To be published as HC 1406-i

House of COMMONS



Communities and Local Government Committee

Localisation issues in welfare reform

Wednesday 6 July 2011

Helen Williams, Alan Barton and Dr Peter Kenway

Cllr Peter Fleming, Lynne HuttON AND KERRY MACDERMOTT


Evidence heard in Public Questions 1 - 103



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Oral Evidence

Taken before the Communities and Local Government Committee

on Wednesday 6 July 2011

Members present:

Mr Clive Betts (Chair)

Heidi Alexander

Bob Blackman

Simon Danczuk

David Heyes

James Morris

Mark Pawsey

Steve Rotheram

Heather Wheeler


Examination of Witnesses

Witnesses: Helen Williams, Assistant Director of Neighbourhoods, National Housing Federation, Alan Barton, Social Policy Officer, Citizens Advice, and Dr Peter Kenway, New Policy Institute, gave evidence.

Q1 Chair: Good afternoon and welcome to all of you. Thank you for coming. This is a one-off evidence session that the Committee is holding into the localisation issues in welfare reform. Thank you for the evidence you have given us in writing and for coming this afternoon. For the sake of our records, would you say who you are and the organisations you represent?

Alan Barton: I am Alan Barton; I come from Citizens Advice, which is the national organisation for Citizens Advice Bureaus, which see about 2 million people every year over a whole range of issues.

Helen Williams: I am Helen Williams from the National Housing Federation, the membership body of housing associations.

Dr Kenway: I am Peter Kenway from the New Policy Institute, which is a small think-tank that has done more work on council tax than is good for us.

Q2 Chair: Thank you very much. The Government’s policy as part of their localism agenda is to localise the discretionary social fund. What do you think will be the impact on those people who may be making use of the fund now, or potentially may want to make use of it in the future?

Alan Barton: We are pretty concerned about these proposals. Initially, we are concerned about the process by which all of this is being brought forward, in that the Government’s call for evidence earlier in the year was only a four-page document, which said very little more than that two important parts of the discretionary social fund should be passed over to local authorities with money attached but that it would not be ring-fenced. We accept that there are problems with the social fund at the moment and welcome a thorough review involving all the stakeholders, but that is not what has happened. We have just been told that this arrangement with local authorities is the way ahead, and it is very unclear what local authorities will do following the handover.

In terms of the effect on individuals it is probably worth looking at community care grants and crisis loans for living expenses separately, because I think they raise different issues for the client. Community care grants exist to help vulnerable people to live an independent life and purchase items that they need in order to do that. They might be coming out of residential accommodation, hospital or prison, and a big group of them are people who have had relationship breakdowns and have to move into new premises. 32% of the awards go to disabled people and 26% to lone parents.

The DWP have responded to the evidence all of us put in on the social fund. They have said they do not think they should carry on doing community care grants because "modern social security structures are no longer the right place to deliver what is essentially a social care package". We do not think it is a social care package. To a large extent, we are talking about items with which people furnish their properties, and a lot of disabled people will not be in touch with social care services because those are restricted to people with very high care needs. We think that most lone parents will not be in touch with the children’s social services, because they are really concerned only with children at risk. I would guess that, in terms of the community care grants and the new schemes, people who are already in touch with social services for either children or adults might do quite well out of a system that is locally administered, but the rest will not.

To move on to crisis loans, this is a really big activity. Part of crisis loans will stay within universal credit. These are really advances on benefit called alignment payments. We are talking about crisis loans for living expenses. There were 1.6 million applications last year and 1.2 million awards of these. The average was about £56. The Government have made clear they do not expect local authorities to provide loans under the new arrangements. They talk about schemes for second-hand furniture, white goods, food banks and credit unions. We think that all of those activities are helpful to low-income people, but we see considerable numbers who are in desperate need of cash to buy food and top up their electricity or gas cards when they do not have any light or heating in the house. It seems that there will be no provision for them under the new arrangements. They will have to go to charities that are already under huge pressure; credit unions, which are very patchy and charge quite high interest rates; high-cost lenders-a survey that we did with our advisers showed that 67% of them had seen people go to high-cost lenders when they had not got money from the social fund-or I suppose they might just go hungry or cold.

Helen Williams: To add to that, the issue as we see it is not so much with the localisation of the social fund but the way it is being done and the fact it is being done without any suggestion of a ring fence being put on the money, or any requirements on local authorities as to which services they provide to which groups of people. Given the kind of wider local government expenditure pressures and what we have seen happen in initiatives such as Supporting People, we have real concerns that historically those people who have been able to access support from the social fund will not be able to do so in future. It has been incredibly important in terms of people moving out of hostels or long-stay institutions to settle into tenancies. Many of the people coming through temporary accommodation through the homelessness system really do not own furniture, or even the basics to set up homes, and they have been helped through the grant expenditure.

There could be some benefits to localisation if we get those bits right. Those are to do with the fact that it gives to local authorities the opportunity to do things in a different way. We think there could be creative approaches. Local authorities could be smarter about working in partnership with local charities, like furniture recycle projects; they could also pool it with other budgets. It is important that we see who benefits from the expenditure, but localisation gives an opportunity for it to be done in a different way in the future. But we would be looking for some safeguards about the actual level of funding available for those groups and accountability of how that money is being spent locally.

Chair: There are two points there about whether there are requirements on local authorities and the ring fencing.

Q3 James Morris: I want to focus on the local authority role, picking up on the points you made, Helen. The Government’s rationale from a policy point of view is that local authorities should be better placed to understand their locality, people’s requirements and therefore tailor their provision accordingly. You started talking about some of the additional flexibilities that you thought local authorities should have. Assuming local authorities will be best placed to do this, do any other members of the panel have views about what flexibilities they should have? How does that work in relation to making sure there is accountability for how that money is spent locally?

Alan Barton: One of our concerns is that under the Government’s original proposals there was really no suggestion of any accountability for the local authority beyond what it has to its voters anyway. In the response document the Government have given some indication that they might consider requiring some kind of report from local authorities about how they use those powers. We would welcome that, but it is far short of a promise in the document that they will do it. I think I will leave it there.

Helen Williams: We think that as a minimum local authorities should account for how the expenditure has been made and who has benefited from it. They will have to be more sophisticated than saying they have given x pounds of grant, because you would expect the expenditure to pan out in different ways in the future. I mentioned the possibility of the direct purchase of furniture or working in partnership with furniture projects, but we are really concerned that, if local authorities do not have to account for the expenditure and there is no ring fence, it may go to plugging holes in other budgets.

Alan Barton: I had a senior moment and could not think of the next point I was going to make. We think that local authorities will need to find a way to make themselves accessible to people with whom they are not dealing at the moment. For example, I mentioned lone parents who had moved into new properties.

Q4 James Morris: I get the sense that you do not really trust local authorities to perform this role. There are so many caveats in what you are saying. You think, "Well, they may not do this; they may use it to plug other things." Is it that you do not have confidence in local authorities to be able to deliver this service? Is that the fundamental point?

Alan Barton: I would not put it quite like that. Part of the difficulty is that it is very unclear what they will do. Because there has been virtually no dialogue between all the stakeholders, which is how one would expect a Government department to develop a policy, we do not really know what is going to happen.

Q5 James Morris: But the fundamental point is that you seem to be saying you do not think local authorities should be discharging this function. Is that what I am hearing from you, Mr Barton?

Alan Barton: At the moment, if people meet the very tough eligibility criteria for community care grants and crisis loans, they have a right to apply for them, and if they are turned down for them there is a process of internal review by the Department for Work and Pensions and the Social Fund Commissioner. That process results in quite a lot of people who have been turned down first time round by DWP being awarded those payments. We are concerned that it is likely to be very much a postcode lottery under the proposed arrangements.

The other point is that the proposal in England is to pass this responsibility to upper-tier authorities in county areas and yet issues about homelessness are district responsibilities. Again, it is unclear how there will be any mechanism between the upper-tier and district authorities. It is just another worry we have about the lack of clarity.

Q6 Simon Danczuk: Helen, I know that you touched upon ring-fencing. The intention is not to ring-fence that money and give local authorities responsibility to do what they feel is best. You have concerns about it not being ring-fenced. Do you want to explore that a little more and give any examples of where ring fences have been removed, what the consequences are, and what your worst-case scenario is in terms of local authorities not having that money ring-fenced?

Helen Williams: Our concerns are in the face of the huge budget pressures that local authorities are under at the moment. We are looking at what has happened under Supporting People. Though the national settlement from central Government held up quite well in the spending review period, individual local authorities are making quite large cuts. We know of some local authorities, not all, that have made cuts of as much as 40% this year; others are looking at cuts of 60% this year. That was what happened when the ring fence came off Supporting People, combined with very high constraints on local authority expenditure. It seems it is perfectly okay for central Government to say to local government, "We’re handing you this pot of money," as they do with other pots of money, "and we would expect it to be spent on this group of people for these kinds of services." It is not the "how" that is the problem-free local authorities to innovate in the type of service they provide in this area- but there is still an expectation that that money is spent so people benefit as they do now.

Q7 Simon Danczuk: What is your worst fear?

Helen Williams: I think it would be impossible to predict. I would look to what has happened under Supporting People where money has been used to plug other budgets, but I would not like to hazard a guess about what would happen in this scenario.

Alan Barton: We share these concerns. Those who currently receive community care grants and crisis loans are some of the most vulnerable people in the community. I am sure local authorities will do an extremely good job, but we would worry that some may feel they have more important things on which to spend their money.

Dr Kenway: To add one point, it is not just a question of what happens in year one or two; it is about the path we are on. Helen is absolutely right; one does not know where this will go, but we are set on a path that looks more like the localisation of poor relief and that creates all kinds of issues maybe five or even 10 years down the track. In particular, it is all to do with how budgets are set and, as areas change and some become more deprived, who picks up the tab. This is a first step, which I think is difficult enough to argue about and be sure of the merits, but where it might lead is very worrying. I think the removal of ring-fencing just increases that worry. For me, what ring-fencing does is to say that in some sense that pot of money is a central Government decision and it is therefore clear. You can argue about whether it is right or wrong. If it gets lost, the profile is lost, and I think that becomes a bigger unknown several years away.

Q8 Bob Blackman: Perhaps we may move on to the issue of the localisation of council tax benefit. Obviously, potentially this could have implications for local authorities and claimants. Peter, you have given us some quite strong evidence of your views on this. Would you like to kick off on the implications both for local authorities and claimants?

