§ 2.28 p.m.
§ Lord Henley rose to move, That the draft regulations laid before the House on 18th June be approved [3rd Report from the Joint Committee].367
§ The noble Lord said: My Lords, the council tax benefit regulations provide for rebates of up to 100 per cent. of council tax liability and will do so by reflecting both the liability and discount arrangements of the council tax itself. Further, as my right honourable friend the former Secretary of State for Social Security announced last November, the additional amounts included in the income-related benefits to help towards the 20 per cent. minimum contribution towards the community charge will not be clawed back on the introduction of the new tax. That decision will help some eight million people and by April next year income-related benefits will be nearly £700 million more than would have been required to compensate customers for inflation since 1989. Taken together these regulations provide a generous system which will help people on low incomes pay their council tax. Billing and levying authorities will be responsible for administering the benefit which will usually be awarded by rebating the liable person's council tax bill.
§ The regulations provide for two distinct types of benefit. First, main council tax benefits will help persons on low incomes. Secondly, the alternative benefit, or second adult rebates, will provide help to a liable person where other residents who are living in their home on a non-commercial basis are on a low income.
§ In framing these regulations the Government's aim has been to maintain alignment with the other income-related benefits, wherever practicable. This benefit scheme therefore builds on the reformed system of income-related benefits which the Government introduced in 1988.
§ For that reason, I do not intend to speak at length about the detailed workings of main council tax benefit, knowing that the House has, on many occasions in recent years, given detailed consideration to the structure of income-related benefits. However, it may be helpful if I summarise briefly the main similarities and differences between the new benefit scheme and the existing ones.
§ First, the treatment of capital and income will follow the current procedures under community charge benefit and housing benefit. The upper capital limit will be £16,000 and the first £3,000 of a person's capital will be disregarded completely. The assessment of income under council tax benefit will also follow the normal rules in the other income-related benefits and will include tariff income on any capital between £3,000 and £16,000.
§ A person's personal circumstances will be taken into account, using the same applicable amounts, made up of personal allowances and premiums, as are now used in housing benefit and community charge benefit.
§ Main council tax benefit will assume that non-dependants make a contribution to a customer's council tax. This will take the form of flat-rate deductions from maximum benefit, as is the case under housing benefit. However, in calculating non-dependant deductions, any income from disability living allowance and attendance allowance 368 received by the non-dependant will be disregarded, and no non-dependant deductions will be made in respect of non-dependants who are in receipt of income support.
§ Council tax benefit differs from its predecessor in two respects. First, those with income at or below income support levels will be able to get help with up to 100 per cent. of their council tax bill, and there will be no minimum contribution to the council tax. Secondly, for those with higher incomes, benefit will be withdrawn on the basis of a 20 per cent. taper. The House discussed the size of the taper on a number of occasions during the passage of the Local Government Finance Act. I have to say that the Government considered the issue very carefully and concluded that a 20 per cent. benefit taper for council tax benefit, together with a maximum 100 per cent. rebate, will ensure that most help is focused on those with incomes just above income support levels, while those with higher incomes will receive slightly less help.
§ I now turn to an important innovation in the council tax benefit scheme; that is, the alternative maximum council tax benefit, or second adult rebates. The House will be aware that the council tax includes a system of discounts, which help people who live alone, including, for example, widowed mothers with children. The discount system will also help certain other groups, including persons who are severely mentally impaired and who currently are exempt from the community charge. Second adult rebates will ensure that persons who would otherwise have qualified for a discount will not be unduly penalised by the presence in their household of a person on low income.
§ A maximum 25 per cent. rebate will be awarded in respect of a second adult or second adults on income support. Lower levels of rebate will apply in respect of second adults with incomes above prescribed levels.
§ In commending these regulations to the House, I should like to make clear that they were subject to both formal and informal consultations with the local authority associations. During those consultations many helpful comments and suggestions were made by the associations and a number of them are reflected in the final regulations before the House.
§ I trust that the House will welcome the regulations as offering a comprehensive system of support, which will help around five million people on low incomes pay their council tax. They offer particular help to those on income support who will gain not only from the introduction of a maximum 100 per cent. benefit but also from our decision not to claw back the amount previously included in income support rates to meet the minimum contribution to the community charge. Help will also be extended to those who, though not on low income themselves, are sharing their household with others of limited means.
