House of Lords
Monday, 22 October 2012.
Prayers—read by the Lord Bishop of Leicester.
Education: English Baccalaureate
My Lords, we expect that everyone who now sits a GCSE should be able to sit the new English baccalaureate certificate. Although it will be more challenging than the current GCSEs, we believe that all children with a good education should be able to achieve it. We have also moved to strengthen vocational qualifications, increase the number of UTCs and studio schools and set an expectation that young people who are not secure in English or maths at the age of 16 will continue to study towards that qualification post-16.
I thank the Minister for that reply. Does he understand the concerns of many academics and parents that the new qualification will narrow the definition of educational success and excellence? Is it not inevitable that the teaching time for many other crucial subjects, such as art, music, religion, computing and technology, will be squeezed out by the emphasis on the core subjects in the EBacc? Does he recognise that the Government’s obsession with academic subjects offers little comfort to the forgotten 50% who will never go to university but who want an alternative, gold-standard vocational qualification, such as the technical baccalaureate proposed by the leader of the Opposition?
My Lords, I do not accept the basic premise that the Government are concerned only about academic qualifications to the exclusion of all else. I agree with the noble Baroness, and with the party opposite, on the importance of vocational and technical qualifications. One of the very first things that the Government did when coming into office was to commission the Wolf review into vocational qualifications. However, with regard to the EBC, the amount of time that is likely to be taken to teach those core subjects will still leave plenty of time for the important subjects that she mentions, such as art, music or design, which I agree one would want to continue to be taught. I do not think it is a narrowing of the definition of excellence to want to set a higher bar for more children from a whole range of backgrounds, particularly the most disadvantaged, to get good academic qualifications that will get them into further or higher education, apprenticeships or work.
As my noble friend knows, we are looking at how to ensure that computer science is taught well. A consultation is out at the moment and the precise composition of the EBC is something that I am sure my right honourable friend will continue to reflect on. I will relay my noble friend’s point about the importance of computer science to the Secretary of State—I know it is a point that he shares.
I agree very much about the importance of religious education. I am particularly pleased that the number of young people taking religious education at GCSE went up by nearly 8% this year and by 10% last year, at a time when people are concerned about take-up because of the introduction of the English baccalaureate performance measure. We do not currently have plans to make it a compulsory part of the English baccalaureate system.
Is the Minister aware that when GCSEs were introduced there was much discussion of girls managing better, in terms of both learning and achievement, under a system of continuous assessment than with a cliff-edge examination at the end? Did the Government consider this when they changed the rules for 16 year-olds’ exams?
My Lords, the Government’s proposals for the English baccalaureate certificate are out for consultation. There will be a range of issues on which people will be able to express their views, including those raised by the noble Baroness. While I take the point about assessment and different people learning in different ways, it is the Government’s view that the balance has tilted too far, and that having a linear course with exams at the end will not only give a better indication of performance but free up more time in the classroom for teachers to teach not to the test but towards a broad and rich education.
The Government’s position is, and has been for some time, that teachers without QTS may work in free schools. That has been extended to apply to academies. The Government’s view is that that is a space for innovation that is very likely to be only at the margin of the system as a whole. We think that the freedom for people with particular expertise who have not been through the qualification process to come in and offer it, as they do in independent schools, should be extended to academies.
My Lords, in the light of the Minister’s reply to the noble Lord, Lord Singh, will he assure the House that religious education will not eventually disappear from the qualifications register and thus disappear from school timetables altogether?
I will give as much reassurance to the right reverend Prelate as I can—not least because RE is a compulsory subject and, as I said, the evidence is that the number of young people wanting to take a qualification in it is increasing, which is a good thing. It is also the case that the English baccalaureate certificate for six subjects represents only a core. Having that small number will provide space for a whole range of important subjects, including RE, to continue to be taught, offered and examined.
Will the Minister clarify that the EBacc will consist of seven subjects and will require a GCSE pass of grade A to C? What proportion of young people in the relevant age cohort do the Government think will pass linear exams at GCSE grade A to C in seven subjects?
My Lords, the EBC will consist of six subjects. It is our view that with the good teaching and support that I know is in our system, children currently studying GCSEs should be able to take on and tackle the EBC. We do not know the precise proportions and percentages because decisions will be taken by Ofqual on where the grade boundaries and so on will be set. As a general principle, it is our view that children who take GCSEs should be able to take the EBC.
Broadband: Street Cabinets
My Lords, the Government wish to roll out the best, superfast broadband of any major European country by 2015 to meet demand and hasten economic growth. Six representations have been received, from English Heritage, MPs’ constituents, a local council and private individuals. English Heritage raised the possible impact on the physical amenity, but wished to contribute supportively. The others had similar concerns and asked about plans to consult, which I can confirm will take place.