Dr Kenway: If I may, I will answer that in two parts. First, I know you will have read all the evidence, but it is worth saying that this is not a tail on the council tax dog. I think council tax benefit is about 22% overall. Before coming in here we did some sums. At its lowest it is received by one in six households; around here at its highest one in three households are receiving council tax benefit. For many years we have had the sense that this is a second-order thing. It is not. Whatever one does, even if it does not affect them, it will worry an enormous number of people.

The other point, which might sound like a cop-out, is that in some ways we really cannot answer what the effect will be until we see the detail. With anything to do with benefits, taxation or means-testing, the detail is all-important. I think the approach of, in some sense, agreeing things in principle and then leaving it either to secondary legislation or, in this case, local authorities to come up with the detail is fundamentally flawed, because if you get the detail wrong you can completely undermine the principles that, if you like, Parliament thought it was agreeing. It is impossible to say. It could be quite benign; it could be very malign. A lot of simple ideas about helping the most vulnerable are unhelpful. It is a very slippery concept. Where is this heading? It is not just about what happens in year one but what happens to whatever lump of council tax benefit goes to local authorities. How will that change both over time but also in the short run if there is another downturn? CTB takes up the slack, and politically I think it has been enormously successful.

Q9 Bob Blackman: A lot of people would say that the elderly and pensioners feel a bit proud about claiming this benefit. Do you not think that by localising it local authorities will try to encourage those people to apply?

Dr Kenway: Non-take-up by pensioners is a very serious problem. Several years ago the Local Government Association made a proposal, which admittedly we part-authored, about how one might do that. But it is not obvious to me that localisation will do that. One must remember that while it delivers large sums of money-15 or 20 quid a week-to the poorest pensioners and those out of work, it is also very valuable in delivering small sums of money to pensioners who are not even conventionally in poverty. What it offers them is the essential security that if the council tax goes up by more than their pension, CTB takes up the slack. We are not talking about big sums of money now, but as a principle it delivers one of the great demands. This is why it is very difficult. Pensioners are quite well treated on paper by council tax benefit. There is terrible non-take-up by people usually with small amounts, but they are not necessarily those who on any criteria would be called the most vulnerable.

Helen Williams: We focus most of our analysis on housing benefit, but I suppose our main concerns about council tax is the fact that this is coming in at the same time as local authorities will have reduced budgets. Therefore, there is a concern about eligibility criteria and the fact this might pull in a different direction from the simplification agenda and the benefit of universal credit in terms of people being quite clear about what income they will have when they make the transition into work. It is a concern about the amount of funding that local authorities will have to deliver on this as much as how this will actually impact on people on low incomes, but most of our analysis has gone into the housing benefit issue.

Alan Barton: On pensioners, there is terrific under-claiming, particularly by owner-occupier pensioners. Probably less than half of those who are entitled claim. Of course, the budgets will be based on this under-claimed benefit and 10% is then knocked off that. We are worried that local authorities may find they need to make everyone pay some council tax depending on how they decide to share this out, including people on means-tested benefits whose only entitlement in future would be universal credit, which could raise all kinds of issues about collection of these small amounts of council tax.

There are two other things about which we are concerned. It seems quite a strange decision in that one of the virtues-and we do see it as a virtue of universal credit-is that applicants will have to deal with only one agency, whereas at the moment they deal with their local council and DWP. They will still have to deal with their local council and DWP under this proposal, so that seems to be a bit contrary to the main aim.

Q10 Bob Blackman: I think that one of the great benefits of the whole thing is that, if you are a vulnerable person filling in one set of forms and producing the data once to one agency, that must be a better way than being passed from pillar to post. Does that not fly in the face of it?

Alan Barton: All the time in bureaus we see people who are caught between the two. One agency has one set of information and the other has a different one. We are also concerned about how the benefit proposals will interact with the taper in universal credit. One of the big selling points is that it will make work pay for everybody and people will have a 65% withdrawal rate when they go into work; it goes up to 76% if they are paying National Insurance and tax. But if the local council then operates some other means test to help people with their council tax, that will add a further tranche on top. That is one scenario.

The other scenario would be that there would be some arrangement for the local authority to tell DWP what that individual’s rebate was on their council tax and that will be factored into their universal credit. That saves the person having to worry about it, but we have big worries about whether a complicated scheme like that would work.

Q11 Heather Wheeler: You have brought me to the question I was going to ask, which is great timing. You may not believe me, but I get more letters from my constituents saying, "Universal credit is absolutely brilliant; get on with it." I am really interested in your replies. One of the reasons people are very keen on it is that they want to make work pay. You have concerns about that, and I wonder whether the other panellists share those concerns. The other end of it is: how do you assist the other vulnerable groups, the pensioners, with localised schemes?

Helen Williams: Similarly, we think there are lots of advantages in bringing in universal credit in terms of simplification and people being clear about the improvement in their household budget when they make the transition into work, and so making that much smoother. All of that is good, but there are some features, particularly with regard to the payment of the housing benefit element, that we would like to see retained. In a way, what we are seeing through universal credit is centralisation of a benefits system. One of the things tenants have welcomed is the way in which they can have face-to-face contact, or a responsive service from local authorities, in the administration of housing benefit. We would like to see a way in which that feature could be retained, because often working out complex issues can be helped if you can chat to someone face to face.

There are other elements about the way in which the housing benefit bit is paid in the social housing sector that we would like to see retained, in particular for tenants to have the choice of having the payment paid direct to their landlord. You may have seen from our evidence on this that we are concerned that if they do not, the costs of rent arrears management and rent collection will go up significantly. The Council of Mortgage Lenders have said that the expectation of direct payment is crucial in terms of competitive loan rates to housing associations. We have done some analysis in addition to our submission to you that suggests that, given the CML has said a move away from that could put 100 basis points on loans, that is about 1% in interest terms and about £30 million on existing housing associations loan books.

Q12 Chair: Could we have a note on that?

Helen Williams: I can follow up with a note. That is the equivalent. Housing associations could use that money to build 3,000 homes, so it is money taken away from front-line management services. It is also about the way in which universal credit is designed to keep the best features of the localisation of the housing element in terms of housing benefit staff knowing the local housing market.

Compared with, say, 10 or 15 years ago, housing benefit administration has improved massively in recent years. Real thought needs to be given to the new national IT system. How is that to work? How will we make sure that people do not get overpaid or underpaid and then cannot budget against that? Lots of safeguards need to be put in place in terms of that transition, but overall we see many benefits to it in terms of the impact on individuals.

Dr Kenway: I now understand better than I did when I wrote the submission what DWP were assuming about council tax benefit when they put together the impact assessment of welfare reform. Apparently, they assumed that council tax benefit would be part of universal credit. The implication of it is that, while it is not to be part of UC, a new CTB could be designed in a way to fit with UC and it need not be necessary to have a higher than 65% withdrawal rate. That would, however, require in a sense the thing to be designed by DWP and, as it were, designed top down. The real concern is that there are clashes here, not just a clash about how you can have this along with localisation. DWP want to protect welfare reform, a very proper objective. How does one square that with localisation?

The other problem is the original announcement that council tax benefit spending was to be limited. There was to be a cut of £400 million, or 10%, whatever. That is a nonsensical proposal given the way in which council tax benefit works as a responsive benefit. Council tax benefit spending is AME, annually managed expenditure, but it reflects the number of people who claim it. Therefore, it is not just a clash with DWP, which properly wants to protect welfare reform, and what might happen locally when a local authority designs the scheme; you also have the hand of the Treasury in this, which is making resolution many times more difficult.

Alan Barton: We have been given to understand from discussions about universal credit with DWP that somehow council tax benefit will come within the 65% HB. You may want to ask the Minister when you see him how he thinks they will do that.

Q13 Chair: There is an issue here. If you put council tax benefit into universal credit then many people who claim nothing other than council tax benefit, or maybe ought to be claiming it and do not, might be put off even more by having to go into that major system, when if you can find a way of giving them just an ability to get a reduction in their council tax, they might be more inclined to claim.

Dr Kenway: I fully understand why local authorities in particular want CTB to be separate from universal credit. Your point is a good one. One can have two separate systems that at least are designed-whether they work properly is a different matter-in such a way that you could achieve what you just wanted and not undermine the 65p taper.

Alan Barton: Most pensioners, who are the big under-claimers of council tax benefit, will not be in the universal credit regime anyway. The Welfare Reform Bill allows for housing credit to be part of pension credit. I guess you could do the same kind of thing for council tax, or you could have a separate arrangement for older people.

Q14 David Heyes: To stay with council tax benefit for a little longer, my question is really designed to give you the opportunity to raise concerns about the policy development process. Each of you has said a fair bit about that already. Peter, your written submission even went as far as to use a medical analogy, saying that this operation should be cancelled. Do you want to say more about that?

Dr Kenway: The medical analogy looked good when it was written. Looking back at it, I do not know whether it was wise. But in the sense that it is a major operation, it is not a bad little phrase. One is not talking about an outpatient operation. Where I might differ from what I wrote is that I think it is now possible, having understood what DWP were doing, to design a new council tax benefit that fitted with universal credit but was administered separately. On paper in the ideal world that might be the best option.

I think the next best option is to stick with the current council tax benefit system. Nevertheless, DWP would have to do some tweaking to make it fit, but it is a very tweakable system; it is immensely flexible. But both of those are in a sense centralising options and require that the Treasury backs down on the idea that this is to be a source, frankly, of not very big savings-a few hundred million-that puts a crucial system at risk.

Q15 David Heyes: The timetable envisaged for implementation does not allow for that.

Dr Kenway: The initial announcement was in the spending review last October. That is 30 months. We ought to say that 30 months is enough time. I stand to be corrected-I do not look at it every day-but I think we are still waiting for a consultation paper. Basically, there has been no progress in nine months. I think the explanation for this must be that there is a fundamental clash of objectives going on here. Are we trying to save money, which is the Treasury objective; are we trying to localise, which I think is the objective of the Department for Communities and Local Government; or are we trying to make sure that work pays and welfare reform works, which is a DWP objective? I do not think they can square all three. They might be able to square two. I am very struck by the fact that you have only Ministers coming on after us, not a Minister from the Treasury.

Q16 David Heyes: Earlier your criticism of the policy development was that there has been no dialogue with the stakeholders.

Alan Barton: Over council tax?

Q17 David Heyes: I am staying with council tax benefit.

Alan Barton: Not that I am aware of. There has been no consultation document either, which is really frustrating.

Q18 Steve Rotheram: Following on from what Peter described as a clash of objectives, there appears to be a contradictory approach at least by the Government on Government policy. On the one hand, there is incorporation of housing benefit into the new universal credit. Heather must be getting some of my post because I have not had many people writing to me saying they cannot wait for universal credit to take off. On the other hand, there is localisation of council tax benefit. Does this rationale appear to be sound?