§ I am also certain that, by aligning this new benefit scheme as far as is possible with the existing income-related benefits administered by local authorities, implementing the council tax will be eased. I commend the regulations to the House.369
§ Moved, That the the draft regulations laid before the House on 18th June be approved [3rd Report from the Joint Committee].—(Lord Henley.)
§ Lord Carter
My Lords, once again the House will be grateful to the Minister for so clearly explaining these rather complicated regulations. Perhaps I may make one comment which also applies to the child support regulations that we have been discussing. A large number of corrections have had to be made and inserted into the regulations. The Minister is always telling us about the £70 billions spent on social security. Could that sum cover payment for a few more proof readers?
We are told that the council tax is simpler than the poll tax. It probably would have been if it were a property tax in the sense that that is normally understood. But the complications of the council tax mean quite naturally that we must have a complicated system of council tax benefit. My first question is an obvious one. If the benefit is to work properly, there will need to be some form of register in order to know who is liable and who is not. If there is no register, how will the Government assess entitlement to the benefit for the single person discount or the second adult discount? I believe that we have been told in another place that there will be no register. Perhaps the Minister will clarify that point.
We are all pleased that the Government do not propose to claw back the 20 per cent. allowance in the community charge benefit from social security benefits. As the Minister correctly stated, that provision affects 8 million people. Is the claw-back amount to be fully protected within the benefit system? Is it an absolute amount of money which is to be frozen or is it a percentage? There are ominous reports of reductions in social security benefits which may be considered as part of the public expenditure round. One hopes that such reports are unfounded. However, what will the Secretary of State have to do if he wishes to claw back all or part of the amount to which the Minister has referred? Is that amount fully protected within the regulations or could the Minister reduce it as part of the public expenditure round?
Ninety-five per cent. of the cost of the benefit is reimbursed to local authorities from the Government. The remainder has to come from the revenue support grant. Why is there not 100 per cent. reimbursement? Is there an obvious reason why 95 per cent. comes from the Government and the remainder from the revenue support grant?
With regard to reimbursement, Mr. Alistair Burt, the Parliamentary Under-Secretary of State, stated in the Official Report of another place at col.792 on 30th June:The subsidy arrangements for the council tax benefit have yet to be finally determined, but I envisage that they will closely follow the current arrangements".That implies that the 95 per cent. reimbursement arrangement will continue. There was no reference in the debate in another place to different subsidy arrangements where benefit payments are backdated. Those attract only a 25 per cent. subsidy.
Local authorities can use their powers to back-date benefit where the claimant has shown "good cause for 370 a late claim". That provision is continued for council tax benefit in the regulations. Are the back-dated claims still to remain at a level of 25 per cent. reimbursement rather than 95 per cent.? If so, what is the reason for the lower rate? Will the Minister be kind enough to clear up a technical point? There is to be an arrangement from 1st April next year which allows 56 days for late claims which will he considered as though they had been made on 1st April. One assumes that those claims within the 56 days will be included in the 95 per cent. level of reimbursement and not the 25 per cent.
I have referred to the provision relating to a "good cause for a late claim". It allows for claims to be backdated where the claimant may have been misled by incorrect or misleading advice from officials and therefore delayed in making a claim. It is sad to say that the wrong advice from the Benefits Agency itself can constitute good cause. One indication of accuracy of advice is a survey undertaken by Chester Welfare Rights Forum. It suggested that completely incorrect advice had been given by the disability telephone advice line in 25 per cent. of the inquiries and was partially incorrect or incomplete in a further 50 per cent. Advice was correct in only one in four inquiries.
In effect a lower subsidy for the backdated benefit claim penalises local authorities for the mistakes of other agencies. It would be interesting to hear from the Minister whether there is any allowance in the calculation of either the 95 per cent. or the 25 per cent. reimbursement for the reasons for the late claims; and if it is shown that there is a good cause for the late claim that claimants will receive the full amount of reimbursement.
The Minster referred to the taper and I expect that he hoped that we would not go into the matter in detail. However, we must face the fact that we still have a system under which, because of the operation of various tapers, the poorest people face a marginal tax rate of up to 96 pence in the pound. Indeed, a Parliamentary Answer in col.95 of the Official Report of 5th November 1991 showed that 50,000 families with children face marginal tax rates of more than 90 per cent. Clearly that acts as an enormous disincentive to take on more paid work.