My Lords, will the Government think again about allowing broadband providers to install their bulky and intrusive equipment wherever they decide is convenient for them without a requirement for planning permission or even for local consultation? While no one wishes to thwart the distribution of superfast broadband, can we not handle this in a civilised way and in a spirit of genuine localism? Should not the claims of amenity and quality of the built environment be weighed alongside the claims of economic development and adjudicated through the local planning system, as has long been the practice in our country?
I can understand the noble Lord's concerns. However, the changes to the formal planning process do not mean that broadband providers have carte blanche to install street cabinets or poles wherever or whenever it suits them. They must still notify planning authorities of their siting plans and consider requests for changes to be made. In exceptional circumstances, planning authorities can remove permitted rights to develop by using an Article 4 direction. The main broadband suppliers have agreed to develop a code of practice with DCMS whereby the siting of cabinets must have regard to proximity to any existing street furniture, minimising the visual impact and of course ensuring optimum safety on the streets. Sensitivity to locals is the byword, with planning and assessment made in advance.
For the benefit of the whole House, for those who do not know, is the broadband cabinet the equivalent of a walk-in telephone box or is it, as I understood from the supplementary question, a container for equipment? If it is a container, what size of object are we speaking about?
To pick up the last question, the new cabinets will be 1.6 metres high and 1.2 metres wide. They will be green and will be taller and deeper than the models currently being used on the street. They are not as such designed, having perfunctory casings, but they will blend in where possible.
My Lords, getting the planning regime right for street cabinets is clearly important, but does my noble friend agree that it is also vital that if we are to get investment and competition in broadband, particularly in rural areas, there are open standards and open access to these cabinets for service providers, as recommended by the Lords Communications Committee?
I very much agree with my noble friend. It gives me the opportunity to explain the benefits of superfast broadband. There are many statistics that are extremely positive. For example, a 10% increase in broadband household coverage boosts the economy from between 0.1% and 1.4% of GDP. It also allows firms to develop and adopt more productive and efficient ways of working. It is also a great boost to home-workers who, while being based at home, will spend and circulate money more locally.
I do not believe there is scope for running a competition because so many of these street cabinets are being rolled out. However, I again reassure the House that the cabinets will be and must be sensitively sited. Although they are on the large side—I have already mentioned the camouflaging—in some cases there will be overhead cabling, some of which, instead of going into the street cabinets, can be placed inside church steeples, which is a good use for churches.
My Lords, as my noble friend has described the cabinets as being quite small in size rather than bulky and intrusive, as the noble Lord, Lord Howarth, would have it, should we congratulate the manufacturers on producing something that can be placed so discreetly?
My Lords, does the noble Viscount recognise the importance of siting these cabinets sensitively not just from an aesthetic point of view but from the point of view of those who want to walk in safety on the pavement? It is important to be aware of the potential hazard that cabinets like these can cause to blind people and others who want to walk safely on the pavement.
The noble Lord makes an extremely good point. I know that DCMS officials have already had discussions with Ofcom, BT and Virgin Media regarding a proposed code of practice that includes ensuring that these cabinets are placed in positions of safety on the streets and so, for example, not on street corners or on narrow streets. That will allow individuals, including disabled people, to pass by.
My Lords, I am low on the learning curve. How many of these cabinets per square mile will there be once the project is fully rolled out? I have to say that I was not worried about them at the start of this Question, but I am becoming more and more worried.
I would like to reassure the noble Lord that, although it is difficult to describe precisely where they will be, they will be positioned where they need to be positioned around the UK. I would also like to reassure the noble Lord that they will not be on every street corner. They will be sited very discreetly on occasional streets.
Financial Regulators: Examinations
My Lords, the qualifications for the appointment or advancement of individuals employed by financial regulators are a matter for the regulator concerned. All newly recruited supervisory staff in the FSA are required to undergo mandatory assessments at the end of their probation to demonstrate that they have sufficient technical knowledge to carry out their roles. Thereafter, an annual assessment of technical competency is conducted to ensure that key supervisory staff can evidence that they continue to meet the required standards.
My Lords, can I ask the Minister whether he thinks it slightly inconsistent that no examinations need to be passed by people working as regulators, whereas under the RDR reforms the regulators require all financial advisers, irrespective of age, cleanness of record and experience, to take examinations? As a result, over 20,000 will be stepping down at the end of the year because they feel that they are too old to take examinations, many of which are not relevant to their particular expertise. We are likely to end up with financial advice being available only to the wealthy in our community.