Helen Williams: I do not know about that. I would go back to the points I made earlier about centralisation in universal credit and keeping some of the best features of the localisation of housing benefit now. So, there are real advantages to local authority housing benefit officers knowing their housing market and, to repeat what I said before, to be able to offer tenants face-to-face contact and sort things out and know the landlords in their area. We would like to see those kinds of features retained when the housing element for social housing tenants goes into universal credit.

Q19 Steve Rotheram: There is a supplementary question about the practical steps that local authorities and landlords would have to take in regard to the changes. Can you tease out some of those? You said they might well have to do that.

Helen Williams: Yes.

Q20 Steve Rotheram: At what level?

Helen Williams: We would expect housing associations and local authorities to have to make quite significant changes in how they collect rent and manage rent arrears. You might expect those to go up with people who find difficulty to the extent universal credit goes hand in hand with a move to more direct payments to tenants. One of the current features is that local authorities send housing associations one transaction for all the housing benefit claimants. That is administratively efficient for both the local authority and for the housing associations. Under the new approach you could have many more transactions. Again, that could cost money.

We put in our evidence that London and Quadrant Housing Trust did a pilot where they moved a proportion of their tenants to receiving direct payment of housing benefit. In that pilot those tenants saw their arrears go up from 3% to 7%, but they also calculated that, if that was translated across their whole stock and 90% of their tenants got their housing benefit direct, their management costs would go up by about £300,000. Lots more staff time would be needed to help people with budget management and collecting rent arrears, so if that happened there would be a significant impact on the ground.

Dr Kenway: Almost the first comment was about the pensioners who do not take up the benefit. As Alan said and I am sure you know, they are mainly owner-occupiers. The flipside of that is that council tax benefit works really well with housing benefit, the whole thing. That is being broken and it is a real worry. Although I see many virtues in universal credit, clearly one wants the system to be as simple as possible, but I do feel with this process that, if you like, some real difficulties have been swept under the carpet. As to HB/CTB people, it will not work well to begin with; hopefully, the teething problems will be sorted out, but there are real problems here. We know that people will go into arrears. There is a series of concerns about losing your house, and so on and so forth.

We are dealing here with people’s lives. They are very complex situations, which most of us have accountants to deal with. We are going to introduce a great deal of uncertainty and we need to be aware of all these short-term difficulties, not just say that in the end it will be a better system, which it might be. There is a lot of cause for concern. I do not know what letters you get, but Citizens Advice must already be picking this up.

Alan Barton: We certainly see the problem of splitting council tax and housing benefit. Generally, we favour a national system under the universal credit system for people of working age, but I agree there are difficult issues about to whom universal credit is paid. It might not be paid to the tenant. There is also the issue of rent arrears to which Helen referred. We are a little bit caught on this. We favour people’s autonomy, but in local housing allowance there is already a situation where rent is normally paid to the tenant and that people who find it rather difficult to organise their lives get into all kinds of difficulties. Under LHA there are arrangements that they can agree. I would hope that when housing benefit goes into universal credit there will be arrangements to enable the tenant to agree that their housing benefit is paid direct to their landlord.

Helen Williams: It should be possible to devise a universal credit where the housing element can be paid direct to the tenant as opposed to another person in the household or to the landlord and the tenant has a choice in that. It should be possible to combine that with a universal credit system.

Chair: At that point I have to wind up this session. Thank you all very much for coming and for the very interesting evidence you have given us.

Examination of Witnesses

Witnesses: Cllr Peter Fleming, Sevenoaks District Council, Local Government Association, Lynne Hutton, Chair, BenX Review Group, and Kerry Macdermott, National President, Institute of Revenues, Rating and Valuation, gave evidence.

Q21 Chair: Good afternoon and welcome to the second set of witnesses. For the sake of our records, would you say who you are and the organisations you represent?

Kerry Macdermott: I am Kerry Macdermott and I represent the Institute of Revenues, Rating and Valuation, but I also administer housing benefit in a local authority and have done for some 30 years.

Lynne Hutton: I am Lynne Hutton and I am the Revenues and Benefits Manager at Colchester Borough Council, but I am here representing the BenX Review Group.

Cllr Fleming: I am Cllr Peter Fleming. I am leader of Sevenoaks District Council and I am here representing the Local Government Group.

Q22 Chair: You are all most welcome. Thank you for the evidence you have given us so far. Generally, local authorities are quite in favour of being given things to do; it is part of the localism agenda for which they have been calling, or do you simply see this as giving them responsibility under the social fund for something that Government regard as too difficult to deal with, and that is why local authorities are going to get it?

Lynne Hutton: I think local authorities are ideally suited and placed to deal with a lot of elements, more than housing benefit and council tax benefit, because of the local angle. I agree with Peter’s earlier evidence that there seems to be a conflict in some of the policies. The DCLG are looking very much at localism, which local authorities truly welcome. We have spent a lot of time and effort getting to know our demography and our caseload make-ups; we know what our citizens want and we know how to help them. We think we are best placed to help them locally. There are things like the social fund, and, for example, crisis loans. People who apply for crisis loans need it now; they need money to get to an interview, to buy food, to get a cooker and a bed. I think that local authorities are ideally based to do that as an emergency function. If somebody needs that they can come to a central place locally, not have to contact somebody who is 100 miles away. I think local authorities are very well placed to deliver an awful lot of different things across the whole range of benefits, not just housing and council tax benefit.

Q23 Chair: On the social fund, are there any differences about responsibility?

Kerry Macdermott: I think that currently the social fund is in disrepair. If you look at the statistics, the decision making is very poor; it is underfunded. I would be concerned if it was moved to local government. I agree with my colleague that we can administer it, but it needs to come with substantial resource funding, and potentially some form of regulatory framework, if it is only at a very high level. I am concerned about allegations of postcode lotteries and balancing consistency throughout England, Scotland and Wales. The criticism-it is a matter of public record in the submissions-is already there; the concerns are expressed. I would not want it passed to local government unless we are confident it comes with a funding resource. We will deliver it but we do not want the poisoned chalice passed our way.

Cllr Fleming: The greatest difficulty you face is that all of these things are so intertwined that looking at each individual aspect we are going to consider today is particularly difficult. We could get into the whole resourcing of local government issue, which I am sure is something this Committee does not want to look at today.

Q24 Chair: Another time.

Cllr Fleming: We will see you another time on that. Generally, the Local Government Group is in agreement that unless the funding comes it will be no better than the situation we have at the moment. But we are best placed in localities to make sure the right people get the right funds at the right time.

Q25 Mark Pawsey: How is the local authority managing it going to make it better for the person who needs access to the social fund? How is the end user, the person in need, going to be better off as a consequence of these changes?

Kerry Macdermott: We are a unitary authority. I think there is a question regarding two-tier administrations. At the moment it is suggested that it will be passed to the county council in two-tier administrations. I feel that the districts that deal with the housing benefit administration are better placed, because we touch every one of our customers in the community. I represent a unitary authority and I deal with a whole raft of services: residential care, fairer charging and free school meals. I will not bore you with all of them, but we are better placed to deliver the collective services. My staff are trained to recognise that the customer might be disabled. He could have a social fund grant. We would then also ensure there was take up of DLA and attendance allowance, and a reduction for council tax for disability. We join it up, and are very much pro-customer. I do not think that can exist anywhere else.

Lynne Hutton: I agree with that. Locally, we are ideally placed in terms of ease of access for those customers and vulnerable people in need. We are on their doorstep. As Kerry says, we know our demography and our local citizens. We have worked very hard to understand what they need and want. As to take up, locally we work very closely with lots of different stakeholders and partners-Age Concern and CAB-who can help to influence things like that.

Q26 Mark Pawsey: Do you think the Government have got it wrong by allocating responsibility in a two-tier authority to the county authority, the bigger authority, rather than the smaller districts?

Kerry Macdermott: I think so. I think that customers in need will already be captured by the existing housing benefit and council tax benefit schemes, so we will be aware of the customers. What the county councils offer is obviously interaction with social care and education. Districts offer housing services. We have the homelessness issues. We have areas where we would want to give better protection to allow people to retain their homes, etc.

Cllr Fleming: Of course, the issue is that under this we are talking about taking away the link with housing benefit. At the moment we have all the skills and interaction with the very people who need the social fund, but in future DWP seem intent on centralising that, which may break the very local knowledge that Lynne and Kerry have talked about. I am absolutely with both of them that in two-tier areas it is clearly the districts that have that day-to-day, face-to-face contact, and unitaries obviously.

Q27 Mark Pawsey: Would you want local authorities under the spirit of localism to define the rules and set up how their fund would work, or would you be looking to Government for a degree of central direction, in which case how far would you want that direction to go?

Lynne Hutton: Parameters have to be set somewhere along the line. There are 382 different authorities. If they did 382 different things the transparency and understanding of customers would become complex. The review group I represent today truly welcomes welfare reform. We know that there needs to be simplification, but we feel that with two very different agendas, one about localism and one about centralisation, which was mentioned by the previous panel, it makes it extremely hard to administer it across the whole spectrum.

Q28 Mark Pawsey: But what is wrong with locally elected representatives knowing what is best within their communities in this particular issue?

Cllr Fleming: This has to be risk-led. If the Government are to fund it properly then we are willing to take on the management of the scheme. If they are not going to give us the money, or enough money to do it, we will say, "You can have the responsibility of deciding who has it." There must be a clear link between the risk and the responsibility. You cannot just pass down responsibility without the funding to carry it through.

Lynne Hutton: Some parameters must be set so everybody takes the same direction across the country, but localism comes in in the form of local knowledge. It makes perfect sense to the group that perhaps income support, jobseeker’s allowance, employment support allowance and tax credits should go into universal credit. They are a centralised service in the sense that if people claiming in Newcastle, Cornwall or whatever have the same circumstances they are entitled to the same levels of benefit. When it comes to housing benefit and the issue about local rents, it is completely different. That seems to be where the two agendas do not seem to gel.

Q29 Steve Rotheram: To follow on, in one submission it says: "In extreme cases different local schemes could lead to benefit chasing with claimants moving between authorities to access more generous CTB schemes." There does not appear to be universal support for the belief that there are advantages with greater local discretion over how council tax benefit is costed and managed. Can you highlight some of the advantages, even if you do not necessarily believe that as an authority you would like to take advantage of this?

Kerry Macdermott: So, we have moved from the social fund into council tax benefit?

Steve Rotheram: Yes.