Unfortunately, the Government's decision to introduce the 20 per cent. taper on this benefit will have an effect broadly similar to the 15 per cent. taper on the 80 per cent. rebate under the community charge benefit. The impact that the steeper taper will have on people whose income increases is serious. I am indebted to the National Association of Citizens Advice Bureaux for providing me with an example showing that a low paid tenant with children receiving a £10 pay rise would lose more than £9 of that in one way or another as a result of the reduction of benefits, and so forth. Taking account of all the work that the Government have put into the benefits and the amount of money that they are spending, are they satisfied that the poorest families in the country are facing a marginal tax rate in excess of 90 pence in the pound?
The other area of anxiety relates to people aged between 18 and 24. Where an adult aged 18 or more 371 is liable for the council tax, there will be no variation in the size of the Bill according to age. However, if the liable adult is in receipt of a low income and claims a rebate, the size of that rebate will be lower for those aged between 18 and 24. That is because benefit for people in that age group is lower than for people over the age of 25.
Young people have to face living expenses identical to those people who are aged over 25. However, in many cases they are likely to be earning below average wages because of their age and will therefore be more dependent than older people on the rebate system. The curious effect of that is that the regulation may act as a disincentive for them to seek work. If young people are in receipt of income support, they will receive a 100 per cent. rebate for the council tax. Only when they move into work and their income rises above income support levels do they find that because of the lower applicable amount they are faced with higher council tax bills than people aged over 25 on identical incomes. In practice therefore the effect of the lower benefit rate for council tax may be to discourage young people from taking on low paid work.
Yet another area of major interest is the single person discount. Single people will qualify for a 25 per cent. discount. However, the second adult, if on low income, will also entitle the liable person to receive a 25 per cent. rebate. Presumably in order to claim that, the liable person will have to obtain highly detailed information so that decisions can be made regarding personal rebates, the second adult rebate and so forth. What will happen if the second person refuses to provide the information? We must assume that liable adults have no recourse and will therefore have to pay the full amount of the council tax. Furthermore, what will happen as the incomes of liable adults and the second persons change? Will there be a continuous recalculation of their benefit levels? Will the effect on the register—or the non-existent register—be continually amended?
We all know that a council tax is neither fish, fowl nor good red herring. It is neither a property tax nor a poll tax but has tried to incorporate elements of both. As a result, we have these extremely complicated regulations. Despite what the Minster said, I fear that they will lead to considerable administrative upheaval, and to considerable cost for local authorities. I am afraid that as always under this Government the sufferers will be the poorest people in society.
§ 2.45 p.m.
§ Earl Russell
My Lords, by now we understand well enough why it is not a good idea to take contentious business on the day the House rises for the Recess. I hope that that may be taken into account in the future and I shall try to take it into account now.
I agree with the noble Lord, Lord Carter, in regard to tapers. The point applies to those who are already in work on low wages as well as to those who have been out of work. Someone in part-time work who receives a £10 rise may find that between tax, national insurance, family credit, community charge or council tax benefit and housing benefit they are losing £9.60. 372 We on these Benches take incentives to work seriously. But we believe that for incentives to work there needs to be a supply of carrots as well as sticks. In the administration of the council tax tapers there is a considerable shortage of carrots. I suggest that the Government try to plant some.
We are also concerned in regard to the treatment of students. I know that serious attempts have been made to get the position right. Personally students are invisible. The problem arises when students share a dwelling with non-students. Non-students coming into a dwelling bring the council tax, like the plague, with them. That means that they must pay for the dwelling without receiving any benefit. I understand and am grateful that they receive the second adult rebate. But I would agree with the comment of the citizens advice bureau that the second adult rebate is likely to prove one of the most obscure parts of the council tax system. It will not always be understood. We will find that people are assessed to pay without any reference to their ability to pay. There is also the specific problem of a couple one of whom is a student and the other is not. There we have neither exemption nor benefit. That will produce an injustice.
I prepared for today a major speech on the lower rate of benefit for young people. The House may be delighted to hear that I shall not now deliver it. There is a communication block and a tired House is not the best place to overcome a communication block. However, I should like to give my noble kinsman notice that if, as I hope, we have an opportunity to debate the British Youth Council Report in the autumn, I shall return to the matter to discover why he thinks the fact that young people have lower earnings is a reason that they should receive lower benefits. At present I can make neither head nor tail of that.