My Lords, I certainly do not agree with my noble friend’s conclusion on this. As he well knows, one of the conclusions of the retail distribution review was that the role of financial adviser should be properly professionalised. I have seen comparisons being made between the professionalisation of financial advisers and of lawyers and accountants. Although these are matters of judgment for the FSA, the authority deems it appropriate that exams should play a part in this. I understand from the FSA that the final rules setting out the new qualification requirements were made in January 2011, two years before the requirements are to come in. On top of that, an indicative list of level 4 qualifications has been available since the end of 2009. The FSA’s research shows that, up to the spring of 2012, 71% of advisers had already qualified, and the expectation is that 93% are on track to secure the appropriate qualification in time. The final point I would make to my noble friend—again, I am sure that he is aware of it—is that, as well as taking examinations, financial advisers also have the option of an alternative assessment procedure.
My Lords, having spent a great many hours with the Minister, the noble Lord, Lord Flight, and others on the Financial Services Bill, perhaps I may ask the Minister whether he will remind the House of the enormous power being given to the financial regulators. I have been looking into it. It may be that never in the history of our country has anyone had the regulatory power that these people have. It is a power either to do good, of course, or to get a lot of things wrong, to the benefit of our chief competitors in Frankfurt and Wall Street. Surely the Government must take a much more positive view of what sort of people are working for financial regulators and themselves take some responsibility to see that they are people with a broad range of experience who do not wish to see our financial services sector destroyed?
My Lords, as well as getting the architecture of supervision and regulation right—on which this House has rightly spent many hours and to which the noble Lord, Lord Peston, has made some important contributions—the Government should within that appoint to those bodies an appropriate board with appropriate expertise and experience. It would then rightfully be up to the two successor bodies to the FSA to decide how to equip their staff properly to do the job. The FSA’s approach to testing and competence will be continued by the FCA. The FCA is also exploring whether to have training externally accredited, which the FSA has not done up to this point. The PRA, on the other side, is developing a comprehensive strategy, including a three-year training programme for new graduates. These matters are therefore being taken extremely seriously by both the successor bodies, which is how it should be.
My Lords, it seems clear that the FSA was blind to the moral and ethical failings of the banks as well as to their regulatory failings. How will the FCA do better in this respect? It is all very well worrying about the locks on the stable door, but should we not also be worried about the mindset of the horse?
My Lords, one of the things that is very striking about the FSA is the speed with which it put in place an inquiry into what had gone wrong on Northern Rock. It was very frank about its failings and has changed an awful lot of things already. One should be fair to the FSA and recognise that it acknowledged the failings of its supervisory regime, which is already reflected in differences to its approach to training and continual assessment.
Would the Minister like to hazard a guess as to why the FSA, unlike many other professional organisations, feels that it is not important for the public to recognise the skills of those individuals by the qualifications that they hold, particularly in such an important area?
My Lords, in his initial reply, my noble friend said in effect that there would be a benchmark after the first year’s work in a regulator and at subsequent stages, but nothing about the benchmark for new entrants. Further to his answer to the previous question, does he not agree not merely that the public need reassurance but that the practitioners need to have respect and to be in awe of the regulators and of their qualifications? Otherwise, there will be considerable discontent and a good many mistakes made.
My Lords, the House can of course be assured that the FSA would not seek to recruit, let alone retain, any individuals who were not competent to carry out their duties. What I said in my first Answer was that, at the end of the probationary period, an assessment is done, so it certainly does not wait until the end of the first annual assessment.
My Lords, in his Answer, the Minister talked about technical qualifications. Surely, given where we are after LIBOR and everything else, we need a code of conduct that also covers ethical issues. Qualifications are needed for that not just, as is proposed, under LIBOR. Does he not agree that it should be provided in the Financial Services Bill for everyone working in banking?
EU: UK Membership
My Lords, we are committed to playing a leading role in the European Union to advance our national interests. We play an active role within the EU on many issues—Iran, Syria, Burma, the single market and improving Europe’s competitiveness—and work closely with other EU countries to deliver those important objectives. There is no question of the UK disengaging or withdrawing from the EU. We will remain leading proponents of the EU’s most successful policies.
My Lords, although it is always a pleasure to face the noble Lord, Lord Wallace, I was rather hoping to welcome the noble Baroness, Lady Warsi, to answer this Question—I think it is the first Foreign Office Question that she has had the opportunity to answer. It is a pity, on a day when the Prime Minister is coming back to the other place to report on the European Council, that she is not here.
What the noble Lord said is all very well, but most of what we hear from the coalition is refusal to enter negotiations on questions that are central to our economic interests, such as the fiscal treaty and the banking union. We hear about opt-outs from justice and home affairs measures that are vital to fight organised crime. We hear about repatriation of competences.
