Examination of Witnesses (Questions 420-436)
MR CHRIS
POND MP
18 MAY 2004
Q420 Mr Betts: Automatically?
Mr Pond: Yes, automatically.
Q421 Mr Betts: It would not come out
of central contingency, then?
Mr Pond: I do not think it would
have to come out of contingency, no.
Q422 Mr Betts: Could we have a note on
that, do you think?
Mr Pond: Certainly.
Q423 Mr Sanders: I want to tease from
you, if possible, your real commitment to changes within the council
tax system. You referred earlier to the changes to pension credit
and the treatment of savings, and you explained the differences
there, the very welcome differences. Why are these new rules for
pension credit not extended to all pensioners? Would not more
generous rules for all pensioners at least protect them from some
of the large increases in council tax?
Mr Pond: It is something at which
we are looking, Mr Sanders, to see whether or not we could extend,
for instance, to the savings credit recipients the same treatment
in terms of capital as applies to the guarantee credit pensioners.
We are looking to see whether or not we can ease the burden across
the board in terms of the treatment of capital, the imputed income
from savings for all pensioners, and we are looking at a full
range of options, as we shared with the Committee. There is a
balance with the different options which we have to take into
account. Some of them will extend the eligibility, will draw in
more people from higher up the income scale; others will increase
the amount which is received by those who are currently eligible
for council tax benefit and therefore may increase take-up amongst
that group. We therefore have to balance those and see whether
or not there is a mix of options which would be more appropriate.
But I have to underline the fact that at the moment we are considering
a range of options. We do want to make sure the system works more
fairly and gets to the people who need that help, but until the
balance of funding review is complete there is really not much
we can do to progress this, because, of course, if the structure
of council tax or of local government funding itself changes then
there will be consequential effects on the council tax benefit
system.
Q424 Mr Sanders: Of course there will.
But there is always some review being undertaken somewhere that
seems to stop a simplification of the tax and benefits system
in this country and it seems odd that you have different rules
for essentially the same thing—and here we are talking about
people's savings. If you want joined up government and people
to understand government and to engage with government, should
there not be some sort of simplification audit being undertaken
across all government departments that says, "This is how
we treat savings, whether for tax purposes or benefit purposes,
irrespective of the tax concession, irrespective of the benefit,"
and then the public more readily will understand and not be frightened
away from 31-page booklets.
Mr Pond: I think that is a very
powerful argument, Mr Sanders, that we have to see the extent
to which we can simplify the system while at the same time making
sure that we maintain the fairness and equity of the system, because
very often the complexities are there because they recognise different
circumstances and because they seek to address one particular
inequity or another. But there is certainly a drive within my
own Department to see to what extent we can remove the unnecessary
complexities in the system. Some of them will be structural changes.
Some of them will have knock-on effects for other parts of the
system. For instance, the changes we make in council tax benefit
we have to take alongside the administration of housing benefit,
both of which are administered by local authorities and, therefore,
if we move one out of line with the other, we could increase the
complexity of administration. One of the things we are trying
to do is to improve the efficiency of administration by local
authorities. That is why we have the £200 million performance
improvement fund applied to both housing benefit and council tax
benefit, to make sure people get their awards as quickly as possible.
So we have to take account of all those considerations but, as
a general principle, you are quite right, we must make sure that
we have no unnecessary complexity built into the system.
Q425 Mr Sanders: I have never fully understood
why the housing benefit and, indeed, the council tax benefit is
administered by local government. Why is it not dealt with with
all other benefits by your Department?
Mr Pond: Historically it has been
administered by local authorities, the feeling being that they
know best the circumstances of their local areas and therefore—
Q426 Mr Sanders: They do not have any
local discretion, do they? The rates are set nationally.
Mr Pond: The rates are set by
the Rent Service in each area. You will know that we are moving
towards a system in the private rented sector where we have a
local housing allowance which will be standard for a type of household
in each area.
Q427 Mr Sanders: That has nothing to
do with local government; that is to do with the valuers who are
independent of local government.
Mr Pond: Indeed. But, in terms
of making sure that the system is administered efficiently, albeit
that the rates are established by the Rent Service and by implication
by national government, local authorities know their areas best
in terms of making sure this gets most efficiently to the people
who need it. That is an important principle, I think. Everything
we are doing in partnership with local authorities is
a partnership: it is trying to make sure that we move together
in providing better service for people locally.
Q428 Mr Sanders: Your argument is therefore
to move other benefits to local government, surely, because they
know their areas, their local economies, their demographies. Surely,
then, all benefits should be administered by local government
and we could do away with the presence of many of your departments.
Mr Pond: Those are the two options.
Because housing benefit and council tax benefit is related to
locally generated costs through the local housing market and,
indeed, decisions by local authorities, housing benefit and council
tax benefit are a particular case. There is a debate about whether
or not it should be administered by central government, as members
of the Committee will know, but that is not something which is
on the agenda at the moment.