§ Lord Henley
My Lords, I shall deal with some of the points made in the course of the debate. First, I believe that the noble Lord, Lord Carter, welcomed the fact that the extra amounts allowed in the income support would not be clawed back. I repeat the assurance given by my right honourable friend the former Secretary of State that they will not be clawed back, but obviously the amounts included in income related benefits form part of the benefit levels which must be considered each year for uprating in the usual way. They will continue to be treated as part of any uprating.
The noble Lord also asked why 95 per cent. of council tax benefit was paid by the Department of Social Security and why the remaining 5.5 per cent. was fed into the rate support grant. Subsidy arrangements have not been finally determined. I understand that it is intended that they should follow broadly the arrangements currently applying for community charge benefit. Under the current subsidy arrangements for community charge benefit local authorities receive 95 per cent. subsidy for the bulk of their benefit expenditure and lower rates of subsidy within certain incentive areas, of which backdating is one.
I should also mention that the remainder, equivalent to 5.5 per cent. of total benefit expenditure, is also taken into account in the local government 373 settlement. The additional 0.5 per cent. is in recognition of some unavoidable expenditure within the incentive areas. The rate of subsidy paid on backdated amounts is, for example,25 per cent., as the noble Lord, Lord Carter, said. Since the early 1970s it has been a fundamental principle that local authorities should hold a financial stake in the efficient running of the rebate and allowance schemes. Until 1988 cases not on supplementary benefit were only directly subsidised at 90 per cent. The Government continue to believe that a balance between direct and indirect subsidy is the proper way to safeguard the huge sums of public money involved.
The noble Lord asked at what level benefit awarded under the 56-day rule for claims will be reimbursed: the answer is 95 per cent. I do not accept the arguments that the taper reflects what noble Lords refer to as high, marginal tax rates. All claimants will be better off even though on some occasions they may be better off by only a fairly small amount. The decision to have a 20 per cent. taper strikes the right balance between ensuring that those with incomes just above income support levels receive substantial help while those with higher incomes receive less. That is certainly consistent with the Government's policy of focusing benefit to help those on the lowest incomes. I can assure the noble Lord that even should the taper have been set at 15 per cent. rather than 20 per cent., those very high marginal rates would still only be reduced from 97 per cent. to 96 per cent. and would only apply to someone in receipt of council tax benefit, housing benefit and family credit.
The noble Lord again claimed that the council tax will create the need for a register. There will be no need for a register for all adults and such claims are entirely mistaken. In reality, for the majority of cases the only information required will be whether there is more than one adult resident in any property. I welcome the fact that my noble kinsman decided that today was not the occasion to debate our general policy on lower rates of benefit for the under-25s. I shall respond briefly by taking one small point. To extend the adult rate to the under-25s in housing benefit and council tax benefit would cost about £30 million at 1991–92 prices and benefit levels. I believe that to be a significant amount of money. Pressure would then build up to extend it even further to all under-25s on income support at a cost of about £300 million.
Equalising benefit rates (purely housing benefit and council tax benefit) would not help those simply on income support who will gain from the 100 per cent. rebates and from the decision not to claw back the amounts that I mentioned earlier. It will not help under-25 year-old couples or under-25 lone parents who are already entitled to the adult personal allowance. Rather, equalisation would simply help those single, under-25 householders without children whose income is above income support levels. That group of clients does not have as high a priority as others in the Government's thinking. It is also worth pointing out that if the under-25s live alone they will be entitled to the full personal discount of 25 per cent. of their council tax liability like everyone else.
374 The noble Lord, Lord Carter, asked what would happen to the second adult rebates if the second adult would not provide the information. It is the liable person who has to report changes in circumstances concerning the second adult's income. Similar arrangements already exist for non-dependent deductions in housing benefit which local authorities have operated without any problems for many years. There is no reason to doubt their ability to make second adult rebates work. My noble kinsman also asked whether non-student partners of students can claim benefit. In the case of couples where one partner is not a student, the non-student partner will be able to claim council tax benefit as a couple in the normal way. That follows the arrangements which already apply in housing benefit. In these cases the income of both partners will be taken into account and assessed from the applicable amounts appropriate for a couple in their circumstances.
The regulations will be made as soon as they have been approved by Parliament although most of the provisions will not come into effect until April of next year. During the next nine months the authorities will be implementing the benefits scheme. We have certainly built on past benefits schemes and kept changes to the absolute minimum. I am sure that the House will welcome these arrangements and regulations which help around five million council taxpayers at an estimated overall cost of £1 billion. I commend the regulations to the House.
§ On Question, Motion agreed to.