Okay. We hear about a future renegotiation. Is it any surprise that the public standing of the EU is at a low ebb? When will we hear from the Government clear leadership that our membership of the EU is vital to our economy and essential to our place in the world? Since the noble Lord, Lord Wallace, is answering for the coalition, how much longer are the Liberal Democrats prepared to put up with the Government’s policy of isolation, defeatism and retreat?
My Lords, I say on behalf of my noble friend Lady Warsi that she answered three debates last week and she will be here tomorrow. She has other responsibilities.
On the question of defending our position within the EU, the Government have made it clear through a number of senior Ministers, not just the Prime Minister, that we intend to stay in the European Union—rather more clearly than leading members of the previous Government in their last two to three years in office.
It is not complete nonsense. I am sure that when the noble Lord was a special adviser to Tony Blair he was often rather disappointed by the then Prime Minister’s unwillingness to make the case for Britain’s continued membership of the European Union.
Perhaps I might push the noble Lord on his answers. Does he agree that as a condition of its survival, the European Union must become more integrated politically and economically? Notwithstanding what the noble Lord said, does this not inevitably mean that the UK will be progressively marginalised and, in the end, without significant influence within Europe?
My Lords, the eurozone may well have to become rather more integrated, but the European Union as it exists is not a simple first-tier/second-tier issue. In a couple of months’ time, we will debate the new Irish protocol. There are Czech protocols, Danish opt-outs and Irish opt-outs. When it comes to defence and foreign policy, Britain and France are very much at the core and Germany is occasionally on the edge. So it is not a simple matter of insiders and those on the fringes.
My noble friend’s credentials on Europe are of course impeccable, but will he reassure us that other senior members of the Government are not drifting almost accidentally and in a cavalier way into extreme referendumitis in order to appease some of their eccentric colleagues in the other place?
My Lords, is the answer not that the Government cannot make the case for our membership of the EU because there is now an overwhelming case for us to leave it and thus create a great many jobs by relieving us of its suffocating clutches? Beyond that, is it not time for the EU itself to be wound up, with a similar benefit for the democracies of Europe? What is now the point of any of it? I hope that the noble Lord will not give me the nonsense about peace.
I am sorry that the noble Lord thinks that peace is nonsensical. It is not an unimportant issue for us. The noble Lord clearly thinks that international regulation of the open markets is not an important issue either. I am well aware that UKIP thinks that we should follow the example of Switzerland and have a sort of Swiss relationship with the European Union, although since UKIP also thinks that we should double our defence spending, I think the UKIP model is Switzerland with nuclear missiles and a large navy.
Would the noble Lord accept that there is fairly substantial inconsistency in what he said about the single market? The Government are always expounding the virtues of the single market, yet anybody who listened to Mrs Theresa May yesterday on “The Andrew Marr Show” would have heard her calling into question fundamental aspects of that single market, such as the free movement of people.
Voting Age (Comprehensive Reduction) Bill [HL]
A Bill to extend the franchise for parliamentary and other elections and for referendums to all citizens over the age of 16 years.
The Bill was introduced by Lord Tyler, read a first time and ordered to be printed.
Prisons (Interference with Wireless Telegraphy) Bill
The Bill was brought from the Commons, read a first time and ordered to be printed.
Electoral Registration and Administration Bill
Order of Consideration Motion
That it be an instruction to a Committee of the Whole House to which the Electoral Registration and Administration Bill has been committed that it considers the Bill in the following order:
Clause 1, Schedule 1, Clause 2, Schedule 2, Clauses 3 to 5, Schedule 3, Clauses 6 to 12, Schedules 4 and 5, Clauses 13 to 26.
Town and Country Planning (Fees for Applications, Deemed Applications, Requests and Site Visits) (England) Regulations 2012
Motion to Refer to Grand Committee
Local Government Finance Bill
My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Local Government Finance Bill, has consented to place her interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
I appreciate that several noble Lords are wishing to leave the Chamber but we all want to hear the noble Baroness, Lady Hollis. Will noble Lords please leave quietly so that the noble Baroness may move the first amendment today?
1: Before Clause 9, insert the following new Clause—
“Council tax reduction schemes
(1) The Secretary of State shall make provision for an independent review of all council tax reduction schemes made under the provisions of this Act, to consider their effectiveness, efficiency, fairness and transparency and their impact on the localism agenda; and to make recommendations as to whether such schemes should be brought within universal credit.
(2) A review under subsection (1) shall take place within three years after this Act comes into effect.”