Q429 Mr Betts: Could I bring up two points
about the whole approach to benefits. The pension credit, I think,
has been generally welcomed—and you made the point about
the helpline, which, again, has been generally welcomed, and the
ease of people filling in forms for applicants, which I am pleased
to hear you say you might extend to council tax benefit. But there
has been a problem, has there not, in that some people have applied
for pension credits where they have some savings and found that
their council tax benefit has been reduced, despite what they
have been told by the helpline? Is that an issue your Department
is now addressing?
Mr Pond: It is something at which
we are certainly looking. We tried to bring into line both the
council tax benefit and housing benefit eligibility limits with
the pension credit, to raise, for instance, the eligibility of
some council tax benefit to the level of the savings credit limits.
That is one of the reasons why we have almost 2 million more people,
most of them pensioners, entitled to the extra help under council
tax benefit simply as a result of the changes we made in introducing
pension credit last October. So people have not lost out, but
there is a perception that they are losing out as they move forward
week by week. That is something we are addressing. One of the
proposals we submitted to you in the written evidence is looking
at ways in which we could perhaps discount, for instance, the
savings credit as a form of income to make people feel that there
was not a trade-off between the two benefits.
Q430 Mr Betts: One of the problems is
people get the extra pension credit and it is a little time afterwards
that they suddenly find their council tax benefit has gone down.
Mr Pond: Yes. We recognise that.
We try to explain to people that overall they are not worse off;
they are actually better off if you take the overall income for
the year. But we understand that people do not necessarily look
at things in that way and will budget on a week-by-week basis.
Q431 Mr Betts: Is one of the issues you
are addressing—and I know it is not really part of our inquiry
this morning—the whole issue of housing benefit as well.
The cumulative effective benefits can lead to what is quite a
high rate of marginal taxation for people who are on housing benefit
and council tax benefit. There is a feeling of: "Why bother
with it? We earn an extra £5 and suddenly we find we are
hardly any better off."
Mr Pond: Yes. The problem with
marginal deduction rates—what we used to call the poverty
trap—is real and something we are grappling with, because
of course we are seeking to help as many people as possible to
move into employment and in that process we need to make sure
that that transition does not face them with effectively very
high marginal rates of tax. Again, it is something we are addressing.
We are trying to introduce as many of the transitional measures
as we can to ease that move into work but we recognise that there
is a problem with high marginal tax rates. The tax credits to
some extent address that problem but we recognise that there is
more to be done all the time.
Q432 Christine Russell: Could I press
you a bit on what more there is to be done. We have focused rightly
this morning on pensioners, but what about the low paid? Some
of the evidence we have had seems to indicate that you only have
to be just above the minimum wage with a couple of kids and you
have no entitlement to council tax benefit at all. What are you
doing to try to make things better for that group?
Mr Pond: An issue rather close
to my own heart, having worked for 20 years for the Low Pay Unit.
That is the group where perhaps there is the biggest problem,
where you have a family with children. Of course the minimum wage
will help that group in particular. The new tax credits are a
substantial additional help to ensure that there is a real gap
between what people will get in work, even on the minimum wage,
and what they would receive out of work and on job seeker's allowance
or income support. The fact is that as people's income increases,
by definition they are going to see things like help with council
tax and housing costs reduced. Again, it is something we are seeking
to address. There is a trade-off here between targeting the help
on those who need it most, those who are just around the minimum
wage level, and of course extending the targeting further up the
income scale, which has not only cost implications but does mean
that you extend the high marginal deduction rates to which Mr
Betts just referred to a larger number of people. So there are
trade-offs here, and over time we want to make sure that people
are lifted off dependence on this sort of help and that may be
the best way of improving their living standards.
Q433 Mr O'Brien: On the question of the
administration of council tax benefit, which is a benefit on a
tax at a cost of £240 million per year to administrate, is
there something fundamentally wrong when we are costing this money
to refund a tax. Could it not have been done in another way?
Mr Pond: I am sure there are other
ways of doing it, Mr O'Brien. We are looking at those other ways.
I think it would be fair to say of the local authorities who administer
this that for the most part they are pretty efficient in the way
they do it, and getting more efficient all of the time. We do
have fairly stringent performance targets for local authorities
in terms of the administration of both housing benefit and council
tax benefit. I mentioned the £200 million performance improvement
fund which is available to local authorities to find new ways
of doing this and of course there is support from both the benefit
fraud inspectorate and the Department for Work and Pensions to
local authorities to improve the way these things happen. So it
is a pretty efficient operation at the moment but that is not
to say that there may not be other ways of administering that
help.
Q434 Mr O'Brien: Could it be done nationally,
from the top?
Mr Pond: It is not automatically
the case that it is more efficient if it is done nationally. There
may be some cost savings through a centralised system; on the
other hand, because local authorities for the most part do provide
this service pretty efficiently, we cannot assume that there will
be overall cost savings.
Q435 Mr O'Brien: If it were applied as
a tax credit, would the take-up be better, do you think?
Mr Pond: It is very possible that
it would be, Mr O'Brien.
Q436 Mr O'Brien: Are you considering
that?
Mr Pond: That is one of the things
we are looking at carefully.
Mr O'Brien: Thank you.
Mr Betts: Minister, thank you very much
indeed for coming before us this morning.
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