Kerry Macdermott: I think the reality of it, if you speak to local government, is that we speak on a number of unitary issues. Within Wales I would expect us to have virtually a pan-Wales scheme. I know that in England there are consortia. I would expect England for the practical operation of the scheme to have a fairly similar localised scheme. While there might be minor differences at the periphery, I would expect very similar schemes to run. We are acutely aware of administration, software, etc. The evidence I see already is that we are talking of massive consortia of authorities to prevent that disaster-type scenario happening.

Lynne Hutton: This was the concern about local housing allowance. One of the objectives of local housing allowance was to give people freedom of choice about where they moved to and where perhaps they could get more rent rebate in one area than in another. We have not noticed that is the case. People on benefit cannot afford to move about too much. They tend to move within seven miles between districts; they will go only to the next district, which perhaps will be the same local broad rental market area. I do not think somebody is going to move because they think they will get a little more council tax benefit or council tax rebate. I do not think that is their priority. They want to live where they want to live for social reasons and everything else, but certainly with local housing allowance we have not seen movement for that reason.

Kerry Macdermott: We administer discretionary housing payments on behalf of the Government. That comes with a very high-level policy statement of expectations from the DWP, which gives the parameters for the award of discretionary housing payments. I think you will find that that works very well in local government. We would be realistic, pragmatic and responsible. I think the schemes would be linked; I would not expect to see a disaster there.

Lynne Hutton: I think that if council tax benefit went into universal credit it would be quite disastrous in terms of local authority expenditure. We rely on the collection of council tax to fund all the services we provide. We service about 50 different departments in terms of what we deliver to local citizens. We cannot do that without council tax. The review group is very much of the opinion that our collection rates would drop significantly.

Equally, in the case of housing benefit and local rent payment, in my authority alone £26.5 million was paid to social tenants last year. If that revenue does not get to the social housing providers you are talking about poorer quality accommodation and property because repairs cannot be done. You are talking about huge costs, as Helen said earlier, with the cost of collection of rent arrears or evictions, and also the homelessness aspects.

Cllr Fleming: On the back of what Lynne said, if you decided to wrap it all up in universal credit-I am not sure that you are allowed to put these two words together in this place-it would not be dissimilar from the situation one had under the community charge where you were desperately trying to take money back from people. It is far better in the way it is delivered at the moment.

The other important thing, which was picked up in the last session, is that if you look at the people who receive council tax benefit at the moment and take out of the process those who get 100% council tax benefit and older people, you are left with only 9% of people not within those two groups. So, they are not getting 100% or they are older people. If you are then talking about a 10% reduction in the total, those 9% will carry an awfully large weight of expectation of picking up that cut in CTB funding.

Q30 Bob Blackman: What are the financial risks for the local authorities in putting council tax benefit to them and giving them the option almost of devising their own schemes? Peter, do you want to start?

Cllr Fleming: We come back to the risk and rewards. If we are given more flexibility about the ability to raise our own funds and do all those things, I think we would take on board the risks that would come with council tax benefit.

Q31 Bob Blackman: We will have the Ministers in later. No doubt they are going to tell us that it is all wrapped up in the grant and then it is for you as a local authority to decide locally how to use it.

Cllr Fleming: Absolutely, but they are fundamentally wrong on this. The issue about council tax benefit and the risks that a council will take on with the localisation of it without the inherent funds to pay for it is large. We have all seen about a 15% uptake in housing benefit claimants. It is 15% in my own authority, and there is a 15% uptake in council tax benefit claimants in this very short period. Those kinds of variables in small- to-medium-size councils, whose budgets are already under pressure, are massive if you are fully responsible for paying it out. The only options that the council will have will be either to reduce benefit across the board or reduce benefit to a specific number of people, neither of which I would imagine your postbags would take very kindly to.

Lynne Hutton: There are lots of possibilities we could follow with the council tax rebate scheme. It could become another suite of council tax discounts in terms of having bandings or whatever else. There are different ways of looking at it; it does not have to be council tax benefit as it is now, but the main concern for local authorities is the 10% funding cut because we rely on it so much in terms of our collection rates. As a local authority, without collection rates, not just revenues and benefits departments, we will find it difficult.

Q32 Bob Blackman: Ministers would say, I think, that the council tax benefit as it currently stands is very expensive to administer. Therefore, by putting it to local authorities they are sure it will be better.

Lynne Hutton: I am absolutely sure we can deliver on that because we can look at it, but we must not forget about customers. We still have people who, with the taper and if they are passported, are now claiming benefit up to 100%. We need to ensure that the most vulnerable citizens in our communities do not lose out, and if we are losing 10% we cannot possibly fund it in the way we are funding it now.

Cllr Fleming: It is also important to say, as was said in the last session, that there are a huge number of people whom we would love to claim council tax benefit, especially older people. We would want to encourage them actively. How much will we be able to encourage them with less money to go round? We can reduce the amount on admin, if it is localised; we can make that money go further, but you cannot start cutting the cash already. For Ministers to say, "Well, we’ve not run this scheme particularly well, so we’re going to give it to local authorities to do it because they can administer it better and, by the way, we’re going to cut it by 10%," is perhaps not the best way of going about it.

Kerry Macdermott: I think we should be realistic. We do not fund 100% of our costs already. As a local authority we would fund about 10% of our benefits because of the various subsidy reductions in it. A further reduction will obviously hurt us. The realism of it is that if there is less money we will be unable to meet the level of our commitment to customers at the moment. The admin grant, which is a sizeable fund, is also being reduced; it is silent at the moment about where it will finally end up. The other issue is that we will be collecting smaller debts as representative of the community charge.

Q33 David Heyes: Because of the cuts that are already being experienced, my local authority has lost quite a number of experienced welfare benefits advisers from the team. I have some concerns about that. There are still some good people left. The 30 years’ experience that people like you have, Kerry, cannot be thrown away too easily. I want to ask you a question about the capacity of local authorities and staffing ability to deliver this new system. Perhaps linked to that is the fact we have had criticism about the very compressed time scale with which it is being brought in and still the lack of information about what it is you are expected to do. I put those things together and would like to have your views on that.

Cllr Fleming: There is a general point. You talk about the expertise in local authorities. The Government’s starting point on this was that only 1% of people would need any face-to-face interaction under universal credit; the scheme would be so simple that it would be possible for 99% of people to do it online with no face-to-face interaction. Clearly, that is crazy. The one benefit that the Government do not currently do out of the five they are pulling together into universal credit, which is housing benefit, is the most complex of all the benefits. A housing benefit form is 68 pages long. There is a lot of difficulty in getting the people we want to claim to be able to fill in that kind of form accurately on their own, or even get them to start filling in the form, because seeing 68 pages is itself a barrier to taking up that benefit.

As to the skills within our authorities, those are the people on the front line delivering the advice to help people claim the benefits to which we feel they are entitled. We looked at 110 district authorities. We will give you that evidence following this. On average 66% of claimants needed some face-to-face interaction. That will not be delivered under the new scheme. I guess the fall-out from that will be what we think it will be: people will either not claim or claim wrong amounts. Whatever will happen will happen.

Lynne Hutton: With the spending cuts over the last few years most authorities have gone through fundamental service reviews, introduced lots of more efficient processes and procedures and shortened customer journeys. On average, customers were sometimes touching the local authority five or six times for a new claim for council tax or housing benefit. Some of the efficiencies that have been made at my authority mean that they now touch once or twice. Customers like that. They are satisfied in general across all the authorities I represent today with the level of service that they receive.

What customers are not satisfied with is where they are once they get into the process. Can they track their claim? Local authorities have manageable caseloads. We can tell Mr Smith that his claim is at this or that point. If suddenly you have a caseload of 4.9 million, for example, which is the current housing benefit caseload, how do you tell Mr Smith from Colchester what is happening to his claim when he comes into a local office wanting to know when he will get his rent paid or that paid? Because we have introduced so many lean procedures we have made it more efficient with a much smoother journey. We have been able to retain our knowledge and an awful lot of very good benefit officers. I have been in benefits for 23 years. We all look back to 1988 and supplementary benefit. Suddenly, that was not the way to do it. To me, universal credit is very much a retrograde step towards supplementary benefit, and that is why housing benefit came to local authorities.

Q34 Chair: We are going to have to bring things to a conclusion, but there is one question about housing benefit to which I would like a very simple answer. Can you deliver the changes to council tax benefit and the new system that you have been asked to deliver in under two years given there is no consultation paper yet for you to look at?

Kerry Macdermott: It depends on whether it comes with resource capacity. As our colleague said, we are suffering severe cuts. If the funding and resources are there, we have made substantial changes to other benefit schemes; the whole housing benefit scheme is captured by major changes we have delivered.

Q35 Chair: It is still possible that you could make the system and IT changes and inform all the intended recipients of the benefit by April 2013?

Lynne Hutton: It depends on the enablers, parameters and guidance we receive from the Departments. We are confident we can deliver whatever we need to deliver. If it is council tax benefit and council tax rebate as they are now, we have the IT; if it is something completely different, we need to talk to our software companies.

Q36 Chair: So, that is a "maybe"?

Lynne Hutton: Yes.

Q37 Mark Pawsey: What are the challenges that local authorities face? I think you have answered that by saying that it is a matter of resource principally.

Lynne Hutton: Yes.

Kerry Macdermott: If I may make one final point, I think it was in 1983 that local authorities took over administration of housing benefits. In all of the financial factors and models I have seen, nobody has actually modelled the impact on council tax payers in any particular authority as a result of increased arrears and payments going back to the tenants, as the lady said earlier. That was the fundamental reason that the benefits system was transferred to local authorities. When you look at our performance, it is exemplary; it is without equal compared with other public service issues. Universal credit that includes housing benefit is too much of a variable. I think they should be reconsidering that significantly.

Q38 Mark Pawsey: What is the impact of the changes on your ability to deliver strategies such as that for homelessness?

Lynne Hutton: I think it will be a huge impact. I referred earlier to the amount of social housing across the country. Depending on the area you are in, 70% to 80% of those tenants are in receipt of housing benefit. The main thing is that local homelessness and housing policies, with which we have a huge interaction, would be in danger again because of the fact that housing benefit would be centralised, especially if direct payments cannot be done. Homelessness and housing policies will be terribly affected. There will be more homelessness and evictions. Finally, the cost of temporary accommodation, which follows that, is horrendously higher than the actual housing benefit payments.

Q39 Chair: Are there any detailed estimates of that you could let us have? That would be helpful.

Lynne Hutton: Of course.