My Lords, I am grateful. This first amendment is a very modest and simple one. It simply asks for a review of the Bill within the next three years; that is all. I know that many around the House are worried about aspects of the Bill. We thank the Minister for the one-year transitional grant, as any additional money is welcome, but returning to councils just one-fifth of the council tax benefit cuts in a transitional one-year grant creates additional problems in itself. There are a lot of loose ends in the Bill, a lot of unknowns and a lot of concerns, which is why the amendment, which is a modest one, ask for a review of these proposals. If what the Bill proposes is sturdy and robust, a review will show it. If it is not and needs adjustment, a review will show it. If it needs more radical reforms such as moving into universal credit, a review will show it. The amendment seeks evidence, which is something that we should do, and I very much hope that it will attract the support of the entire House.
To remind ourselves, council tax benefit is being removed from our national social security system, when now it is fully funded to meet individual need wherever that person may live, to, in five months’ time, a rebate scheme with 10% less money in it, based on local discretion, with each local authority inventing its own local version. However, I fear that such local versions will depend not on a council’s unique insight into unique local need but on its prosperity, its reserves, its property values, its demography, its pensioner numbers, its benefit claimant numbers, its second homes and empty homes—everything and anything except the particular need of the particular individual who needs financial support, irrespective of where in the country she may live.
What are our concerns? We list them in the amendment. I suggest that they include effectiveness, efficiency, fairness and transparency, and I shall spend a moment on each. This cannot be an effective way to construct council tax support. It depends solely on the accidental variations between authorities—how many pensioners, how many second homes—but in no sense are those accidental connections associated with the amount of need of the council residents in its patch. In other words, this version of localism has nothing to do with local need and everything to do with local council finances.
Essentially, as we argued on Report, richer authorities are keeping the national scheme—essentially, the social security system—because they can afford to. Poorer authorities are not, because they cannot. In my view, the proposals are not effective because they do not, and many of our local authorities cannot afford to, meet local need—and that, of course, is the entire point of the council tax rebate in the first place. So I do not believe that they are effective.
Are they at least efficient? Do they represent value for money, the second test in our amendment? I think not. From the local authorities’ point of view, we risk poll tax mark two. Up to 2 million families may be paying for the first time towards their council tax. Set it too high—a 30% minimum, as is the case in several authorities in Norfolk—and families cannot pay. Set it too low, after the transitional grant at £1.50, and the council cannot collect. On the one hand, families cannot pay; on the other, councils cannot collect.
The Minister’s own transitional grant Statement sensibly accepted that:
“Councils will rightly want to avoid collecting small payments, and it may consequently be better value for money for councils to avoid designing schemes which seek to do so”.—[Official Report, 15/10/12; col. WS 164.]
The Minister’s Statement also says that there should be no sharp reduction for those entering work. Quite. But if councils exclude pensioners from the cuts as they are required to do, if they avoid collecting small sums from benefit claimants as the Minister urges them to do, and if they seek to protect work incentives as the Government and all of us would wish them to do, then the entire population of those on council benefit is covered and protected: no cuts for anyone. So where, in poorer authorities, do the other four-fifths of savings of that £500 million, minus the transitional grant, come from the year after next? Where do the full savings of £500 million come from the year after that?
Small sums are exactly what local authorities will need to collect. If they do not, they cannot balance their accounts. But if they do, they face huge numbers of defaulters, whom they cannot afford to chase. Confidence in the whole basis of council tax finance will be destabilised and, as with the poll tax, take years and years to rebuild. Many of us in this Chamber were in local government during the poll tax period, and we know what subsequently happened. If we are not careful, we will be going in the same direction again. Efficient? I think not.
Our third test is fairness. Council tax benefit is part of income support. How can it be fair that the income of our poorest and most vulnerable families should depend not on their need but on the financial ability of their local authorities to meet their need; not on their poverty but on the poverty of their local authority; not on who they are but on where they are?
What may this mean for our poorest? We must add this cut in council tax support to the cuts in housing benefits. I do not know whether anyone in government is seeing how the two sorts of cuts are interacting. I have worked out that the carer in her forties and the widow in her fifties could lose 28%—between a quarter and a third—of her current benefit. I only ask your Lordships how they will manage. If they go into debt, they face eviction and, without children, they may not be offered alternative accommodation. So they sleep where? Rough?
Our final test in this amendment is transparency: people should be able to understand what they can claim and what they should get. Do we really think that asking families, means-tested for universal credit, then to apply for council tax benefit and, through a different means test, for council tax support—the means test varies from council to council—is easy to understand and transparent? The means test is also for a system which may change each year as the local authority finances improve or worsen. A widow this year may pay nothing; next year she may pay nothing or 8.5% or any figure above or below it. The year after that, she may pay any figure between nought and 30% or, in one authority, 60% of her council tax—from nothing to 60%. They will not get much help from the CABs, because half of their branches have been cut. Housing associations which, as with my own Broadland Housing Association, span a county, will be dealing with seven different council tax benefit schemes, each of which may be different for each of the next three years.
