Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 420-436)


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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