Cllr Fleming: All I am going to say is that in the current climate of localism I cannot see how any Minister can talk about centralisation of a service that is working and delivering well locally for the people in our society who are the most needy.

Chair: The Ministers have probably heard that, so we may ask them that question when they come to give evidence in just a few seconds. Thank you very much indeed for the evidence you have given us.

Examination of Witnesses

Witnesses: Right hon. Grant Shapps MP, Minister of State for Housing and Local Government, DCLG, and Steve Webb MP, Minister of State for Pensions, DWP, gave evidence.

Q40 Chair: Welcome to you both. Thank you very much for coming this afternoon. Grant, for the second time this week we have the pleasure of seeing you.

Grant Shapps: Something was wrong yesterday? I did not handle the appearance properly?

Q41 Chair: We tried to find something else for you to talk about, but I am sure you will have the opportunity this afternoon. Steve, thank you for coming as well. Clearly, the issue affects both Departments and we might like to explore those relationships. To begin with, in terms of the social fund, if I was being a bit sceptical I might think that it had a few problems. It got a lot of criticism about how it was working. It might be said that, therefore, Government thought, "Well, this is a difficulty for us that we can’t really sort out. We can pass it on to local government and give them the problems to sort out, and at the same time they can have the job of saving some money for which they will be held accountable by their constituents." Would that be a fair analysis of what has happened?

Steve Webb: Funnily enough, that is not what the brief says. No. Just to give a bit of context, a lot of the social fund will remain national, so budgeting loans and alignment payments when benefit and tax credits do not come through on time will remain national and will be part of the universal credit. The bits we are localising, where we are offering local authorities a chance to do better, are the discretionary ones. The two main bits are the community care grants, which is the bulk of the money, and crisis loans for living expenses. Those are the two things we are localising. It is important to make clear that we are not asking local government to do what we do; we are saying to them, "This is 170 million quid. We think you can spend it better than we do because we are trying to operate a discretionary system remotely." With crisis loans in 2006 we went to remote phone-based applications and, after a very flat level of demand year after year, it went mad. You now find web pages that tell you what to say when you ring the well-known 0800 crisis loan number and you get the money. That seems crazy to us. In the spirit of localism we take that money; we tell local authorities what we currently do with it-so the need that we meet-and say, "That is need in your area. We have just given local authority-level data for the first time. That’s what we do with it currently. Can you do better with that money based on what you know of your area?" It is cash-limited; we say no to some people, but we are not asking local authorities to run a grant or loan scheme; we are simply saying, "Here’s some money. Bolt it on to what you do; set up new things; get the third sector to do it, but you spend it in your area better than we can." That is the challenge.

Q42 Heidi Alexander: What degree of central direction and guidance do you see in a localised discretionary social fund system?

Steve Webb: This is overwhelmingly a local priority-setting agenda. We will alert local authorities to what we currently spend the money on in as much detail as we can. Are these people who are coming out of institutional care, or people you stop going into a care home, or a family under great pressure? We will tell local authorities in their area what we spend, and that tells them the need we have been meeting. But we are in ongoing conversations with the LGA. Andrew Stunell and I have jointly met the LGA on two occasions, and we are talking through with them how much reporting they would want to do and how much they would feel was appropriate, but fundamentally we see accountability as being local; in other words, they will get some money. It is not a fortune. A big county council might get £1 million or so. They are not phenomenal amounts of money, but we would expect local people would know the money had come down and the kinds of needs to be met and would challenge the local authority and hold it to account. We think that is the best mechanism for accountability.

Q43 Heidi Alexander: Take a scenario where that local challenge did not happen. Would it be possible that a social fund service did not operate at all in a local authority area?

Steve Webb: I suppose I have more trust for local government than the question implies, in the sense that we will have told a local authority about the kinds of needs we meet in an area. If they have the best interests of local residents at heart, which I am sure they do, they will want to put in a pattern in provision, which will not mirror what we did. It may be delivered through different agencies, but I cannot see them not wanting to meet the kinds of needs we have met but perhaps in new and creative ways. Although I am sure the focus of the discussions is on the burdens, costs and so on, we see this as a great opportunity. We are already hearing from innovative local authorities, which, with a bit more money, could develop some of the things they are already doing.

Q44 Heidi Alexander: But in theory a local authority could take the money and choose not to deliver the kinds of grants and loans that have been delivered by the social fund?

Steve Webb: I am glad you say "loans", because we absolutely do not envisage saying, "Run a loan scheme." We would be very surprised if they did, because that is a very expensive and bureaucratic thing to do. It will be up to them. It is not ring-fenced; they could spend it on other things.

Q45 Heidi Alexander: I have a question about how you will allocate the money to local authorities. I think you said that current expenditure was about £170 million.

Steve Webb: Yes.

Q46 Heidi Alexander: On what basis will you divvy up that money across local authorities? How will you determine what each local authority gets?

Steve Webb: We have been criticised in previous years for the way the pot is allocated at the moment. We have responded to that criticism, which I think was by the PAC, by planning to move to a measure of what we call legitimate demand. By that we mean we know currently how much people apply for and get, and how much people apply for and do not get-because it is cash-limited rather than because we do not think they should get it. Roughly speaking, we know the numbers of those people and the amounts. We are looking at managing the current allocations towards what we call legitimate demand in each area, and we are staging that over the next two years, so at the point of transition we will hand over to local authorities the exact amount we have to. Therefore, in the final quarter of 2012-13 there will be a figure, and that is the precise one we will hand over to the local authority. It will be the same amount we have spent in that area by the end of that transition process.

Q47 Heidi Alexander: Would that happen just on an annual basis?

Steve Webb: It confuses me. What we are doing is starting that process this year. We will have a figure for 2012-13, but what Jobcentre Plus will do quarter by quarter is stage the annual figure down or up, depending on which direction we are going in, to the final destination figure, so we will be at legitimate demand at the end of 2012-13. That is the figure we will hand across: that final quarter times four, if you like.

Q48 Heidi Alexander: If there are to be 150 versions of social fund administrations across the country, is it not going to cost more to deliver it in administrative terms than it would if it was a centralised system? How much money are you going to give to local authorities to set up those administrations? I think you have indicated that that money will not come out of that £170 million; it will be additional.

Steve Webb: Yes.

Q49 Heidi Alexander: How much money is it, and how do you compare the costs of one centralised system versus 150?

Steve Webb: As to how many systems there will be, there could be one per top-tier authority, but, for example, London boroughs could work together and have a common system, so there need not be 150 necessarily; there could be as many or as few. We are not asking them to replicate a social fund grant system and loan system. We have to look at this, but my feeling is that it may well be a lot cheaper, because currently we administer a community care grant application process, a crisis loan application process and an independent review service in Birmingham to deal with appeals. If we simply give local government the 170 million quid and say, "Spend this money in your area in the best way you think possible," it may well be cheaper to run. Of course, if you ran 150 systems mirroring what we do it would not be, but that is not what we are asking people to do. We are trying to disentangle from everything we do the bit of the cost of running CCGs and crisis loans for living expenses. We have not yet disentangled it yet. These are things like how much of the overhead you allocate and that kind of stuff. I cannot give you a figure, but our intention in good faith is to work out what we spend currently, to disentangle it and hand over that cash.

Q50 Heidi Alexander: When do you expect to have that figure ready?

Steve Webb: Soon. We are working on it now.

Q51 Bob Blackman: What do you think will be the advantages to local authorities and also claimants of localising council tax benefit?

Grant Shapps: To local authorities I think the big advantage is that they will have a stake for the first time in what people who live in those homes are doing; in other words, an incentive to help get the person back into work, and so on. There is a big advantage to local authorities in a world where we are moving much more towards-through things like the new homes bonus, which you have heard me talk about a lot, or localisation of business rate retention-going that step further and saying, "Not only are we now able to set out a vision for the financial future of our area; we also have a stake in it. It matters to us how many people are out of work." At the moment, slightly oddly, it has nothing to do with local authorities at all; they pass over that because the money comes in directly from central government.

Q52 Bob Blackman: And to the individuals who are claiming?

Grant Shapps: We have talked about this many times before here and elsewhere. There is a real problem where, if you are living in a situation where no one appears to care about your situation, it makes it harder to get back into a job. Clearly, having that local knowledge will be helpful.

The other point to make is that council tax is a local tax set by the local authority. Somewhat bizarrely, the benefit against that tax comes straight from central government, wham, into the middle of it all. Of course, it makes perfect sense to tie together these two ends so that the local authority has a proper picture and control over it, and can assist people finding their way back into work.

Q53 Bob Blackman: It is notorious that at a local level pensioners and other vulnerable people are too proud to claim council tax benefit. Do you envisage that more people will take up the benefit at a local level?

Grant Shapps: I very much hope that is the case. You are absolutely right that the historic claimant rates have been quite low. Catching the end of the evidence just given, I was quite surprised not to hear more mention of the fact that the current system is not functioning perfectly from that point of view. The DWP White Paper back in the autumn made it clear that pensioners must be a priority under the new system and must not lose out. I will go a step further and say that I think local authorities will be in a better position to make sure they are benefiting from a situation where local knowledge is being used properly.

Q54 Bob Blackman: Can we also look at the dichotomy here? There is localisation of council tax benefit and at the same time centralisation of housing benefit. It appears to be illogical.

Grant Shapps: I do not think that is right, because housing benefits are set nationally. There is no local discretion in the way this operates, whereas, as I just mentioned, the rate and level of council tax is set by the local authority; they have to manage the budget, so it makes sense for them to manage the benefit side of that as well, because it is supposed to be an entirely local tax. That is the whole point of it.

Q55 Bob Blackman: But one of the issues is that it is a horrendously complicated benefit. There is a 68-page form to fill in. Most local authorities now require people to produce lots and lots of evidence and, therefore, there needs to be contact at local level. The fact is that virtually everyone who applies for housing benefit will apply for some form of council tax benefit, so why not have one set of forms that everyone fills in administered at local level in an appropriate way rather than this grand centralisation of a horrendously complicated benefit, unless we are going to see a radical change to housing benefit to simplify the whole process?

Grant Shapps: It is a question of putting the things at the right level for who is best to deal with it. You will be aware that there are clauses in the Welfare Reform Bill to do with data sharing.

Steve Webb: On your specific point, our vision of localism is that local authorities can, for example, have a simpler system that does not need a 68-page form. We will not make them run a 68-page form for council tax benefit if they do not want to, so they have the option to simplify it for the benefit of local residents.

Q56 Heidi Alexander: If I may cut across, in that case does it mean that at national level, when they are completing their application for housing benefit to go into universal credit, they will then have to fill in a 68-page form either in paper or online?