One of the prizes of universal credit is transparency, which will aid populations and encourage people back into work. This multitude of council tax benefit schemes, each possibly changing every year, sabotages universal credit, a scheme I want to see succeed—as I am sure the entire House does.
All these concerns about effectiveness, efficiency, fairness and transparency may not be realised. I hope that I am wrong about that, but only an independent review will tell us if these schemes are robust, stable, well researched and fully claimed. If they bear fairly on the poorest and are collected officially and with dignity, then a review will confirm that. If local authorities need other sources of revenue, such as a single person discount, which the noble Lord, Lord Best, argued so powerfully for on Report, then a review could consider that. If, however, as I fear, we face something of a shambles, and local authority funding lurches from one transitional grant to another to cover non-payment, and if local authorities come in desperation themselves to favour a single, national scheme which can, and should, be incorporated into universal credit, then a review would tell us that too.
DCLG will have to track all this, whether it likes it or not. That is what Governments have to do. This amendment would ensure that such tracking is done independently and publicly, by putting in place a review to which local authorities would contribute so that we can all learn from it. Its cost is negligible, so financial privilege cannot be involved. However, such an amendment, with the support of your Lordships, would allow Members of the other place to think again now that they see the potential effect in their constituencies, both of the proposed scheme after consultation—and those results have come through only in the last fortnight or so—and in the last week, the effect of the transitional grant. No MP could have had this vital information about how it affects their constituencies when they voted this Bill through. Above all, such an amendment and review would help ensure a fair, affordable and stable council tax benefit scheme in future.
I hope that the Minister will support this modest, cost-free, evidence-seeking amendment, and that the House will also do so. I beg to move.
My Lords, I rise to speak in support of this amendment. My reason is that we need to understand better than I believe the Government do the impact of various changes being implemented at the same time over coming months.
Next year, a large number of people will be taken out of income tax because of the rise in the threshold. At the same time, universal credit, and its housing elements in particular, will begin implementation. We should note that demand for housing benefit is now rising because rents are going up, as opposed to going down, as the Government expected would happen a few months ago. At the same time, council tax benefit will be devolved to councils, being renamed “council tax support”, and it is likely that demand will rise because of the name change alone. In addition, there is a 10% cut in the grant given to local authorities for council tax support, and in actuality, many think that that cut is nearer to 12.5% because of that rising demand.
The Government have said that councils can make up the cut by charging 100% on empty homes and second homes. We know that that can work for some councils because they have enough numbers of one or the other, or both, to do it. However, it will not work for all. Many councils do not have enough empty or second homes to enable an increase to 100% to deliver the 12.5% cut in the budget. Even the transitional relief announced last week, prior to Report, will not solve the problem for all, and in any case, that transitional relief is only for one year.
The Local Government Association—I declare my vice-presidency—thinks that the Government’s package substantially underfunds the 8.5% cap on what an individual household would pay and that councils will need to find another £100 million to make up their loss. Putting aside the problems of councils, the problems for individuals could be very severe in the face of so much change at once and the need, in particular, of many working-age households to start paying some council tax.
I agree that as a minimum the Government should commission an independent review to report as speedily as it can, but certainly within three years, on how all the changes are working. I realise that the Government keep things under review but the problem is that more than one Whitehall department is involved and the Government need the support of an independent body such as the Institute for Fiscal Studies or the Joseph Rowntree Foundation to assess the impact in an independent way.
I regard this amendment as modest and the Government could and should accept it. I hope that the Minister will accept it as a helpful contribution to our understanding across government of the impact of these substantial changes.
My Lords, I hope that the Minister is able to accept this amendment or something akin to it. I agree with the noble Baroness, Lady Hollis, that it will be important to review the effects of localising the council tax benefit system. Down the line we will need to ask whether this change has led to a chaotic situation of dozens of different schemes and whether this localist approach has produced variations in benefit schemes that reflect not what local financial circumstances force on councils but what genuinely fits local conditions. We also need to ask whether it would be better to return to a national scheme incorporated into the universal credit arrangements.
My own emphasis for a review, however, would be on analysing the consequences of the cuts to council tax benefit on the households affected and on those councils which find it necessary to start collecting council tax from the lowest-income families who did not previously have to pay. What has been the cost in extracting these new taxes? What has happened to those who could not pay? It is a very serious matter deliberately to reduce the income of those who are trying hard to get a job, are not able to work or are in work but on the very lowest earnings. No government would want to hurt those of our fellow citizens who are living on the breadline and finding life a considerable struggle.
