain local business rates. The process we have started does that. It makes it clear that local government collects the business rate and, instead of passing it all on to central government, can keep some. That is fine. The 50% Treasury requirement will absorb some of it, but the 50% will come back to local government in the form of grants. So it is not lost to local government. I totally accept that it is not within the power of local government to alter it, but it is not lost. It is not going into the Treasury coffers and staying there; it is coming back.

As to the points that were made about Kensington and Chelsea and the north, no Member has commented today on the fact that there is a levy system. That levy system will work on councils which raise what is called "disproportionate" sums of money. It will affect councils such as Kensington and Chelsea and Westminster, whose contributions will be top-sliced off because they are deemed to be too high. By any other name it is an equalisation scheme, and noble Lords will want to recognise that.

There has been a great deal of discussion on the relationship between universal credit and the welfare reform process and how council tax benefit is aligned up with that. I know that we will have those discussions at length in Committee but I will confirm immediately to the noble Lord, Lord McKenzie, that the implementation of universal credit is not slipping from 2013. The expected date for implementation is 2013 as it has always has been. There has been no change to that.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Communities and Local Government)

Can the Minister confirm whether the implementation in October 2013 is in respect of all new claimants or only some new claimants?

Photo of Baroness Hanham Baroness Hanham The Parliamentary Under-Secretary of State for Communities and Local Government

There is a nod from the Box. I shall have to let the noble Lord know. I said the scheme would be implemented in 2013. My noble friend Lord Attlee will retrieve that information and I will pass it on.

The noble Lord, Lord Tope, who I thank for his basically supportive speech, asked when the draft regulations for the council tax support would be published and whether we would have an opportunity to see them. The Government will publish those draft regulations for the pensioner and default schemes in July. These key regulations will be needed by local authorities and IT suppliers, which is why we published on 17 May the statements of intent on both pensioner protections and the default scheme. As I said earlier, that information is there and should be available to local authorities.

Indeed, I know of at least one local authority which has already constructed its scheme on council tax discounts on the basis of what it knows already and it is ready to announce it. So it can be done. It is not something that anyone needs to hide behind.

I am grateful that practically everyone has supported the principle of TIF. There is no doubt that with TIF 1 councils are free to put up projects and take them forward. TIF 2 is limited because of the general financial situation at the moment; we will not be able to spend a huge amount of money on it at present. However, it is there and, if it goes well, further consideration will be given to it. As noble Lords know, TIF 2 is confined basically to the core cities putting forward good projects. That is already happening and we know that there are projects which can be developed quite quickly.

My friend the noble Earl, Lord Lytton-I call him my friend because he was very nice last time and I hope that we will get the same this time-has raised with me the question of parish councils, the contributions that they make and the fact that they do not get support from the business rate. I will come back to that because I am sure it will come up in Committee. With regard to valuations and the revaluation, as the noble Earl knows, there is no intention to re-evaluate the council tax base at the moment. On the appeals process for current appeals, we are working with the Valuation Tribunal and the Ministry of Justice to establish the mix of expertise that may be necessary to hear these appeals and ensure that they are not held up.

On impact assessments, as I said earlier, we have published a statement of intent so that there is enough information available, particularly on the equality impact assessment. We are satisfied that the work is now well under way. The amendments made on Report in the Commons are intended to make it clear that there are no legal barriers to preparing for and carrying out consultation prior to Royal Assent. A number of noble Lords referred to the complexity of the scheme. It is only fair to say that the current scheme is blindingly complex, but it is anticipated that the new one will be less so once the situation is understood and we get through the legislation.

I touched on the 100% of business rate not being held by local government, and I am sure that it is something we will discuss.

I was asked about places that struggle to attract economic growth; it was a point made by the noble Lord, Lord Smith of Leigh. Part of that will be addressed by the system of tariffs and top-ups. The base, as noble Lords have said, will be that of 2010, but it will be supported by tariffs that take funding away from local authorities with more than the base and given to those with less. There is a level playing field when all this starts, and those tariffs and top-ups will be raised by RPI.

The noble Lord, Lord Best, asked whether local authorities will be able get guidance on how to support the universal credit taper. I am pleased to confirm that the department has already published guidance on the key considerations that local authorities will need to take into account in designing a scheme that supports work incentives and the objectives of universal credit, so that is under way.

I turn now to the noble Lord, Lord Wigley, with regard to the Welsh clauses. The amendments to the Bill moved in the other place were tabled at the request of the Welsh Assembly. As we understand the process-the noble Lord may differ from me on this-the legislative consent Motion can be tabled only after the amendments have been passed and the new clauses have been laid, and they must be considered by the Assembly before the Bill completes its passage through the House. I think that the procedural arrangements sound all right but if, having thought about it, the noble Lord still does not feel they do, perhaps he will let me know as soon as possible.

The noble Lord, Lord Warner, raised the question of adult social care. I cannot answer that specifically, but as he and the House knows, adult social care is at the front of everyone's mind. The issue is not confined to local government because it covers a number of departments. A White Paper is being completed at the moment. I think that there will be other venues in which to discuss adult social care, and in a way I hope that it does not trip up in this Bill because, while it is part of local government finance, it is not the major financial implication for local government.

Photo of Lord Warner Lord Warner Labour

I think the Minister is trying to avoid dealing with the issue that I was trying to raise. I do not expect this Bill to solve the problems of social care funding. What I was asking for was some modelling to be done to see whether this Bill would actually make the situation worse, before the Government come forward with their plans. We do not know when they are going to come forward with their plans. What I wanted to pursue-and indeed will pursue in Committee-is whether the Government know if implementing the provisions in this Bill will actually make the funding of social care worse. That is my point, and I think we need an answer to it.

Photo of Baroness Hanham Baroness Hanham The Parliamentary Under-Secretary of State for Communities and Local Government

We will come back to that issue in Committee, I have no doubt. My noble friend Lord Attlee and I are looking forward very much to the next stages, and I thank all noble Lords for their contributions today.

Bill read a second time and committed to a Grand Committee.

House adjourned at 6.47 pm.