Steve Webb: One of the things about the universal credit is that instead of going to the local authority for housing benefit and council tax benefit, to HMRC for tax credits and DWP for jobseeker’s allowance and all the rest of it, there is a single application process for the universal credit, which will give help with living expenses, housing costs and so on. The local authorities can then have a tailored council tax benefit system for their areas. You can imagine a world where they have their own local IT system for paying it, or, if it is a local benefit, they could deliver it if they wanted to. The universal credit would be available as a way of paying the money, if that is what they wanted to do. It is up to them whether they have a local payments system or use the national one, but it is a local decision.

Q57 Bob Blackman: The key is the personal contact that vulnerable people need at local level. Why not do it through the local authority rather than centralise that approach? For me that is the key issue.

Steve Webb: I think there will be both. There will be local authority contact on council tax benefit but also Jobcentre Plus has local offices and services. In my area of south Gloucestershire the visiting local service of the Pension Service is co-located with the local authority, so these things are complementary. You are right. There will be a set of people who need a face-to-face conversation, and we will make sure that happens.

Q58 Mark Pawsey: On council tax benefit, we have heard evidence today and in writing that councils are unclear about their level of discretion. At its extreme, could a council choose not to have a system of council tax benefit if it wished to do so? Following on from that, if that is not acceptable how will you tailor-make a system that is acceptable?

Grant Shapps: The White Paper made it very clear that there would be protection for the most vulnerable-pensioners were mentioned in particular-so the answer is: no, it will not be possible simply to say that you will not have a benefit system.

Q59 Mark Pawsey: How do you draw up a system that prevents that from happening?

Grant Shapps: The whole consultation is really part of that. I heard somebody say there would be no pre-consultation consultation. Almost the exact opposite has been the case. We have pre-consulted on this before putting out the consultation with a large number of bodies and groups from the LGA to local authorities individually and collectively, and many others besides. The question of precisely how that is modelled is dependent on those preconsultation discussions and also the consultation itself, so I do not want to pre-judge the point of a genuine consultation. To answer your question outright, no, it will not be possible to leave the vulnerable vulnerable.

Q60 Mark Pawsey: But if there is no central direction, how will you ensure that happens?

Grant Shapps: The simple answer is that there certainly will be some central direction, and it is made clear in the White Paper that there will be.

Q61 Mark Pawsey: We have heard that in some authorities one in three people claim this benefit. Will we make certain that the people who currently receive council tax benefit will have council tax benefit in the future, or do you anticipate, particularly with the 10% reduction that central Government are looking for, that in future fewer people will be entitled to such a benefit?

Grant Shapps: First, I know you are familiar with the time scale of 2013. We have to go through a consultation first and that consultation is a genuine one; it is not that we have the whole thing as a template that we are going to impose. We want to have feedback, particularly because this has to be operated by local authorities, many of which like the idea of having the control and the ability to do this. They want a stake in the future of their communities and to be able to play an active role in doing what I think should be the objective of all of us, which is to ensure people are able to work rather than receive benefits. It is fantastic that you will be able to tie up the two things of economic activity in the area, keeping the business rate uplift and those people who could go and work in those jobs getting jobs there and not having to be on benefits. This is why there is a joined-up approach. I think that the exact scheme design on which you are pressing me needs to come out of the consultation rather than the other way round.

But you ask whether people will be worse off on day one. Clearly, the purpose will be that by 2013 the answer should be no. We should get a system that starts from a fair position, but clearly we are looking to the local authorities on localisation to save 10%. We think that is very possible, with the potential of taking a real stake and interest in getting a population back into economic activity. Indeed, it may not be too extreme to suggest that there will be opportunities for local authorities to manage this more efficiently, use the incentives of people coming back into work and for local authorities to end up being better off as a result of having properly managed the council tax benefit.

Q62 Steve Rotheram: There is potentially a reduction of £500 million to local authorities, so will they be forced either to use general budgets to protect support for those claiming council tax benefit as a result of the 10% funding cut when it is localised in 2013-14 or simply pass on that reduction and recover it from claimants?

Grant Shapps: Steve, I hope you will forgive me for saying that I think that is old-school thinking in a sense, because it says that a local authority has no control over what happens in its authority boundaries, what economic activity is like, whether there is growth in the area, whether those business rates are kept, and the new homes bonus and the rest of it. The truth is that we are moving to a world, because we are about to do the business rate retention consultation as well, where your authority and everybody else’s will have a real stake in the economic development and activity of the local area. Therefore, if we believe that localism and this stake is going to mean anything, we must be modelling in that there is a benefit in doing that. Once you establish that connection then I simply do not recognise it in those terms.

What I think we are presenting here is a great opportunity for local authorities, many of which have said they favour this idea, to be able to say, "From now on we’re not just innocent bystanders watching people receive council tax benefit with no input, no financial benefit and no stake in helping people back into work by creating jobs locally," and the rest of it. All of that is changing. In that new world I think it is fair to assume and model that this world works and you are able to encapsulate those benefits, which means that you would want to get those savings from it for sure.

Q63 Steve Rotheram: What is it that you do not understand about cutting something by £500 million and local authorities having to find that saving? If they cannot find that saving, they will have to pass it on to somebody. At the end of the day, they need to find £500 million. Are you disputing that there will not be a 10% reduction in 2013-14?

Grant Shapps: Let’s start with the basics. We could be like Portugal yesterday and have our credit rating downgraded to junk status, or Greece last week where there were riots in the streets. Most people, including by the way Her Majesty’s Opposition, accept that there is a need to reduce the deficit, which means there is a need to reduce funding. What we propose here is a way of achieving a 10% reduction and, at the same time, through giving local authorities a stake in the economic activity, and therefore in the welfare of their citizens, the opportunity to reduce that bill, not by unfairly not paying people who are vulnerable and need it-the White Paper makes very clear that they will be protected-but ensuring that there is a definite interest in starting up that new industrial estate, business park and getting economic activity going so there are jobs for individuals living in those homes to go to. In doing so, surely you would accept that if somebody is in work they will not be receiving the benefit because they will not need to.

Q64 Steve Rotheram: I absolutely agree, and it is perfectly logical to try to get as many people into work as possible.

Grant Shapps: Which will reduce the bill.

Q65 Steve Rotheram: If there is a shortfall-it is estimated at £500 million, but it might not be that amount in the event some of that economic activity happens-how do you expect local authorities to address that? Is it by using general funds, or will claimants see a reduction?

Grant Shapps: In the consultation we are going to ask about issues to do with ring-fencing, which is really what you are getting at. As you know, this Government have unring-fenced £7 billion worth of funding, which has enabled a great deal of flexibility through budgets. I think we would like to see that type of approach, so you can make sure you protect the most vulnerable people by ensuring that the money goes where it is required.

But I simply do not recognise the figures. In a sense, you can ask the question only if you start from the point of believing there are no savings to be made by having direct connection and interactivity between the welfare of your residents and constituents and the way the system operates. The culture of, "Let them rot in the houses while we pay them benefit," must come to an end. We have to do this more intelligently and involve the local authorities in the economic activity and success of their areas. Bluntly, I do not think that is worth 10%; it is actually worth a lot more to local authorities, because suddenly they get something back for making sure they are looking after their residents.

Q66 Steve Rotheram: Part of your philosophy is: do not let them rot in the houses; it is better if they are on the streets.

Grant Shapps: In what way?

Q67 Steve Rotheram: Because, at the end of the day, if there is a shortfall somebody has to pick it up. If it is not to be through general funds and there is a reduction in benefit, that will mean people get into arrears, cannot afford houses, homelessness will increase and people will be on the streets.

Grant Shapps: The big gap in your argument, as with so much of the housing and welfare benefit arguments, is that you are completely removed from this when you are in employment. The big challenge for the local authority, as well as the individual of course, will be to say, "Is there a way that I can get into employment?" Once you are, you no longer have the issue. Because that is the case and, as I have said several times, the local authority suddenly has a stake in this, of which it has none at the moment, we would expect to see a saving in the overall budget. Frankly, I think the overall saving could be quite considerable.

Q68 Heidi Alexander: Minister, do you not think your argument fundamentally misunderstands the ability of a local authority in some circumstances to have a direct influence upon the job prospects of individuals in that area? Take my local authority in Lewisham. It has worked very hard to increase economic prosperity, but my constituents are dependent fundamentally upon the London economy. You are saying pretty much that you would expect local authorities to bump up the council tax benefit budget from the general fund. You are also saying that you hope the number of claimants for council tax benefit will increase with the system operating better. I just do not see how you square that circle. I put it to you that you fundamentally misunderstand the ability of local authorities to influence economic outcomes directly.

Grant Shapps: First, I do not accept the argument being pressed by Steve that this will come out of the general fund; in fact I argued exactly against that, and said that it would come out of better management, administration and economic growth. Second, you are absolutely right about your local authority because, compassionate and as idealistic as they may be to increase business growth in the area, it is a fact that under the current modelling of local government finance there is absolutely no positive benefit in terms of their own finances in increasing economic activity within their area.

Heidi Alexander: There was under the last Government.

Grant Shapps: For example, there is nowhere within the revenue support grant system where you are benefited for opening that new industrial retail unit, etc, etc. In a way, I accept your argument under the current system, but we know that by the time this system comes into place we are in a completely new world of business rate retention as well as the money that you now get through the vision of the local authority, which is a multi-billion-pound package of new homes bonus as well. You are in a world where you control your destiny in a way that your local authority, try as they may, cannot at the moment. As far as I can see, local authorities-I pay tribute to them-that are aspirational enough to try to create jobs, wealth and enterprise in their areas are almost just doing that through the goodness of their own hearts, and without any particular reward to them or the local community.

The difference is that, by the time this system and council tax benefit localisation comes into place, they will be in control of the whole picture and, therefore, will have the ability to manage some people who are on benefits off benefits. We are not talking about everybody, but we do think there are potentials through that and administrative savings, better running and so on and so forth, because they have an interest in doing all of those things as well, which at the moment is a nationalised system. We think they will be in a position to save that 10%.

Q69 Heidi Alexander: Of course, your Government did get rid of one of the schemes that encouraged local authorities to develop businesses in the area: the local authority business growth initiative.

Grant Shapps: All I can tell you is that LABGI was a small-scale scheme in comparison with business rate retention. This is enormous. There were many criticisms of that scheme. I do not think we want to get sidetracked by that today since it has gone, but what we are going to see is vastly more wholesale than that, because it means that local authorities will retain every pound of business rate they keep. It is so different from the mindset of, "How much money will we be given as a local authority," that I can appreciate why some Members will struggle to understand both that change and this change put together, but unless you view them together you cannot see why the savings are possible.