As I noted in Committee, the Institute for Fiscal Studies, the Joseph Rowntree Foundation and others have shown that it is those of working age on the lowest incomes who have seen the least improvement to their living standards over the past decade. The gap between rich and poor has widened and income inequalities have increased. It is those in relative poverty who expend the highest proportion of their incomes on fuel and food, and so now face the greatest pressures in making ends meet.
The various welfare benefit cuts introduced since 2010—with the largest still to come—are bound to have a cumulative effect. The same households that are hit by one cut may well be affected by another. Thus, many of the 660,000 households affected by the forthcoming “bedroom tax” will also be caught by having to start paying council tax from the very same day—1 April 2013. What will be the knock-on effects of the council tax benefit measures when added to all the other benefit changes? What unforeseen consequences may emerge from these measures? Are there impacts on physical and mental health, with consequential costs to the NHS? Are there burdens for children’s services? Are mounting rent arrears leading to homelessness, with higher costs for central and local government? When do these cuts reach a point when any reasonable person would see them as punitive and unacceptably harsh?
In response to an amendment in my name to the Welfare Reform Bill, the noble Lord, Lord Freud, agreed to a thorough-going and high-quality review of the impact of housing benefit cuts. He has made the point that he wants government policy to be based on sound evidence, which good research should bring forward. That can enable in-flight corrections to policy. For example, the noble Lord, Lord Shipley, mentioned the hopes of the noble Lord, Lord Freud, that cuts to local housing allowances and housing benefit would lead to rent reductions but they have not materialised. If the researchers for the review of the noble Lord, Lord Freud, show clearly that rents have instead been rising, Ministers may be wise to think again about their approach. In the case of council tax benefit, the cuts, unusually, are outside the remit of the Department for Work and Pensions, and an evidence-based review will need to be undertaken by the noble Baroness the Minister’s Department for Communities and Local Government. A parallel exercise there to the DWP’s would seem essential if lessons are to be learnt in time to rectify deficiencies in the new system. For example, I have learnt from working on this Bill that the Secretary of State has had the power since 1992 to vary the 25% single person discount for households. A review of the kind proposed by this amendment could be the catalyst to persuade the Secretary of State to use that power and allow a different discount level where the local authority concerned needs this change. It is this kind of policy change that a review could stimulate.
This is a modest amendment with minimal financial implications. It could prove of immense value to the Government and to those who could be hugely disadvantaged by the benefit cuts in the Bill. I heartily commend it.
I am sorry, I was slow to get to my feet. We speak in full support of this amendment, moved so comprehensibly by my noble friend Lady Hollis. I am delighted that it also has the support of the noble Lords, Lord Shipley and Lord Best, who made a hugely important point about the collection of issues coming down the track, particularly from next April, and the need to look at those on a comprehensive basis, as well as the importance of any review being independent.
As we discussed throughout our deliberations on the Bill, the council tax support scheme represents a major change to the benefit system, affecting millions of people. We know that it has been introduced with inadequate funding and, further, has been introduced at a time when probably the biggest change to the social security system since Beveridge is being phased in, with universal credit. As my noble friend made clear, we consider that council tax reduction schemes should revert to being a national, demand-led benefit, as now, inculcated into universal credit, and this amendment seeks a recommendation of an independent review on this issue. But it does not insist on it, and this is not the only issue that it wishes to be the subject of the review; it seeks a comprehensive look at how the localised system is working.
The fact that local authorities have had to operate council tax benefit schemes does not necessarily make them experts in the design of such schemes. Of course, designing an individual scheme that has to work alongside and be consistent with other national benefits, the rules of which are still to a certain extent being worked out, is particularly problematical. The design must lead not only to a system that is practical and efficient to operate but one that addresses the needs of the poor and most vulnerable, while also containing adequate work incentives. It is clear that the variety of schemes on which local authorities have been consulting do not all meet these criteria; proposals include requiring minimum payments of 20% or 30% for all working age claimants, introducing a maximum limit, increasing tapers, reducing savings limits and counting child benefit as income. Having espoused the mantra that it is up to local authorities and not central government, at the 12th hour the Government have had to come forward with a package to encourage local authorities to comply with some national norms—a taper rate of not more than 25% and those currently passported to full benefits to be subject to not more than 8.5% of what would otherwise be their full liability.
The extent to which the package is sufficient, with just one year and less than one-quarter of the funding cut imposed, remains to be seen. Early evidence is that it is insufficient. It still leaves the prospects of the poll tax mark 2 and horrendous collection problems for local councils. The point is that on the first consultation by many local authorities, many proposals diverged from some key principles which the Government at least nominally sought to encourage, particularly protection of vulnerable people. That is because councils have been left with impossible choices—poll tax mark 2. The Government of course hope that this will all settle down; we think that they are wrong—but an independent review within three years will test that matter.