Steve Webb: Perhaps I may add a quick point from the DWP perspective. Just thinking in particular about perhaps the most deprived areas and folk who have been long-term IB or ESA recipients and so on, that is where the Work programme will be going in strongest; that is where the money will be going in and where the performance-related money to the providers of the Work programme will be. Every person that the Work programme gets back to work will be less expenditure that the local authority needs to make on council tax benefit. As to what the DWP is doing, the bulk of that money will be going into just the areas where perhaps it is most difficult for local authorities to get economic regeneration. We will be paying people to get them back to work in those areas. Every time they succeed, the local authority will get a benefit.

Q70 Chair: So, it might be better if we localised the Work programme as well, but we will not go into that argument today. I have sympathy with the Government’s position about trying to make better incentives for local authorities in terms of their resources to create development in an appropriate way in their areas. I have no problem with that at all, but let’s try to look at it on a national basis. If unemployment goes up-I do not want you to agree that it will-over a two-year period, the reality is that local authorities collectively will have greater demands on their resources from people claiming council tax benefit. Therefore, they have a choice: either they reduce the rate of council tax benefit so that people who apply for it get less; or they find money from other sources and spending streams in their budgets to pay for it. They cannot borrow for revenue purposes; they are stuck. Is that not the reality of what will happen?

Grant Shapps: First, the Office for Budget Responsibility, the IMF and many others disagree with your analysis of what will happen with unemployment over the next couple of years. In an imaginary world where over the next two years unemployment goes up rather than what it is doing at the moment, which is dropping, there are all kinds of pressures to which council tax and the overall amounts raised through it will be subject. This is absolutely true. The fact that it is localised does not change that threat to the overall public purse. It is not the case that at national level the Treasury is not also under pressure, as we saw with the recession, for example. When money is short and the economic activity is poor, the money will have to come from somewhere to pay that welfare bill. This is not an either or in a sense.

I guess what you are really getting at is: how will local authorities cope, given that they have budgets within which they need to operate? There could be all kinds of possibilities for local authorities to work together to help better handle ups and downs. You might say that they want to work in conjunction with each other. They may choose to do that.

Q71 Chair: They will all go up and down together if there is a national unemployment problem, won’t they?

Grant Shapps: It depends on the extremity of what you predict. I guess that what I am thinking of is a situation where one local authority has a large factory that closes, and next door is a different type of area and they might say, "We can work together over a period of time." That is a possibility. But we want to consult on the whole issue of how you manage the budgets. The same applies to lots of different things that local authorities do, and they set their council tax at what they think are appropriate levels to deal with the risks and rewards. My argument is that, given there is now a direct interest through several different changes in economic performance, and the universal credit will provide a real incentive for people who otherwise are currently trapped in worklessness, if you put those things together you get the savings required. That is at the heart of this proposal.

Q72 Chair: I think there is still a problem about a national rise in unemployment, but we listen to what you say about the possibility of looking about. One other issue that again does not really seem to be addressed is the take-up of council tax benefit-we had an inquiry about it in the last Parliament-because everyone accepts that one of the problems is the number of people who do not claim but could do so. A lot of them are older owner-occupiers. If local authorities are now to decide that they are really going to make an effort-it is all local-to get more pensioners to take up the council tax benefit, or however it is renamed to encourage the take-up of that scheme, they will have to pay for that themselves by cutting other services. That is the only way they can do it.

Steve Webb: Clearly, one would assume that a local authority will want to make sure that the vulnerable people in the area are getting what they are entitled to. When they design the scheme, which I hope will be simpler than just replicating the 68-page form, they will have to build in a realistic assumption about take-up. At the moment the problem we have with take-up is the lottery. It is not that the most needy get it and the least needy do not; it is just that two people are living next door to each other and one does and one does not. We might be in a situation where it is less of a lottery; the local authority designs a simpler and easier way to claim; it uses its networks of older people, for example, and we get higher take-up rates. I take your point that it is still a given budget, but in designing the system the local authority will have to make a realistic assessment of take-up. If it can design a simpler system it will have to allow for the fact that take-up will be higher. That might mean it narrows the scope of what it does but spends that money better, which is the goal of the exercise.

Q73 Chair: Given the Government have made the commitment that pensioners will not lose out in any way on their council tax benefit under the new scheme, if more pensioners claim it and existing claimants are not to lose out, that means local authorities will have to find the money from other budgets to pay for it. Is that correct?

Steve Webb: What they will do is design a council tax benefit system based on local priorities, which will include pensioners, long-term sick and disabled, unemployed and the low-waged-a whole raft of groups-and will decide locally what their priorities are.

Q74 Chair: But if pensioners are to be protected by Government directive, their priorities will have to be that either local authorities find the money from other budgets or other groups of people will have their council tax benefit cut. Is that right?

Steve Webb: That is one of the choices they will make.

Chair: We have got to a rather interesting point we might have to look at further.

Q75 Steve Rotheram: The Minister who responded last probably admitted something that Mr Shapps did not, and that was in regard to his contention that there is no overall increase in the public purse. That is not what we said, but that deprived areas would be hit the hardest and they would lose up to four times as much as some of the more affluent areas. They would be hit the hardest also because of CLG cuts they have also faced, which were the highest. Are we not just exacerbating the problems for those people; in other words, if there is a finite budget and some of that is guaranteed because of the pension credit, that leaves less money to be disbursed between possibly higher numbers of claimants if unemployment was to rise?

Grant Shapps: I do not mean to turn this the wrong way round as to who is giving evidence, but I am not clear how you get to the four times figure.

Q76 Steve Rotheram: The New Policy Institute states that.

Grant Shapps: Because I do not recognise the figures, it is quite difficult to respond.

Q77 Steve Rotheram: Do you want me to read that particular section? It says: "The Government’s plan to reduce spending on council tax benefit by 10% will have a disproportionate impact on local authorities which are in the areas of highest levels of deprivation, with the most affected losing more than four times as much per dwelling as the least affected," and it goes on.

Grant Shapps: I will have to analyse their figures; I just do not recognise the numbers at all. There is another way of looking at precisely that issue. An area that is currently suffering, for example, from higher levels of unemployment and worklessness in a sense might have more to gain through the Work programme, the universal credit, for it always being beneficial to work rather than not to work, with changes in benefits and the localisation of council tax benefit. In a sense, the upside might be dramatically bigger for an authority that at the moment is deprived, and we hope these policies will assist. I would argue it the other way round.

Q78 Chair: The analysis had been given to you to respond to in detail. That might be helpful.

Grant Shapps: Sure; yes.

Q79 Chair: As to implementation, we are getting closer to April 2013. We still have not had the consultation document. Do you know when that will come and what the consultation period will be?

Grant Shapps: We intend to consult this summer. As you know, we have been having these pre-consultation discussions, of which I think this is also a very useful part in gathering evidence. The consultation will go out shortly and there will be a usual consultation period from which we will draw up further plans.

Q80 Chair: In your consultation would you be willing to listen to any representations that, given the shortened period of time in which we will have to implement this system, particularly if we are to design new systems, including IT systems, and give all this information to people, 2013 may not be an achievable target date?

Grant Shapps: We need to follow the evidence; we need to listen to what people are saying to us about implementation. We need it to work. I was interested in just catching the end of the previous evidence session. The witnesses seemed to suggest that they might be able to do it, but they needed to know the detail. We all need to know the detail, which is why we need the consultation to get there. This is entirely pragmatic and evidence-based. Let’s find out what is said through the consultation.

Q81 Chair: That is helpful. Given the massive changes around universal credit it might be better just to do that and then bring some of the changes on a little later when those changes have bedded down.

Steve Webb: I guess the two can go in tandem in the sense that Grant will publish the consultation document and local authorities and others will say how they think they will best deliver this. Obviously, one option is that they have to develop all their new IT systems, up to 150 as was said earlier, at local level, or we may get feedback which says that universal credit is available in 2013, which is more or less when it all kicks off. Do they want to decide the council tax benefit structure locally but then feed the figures into the universal credit and deliver the cash through that route, which might be a way of cutting the lead time between now and when it goes live? That might come back through the consultation responses.

Q82 Chair: But you are open to suggestions on this?

Grant Shapps: Absolutely. As I stressed before to Mark, this is very genuine consultation where we need the feedback. We cannot design without this consultation. It is as simple as that. You cannot design the application of this system without talking to people.

Q83 Simon Danczuk: I am conscious of time as well, so I will keep it fairly brief. My first question is: I understand the logic in terms of universal credits, but my question is about housing costs going in there. Are you not a little worried about the disconnection in terms of local knowledge and the housing situation on the ground?

Steve Webb: In a sense, what will be happening there is that a payment akin to the current local housing allowance will be delivered as part of the monthly universal credit payment. The idea is that it feels like a pay packet, so you get paid typically on a monthly basis; you get universal credit on a monthly basis; your housing help is part of that. But obviously the arithmetic behind the figure, the 30th percentile in the local reference market area and all that stuff, is determined locally and paid through a national mechanism. You are still using local knowledge of what is going on in the local market.

Q84 Simon Danczuk: My second question is very much about how the two Departments have worked together in terms of where we are at the moment. You will be familiar with the Department for Communities and Local Government’s internal modelling which showed there was potential for 40,000 people ending up homeless because of these changes in benefits. Were the Ministers in the Department for Work and Pensions made aware of that internal modelling?

Grant Shapps: First, it is probably worth making clear that there was no internal modelling which suggested that. There is nothing at all which has been externally validated. This was a line written by a civil servant and sent across to No. 10 and DWP. It was an internal office-level exercise. These are not representations made by Ministers at all because we did not believe them to be accurate, and they were not based on any evidence at all. The two impact assessments published in February and March make it clear that it is impossible to model this. There are so many different possible lifestyle changes that people could make by 2013 that it would be impossible to do it. We do not recognise those figures at all. In addition, the central thrust of that letter was about whether the universal cap would damage the affordable housing programme and speculation that it would. Again, they were figures off the top of whoever’s head it was. We now know six months later that it has not and that programme has been over-subscribed. I hope that shortly I will be able to deliver some rather good news about the affordable rent programme, which was completely known about by all those bidding on it and is going to deliver for the country. I am trying to point out that the assumptions in that letter have already been proved to be inaccurate, and some other assumptions in there are just not internal modelling in the way you describe it at all.

Q85 Simon Danczuk: I was trying to get to a bigger point but you have picked up this issue. The Secretary of State for DCLG felt strongly enough about the figures to be able to write to the Prime Minister about it.

Grant Shapps: No. To clarify it, this was a piece of correspondence at official level which was not Ministers raising it with other Ministers.

Q86 Simon Danczuk: Private secretaries in the Departments were raising it?

Grant Shapps: Somebody within the private office.

Q87 Steve Rotheram: Just off the cuff, off his own bat?

Grant Shapps: We are fairly mature about government, and understand that when you are discussing policy you have the perfect right to discuss ideas, as even the shadow Secretary of State acknowledges she did when she was in government. You have a perfect right to do it in private and what have you. When you come to publish the best possible evidence on it you do it through impact assessments. They are rigorously put together; they use scientific data; they are externally checked; and the impact assessments are very clear that you cannot come to those conclusions. Those are the facts.

Q88 Simon Danczuk: I do not want to get into semantics about it. The Secretary of State for Communities and Local Government wrote either today or yesterday to Caroline Flint saying that it drew on some initial internal modelling.

Grant Shapps: Which has turned out to be inaccurate when it comes to the housing numbers.

Q89 Simon Danczuk: That’s fine. In respect of transparency and everything else, was that internal modelling-which was my initial question-shared with Ministers at the Department for Work and Pensions?

Steve Webb: As Grant says, the letter was copied to DWP. As the lead Department on the policy DWP has been evolving its modelling work. What DCLG and we did was to agree an impact assessment quite a number of moths later.

Q90 Simon Danczuk: I know that, but I am not talking about that.

Steve Webb: But in a sense what we do is evolve the policy. Six months ago it was, "Well, exactly what will it look like?" We firmed up the policy; we agreed on the impact; and we published it.

Q91 Simon Danczuk: I understand that. To be clear, did Ministers in the Department for Work and Pensions see the initial modelling from DCLG which showed-it must have because it is quoted in the letter-that potentially 40,000 people would be made homeless? Did Ministers in the DWP see that initial modelling, not the later impact assessment?

Steve Webb: We saw the letter because we were copied in.

Q92 Simon Danczuk: You did not see any of the initial modelling. Were you aware of it?

Steve Webb: We were aware of it.

Q93 Simon Danczuk: When were Ministers in DWP aware of that?

Grant Shapps: May I cut in here? I can do no better than quote Caroline Flint who, when she inadvertently exposed an internal briefing to Cabinet, said: "It is generally not disclosed because to do so could harm the frankness and candour of internal discussion." I think she is quite right to say that Government have the perfect right to discuss and debate policy. As Steve says, this was six months ago. We have already seen one of the main tenets of that letter completely disproved. We collectively came to a decision on these figures, which are not what you describe as internal modelling. This was speculative. it was at the "we are concerned" level. Part of it has been disproved. To make it very clear, we are 100% signed up to the principle that work should always pay. If you are to get to that position there is a quid pro quo, which is that a life on benefits is unfair to the person on benefits; it locks them in. Therefore, you have to make changes to the system, and a smooth, tapered universal credit is something of which DCLG is every bit as supportive as DWP. We stand shoulder to shoulder. The system needs to change. By the way, the Opposition also believed that; it was in their manifesto on pages 2 and 3.

Q94 Simon Danczuk: I appreciate the answer. It is not me but the Secretary of State who calls it internal modelling in a letter to Caroline Flint either yesterday or today.

Grant Shapps: I have it here, but I do not want you to construe that as being some kind of big computer model in the Department.

Q95 Simon Danczuk: Fair enough. I think it is helpful to know that Ministers in the Department for Work and Pensions were aware of the possibility, according to the DCLG and the letter which was seen, that there was a potential for 40,000 people to be made homeless.

Grant Shapps: No; that is absolutely wrong, and you are putting words into both our mouths.

Q96 Simon Danczuk: The substantive point is: how will any extra costs in terms of homelessness services-bed and breakfast, hostels-incurred by local authorities be identified and how will they be compensated?

Steve Webb: In all of this one thing that becomes conflated is that there are different caps at work here. There is the local housing allowance cap, which has already come in in April, and will apply to existing claims from next January. One of the things that is being done for that-the same principle applies to the overall benefit cap-is, first, discretionary housing payments for local authorities for the most difficult cases; and, second, additional funding for local authorities to deal with that transition. That is the approach adopted for the overall benefit cap.

Grant Shapps: Again, just to put it on record, we do not accept what you are saying about Ministers. This was absolutely not true and not the case. As the impact assessment rightly says-remember this was formulation of policy, as Caroline Flint points out. If you cannot have a candid discussion internally about various different formulations, which were at a different stage of development at the time the letter was written from now, you cannot do government. It is misleading and unhelpful for everybody, as she points out, when those things cannot be discussed properly and privately. What we do know is that the response will be complex and different because some people will make up the difference; some people will have the rent lowered; some will get discretionary payment; and, yes, some people will have to move. Let’s be clear: moving is not being homeless. There is a complete difference. In my view, as somebody who cares passionately about homelessness and who has been out today to launch the No Second Night Out pledge that the Government have just made, that no one should ever sleep on the street for a second night, with £20 million of funding put into it today, I would not support policies that I thought would lead to homelessness. Will it lead to some people moving? Yes. We cannot all live in the street we want to live in. That is a completely different case.

Q97 Chair: Anyone who is involved in housing, the National Housing Federation and local government that still have council houses, have said that one of their real concerns is about the end of direct payments and the fact that could lead to a significant increase in rent arrears and the possibility of homelessness for that group. That has been said to us very forcefully. How do the Government respond to that? I think there is a real concern here.

Grant Shapps: We have not made final decisions on these things. I have worked a great deal with Lord Freud on this. One thing we are very clear about is that, whatever happens, we need to make sure landlords are in a position where they do not stop accepting tenants and that sort of thing. The recompense would need to be very quick. We are not proposing to move without evidence and testing out these things, so we are very cautious in our approach to this. Final decisions have not been made in this area at all. Steve is probably better able to tell you, but if you believe in a universal credit-everybody in all parts of the House say they do believe in making work pay and universal credit-you have to find a system of having a single payment in order to support that approach. These are some of the complex and difficult decisions that must be made along the line. But I do not think we should shy away from making them but within an environment where we can reassure the landlords and social landlords that they will not lose out. By the way, we are probably winning that battle because, as I mentioned before, they would not have signed up for affordable rent, as I am shortly to announce they have, if they had longer-term concerns about being able to receive that rent.

Q98 Chair: The National Housing Federation also said the Council of Mortgage Lenders had told them to expect 100 base points increase in loans in the future with substantial cost because of the lack of certainty over the rent income.

Grant Shapps: I do not want to pour too much scorn on the NHF evidence to you, but barely a week goes past when it does not announce there will be some catastrophe. So far in the last year we have had 22% increase in building starts, and we are going to build more affordable housing every single year of this Government than in the 13 years of the previous one. I cannot see that their evidence is all that accurate.

Steve Webb: We often hear it said that landlords will not rent to people on housing benefit if they do not get the money directly, and yet we have passed 1 million people now on local housing allowance, virtually all of whom have flowed on in the last two or three years. Although we have probably all met a landlord who says, "I won’t rent to people on housing benefit", the evidence is that the numbers of landlords renting to private tenants from whom they do not get direct payments is going up every year. What we are looking at with university credit is whether there are ways, for example, of carving up the money people get, whether it is direct debit, jam jar accounts or whatever it is, so that the rent gets through as painlessly as possible while still treating people like adults. It is trying to get that balance right.

Q99 Chair: But both Departments are still open to looking at the problem of direct payments?

Grant Shapps: Absolutely. Let me make it very clear that we are not storming ahead with a pre-defined system at all. We will want to test it very carefully. I am aware of past evidence which says that there have been some issues when direct payments have been made. We cannot get back to replicating that system. We need much faster responses from the system overall, to list but a few issues on direct payment. I totally agree. We will not storm ahead with it. If it were not for the universal credit approach of trying to help people off benefit and into work I think there would be very strong arguments against doing anything at all. But if you do believe fundamentally that it should pay to work then you have to design a system whereby that can be a single payment that promotes the personal responsibility of receiving it, and the rest of it. I have concerns to make sure that the system works right. We will not steam ahead with a system that cannot scientifically be proved to operate properly.

Q100 James Morris: The successful delivery and implementation of these policies on council tax benefit, administration and the social fund will require a lot of joint working between the two Departments. Can you give us a flavour for how that will work and the mechanisms you will put in place to ensure the two Departments work effectively on implementation?

Steve Webb: I do not know whether it is a consequence of coalition-that is probably a subject of another debate-but I have found that very often we are working crossdepartmentally. Grant spoke about direct payment and the views of housing associations. About a week ago the two of us were sitting together in a Committee room down the corridor with a bunch of housing associations and London MPs and debated that. All the things we have done on social fund localisation I have done jointly with Andrew Stunell and meetings with the LGA have been joint, as well as that officials have been talking all the time. We have got so much in common when welfare reform and localisation of the social fund are going on that it is almost impossible to do it without working jointly. I think it has worked well.

Grant Shapps: I work at ministerial level very closely with Lord Freud and Iain Duncan Smith. Our officials are virtually embedded within one another’s Departments all the time. You cannot do this stuff without that.

Q101 James Morris: One of the criticisms we have heard in evidence from some people is that the policy on localisation of council tax benefits and social fund has come out of a kind of inter-departmental negotiation about localism. Some people argue that DWP have made the concession to CLG, "We’ll give you localisation of council tax benefit but we’re not too keen on localising any other parts of the welfare reform agenda; the work programme stays as a central scheme." Is there any truth in that?

Steve Webb: There is a cross-government drive to localism with the DWP delivering things like retirement pensions and so on. There is a hell of a lot that you could not imagine localising. For us, the obvious thing to localise are those that have the local government interface and those that are discretionary. In a sense, that has led us to social fund and council tax benefit. Within DWP that is the obvious place you would go.

Q102 Chair: Don’t you think local government could have made a better job of administer the universal credit given your confidence in its ability to administer things more efficiently?

Steve Webb: I guess it has a different characteristic from something like social fund which is very discretionary. Bear in mind that the bits of the social fund that are national and rules-based-budgeting loans and crisis loans for alignment-will still be part of a national system, so I think there is a fundamental difference.

Q103 Chair: But local authorities now administer housing benefit and council tax benefit which is not discretionary, and they probably do it more cheaply than central government administers things. The LGA would be up for it. Would you be up for a conversation with them in future about any changes?

Steve Webb: I will probably not set that hare running just today.

Chair: Thank you both very much indeed for coming.

Prepared 13th July 2011