My Lords, I apologise to the noble Lord, Lord McKenzie, for trying to leap in ahead of him. He will have to be quicker getting to his feet and I will have to be slower getting to mine.
I thank the noble Lord, Lord McKenzie, and the three other main contributors to this debate for tabling this amendment, which has been raised before and relates to the monitoring and evaluation of the reforms that we are talking about here—council tax support. However, the amendment would go wider than that, as the noble Lords, Lord Shipley and Lord McKenzie, said, and seek formal review across all the welfare programmes.
This amendment seeks to require the Secretary of State to undertake a formal review of council tax support three years after its implementation, and the noble Baroness, Lady Hollis, was considering whether it should be brought within universal credit. The noble Lord, Lord Shipley, made it clear that he wants the provision to go much wider than that.
We have had several discussions on this issue during the passage of the Bill. I will say again what I have said before: namely, that in the first instance it is for councils to keep these schemes under review. The Bill requires each billing authority to do just that, each financial year, and to consider whether or not to revise or, indeed, replace its scheme, which a local authority is entitled to do. Local authorities are closest to their local communities and therefore are closest to those who need the council tax support. Therefore, they will be in the best position to decide how they set their council tax in future, bearing in mind the needs of their population.
I am not convinced that a major independent review as a set stage is required or, indeed, that it would be particularly helpful for local councils. Therefore, noble Lords will not be surprised when I say that I cannot accept the amendment. However, I recognise that it is right and proper for the Government to keep the framework in which councils operate under review. I can confirm that we will take steps to do this. We are already considering with local government what minimal data we will require from councils to enable us to keep this policy under review. I have no doubt at all that local councils will keep us informed of how it is progressing.
There were rather snide or slightly underappreciative comments about the transition scheme announced last week. As we discussed, the transition scheme has been set up to ease in these changes and to ensure that there are incentives and support for councils to help deliver the Government’s objectives.
Furthermore, as we have debated at each stage of the Bill’s passage, the Government do not believe that council tax support should be part of universal credit. Indeed, it was deliberately separated from it. Therefore, I cannot accept the requirement to consider the integration of council tax support with universal credit, nor am I in a position to accept on behalf of the Government a wide review across welfare provision.
However, the noble Baroness is right to remind us of the importance of monitoring and evaluating policy. The Government do that, particularly where there are major policy changes. The Government will continue to keep this policy under review and make adjustments as they see fit to ensure their objectives are delivered. That seems to me the proper way of doing it. It is far too long to sit and wait for a review in two or three years’ time if something needs to be amended or changed. The Government need to be advised of what is happening and amend something where they can if that is necessary. I assure the House that that is what will happen and that the measure will be kept under permanent review. Therefore, I hope that the noble Baroness will withdraw her amendment.
My Lords, I thank very much other noble Lords who have spoken—the noble Lords, Lord Shipley and Lord Best, my noble friend Lord McKenzie, and of course the Minister for her reply. However, points came up in the argument that I did not feel the Minister addressed. The noble Lord, Lord Shipley, who was absolutely spot-on, made the point that because this issue interlocks with welfare reform, it needs a broader approach than the Minister seemed to suggest in her reply. My friend the noble Lord, Lord Best, says he is worried that one possible outcome could be chaos or, equally, we could find that the variations that come our way are acceptable and appropriate, but he remains worried about the implications of this change for the poorest people in our community. As in the Welfare Reform Act, when he successfully persuaded the Minister and the whole House that we needed to monitor the legislation in an independent way, the House backed him, agreed with him and supported his amendment.
We need to know the effects on local authorities, on some of the poorest people in our communities, on work incentives, and on the Conservative Government’s flagship welfare reform—universal credit, which I support. We have to have such a review. The Minister said that individual councils would be keeping the schemes under review; of course they will. This is no substitute for an individual and independent review across the whole field of welfare reform—in so far as this is a part of welfare reform—and council tax benefit. We need that review, otherwise the reviews that the noble Lord, Lord Freud, has agreed to will be incomplete and partial, and no one will be able to put the pieces of the jigsaw together. As I have said, they affect some of the most vulnerable people in our society—disabled people, families with children in poverty, carers and some of the most fragile and frail.
It is because the amendment is very modest and because this is the only way that we are going to get coherent government policy to ensure, as I and everyone else wish to, that support for welfare reform is effective, especially for those who need it above all, that having failed to persuade the noble Baroness of the desirability of the amendment, I hope perhaps we can persuade the House.
2: Before Clause 9, insert the following new Clause—
“Power to make grants discretionary
(1) Section 11 of the Local Government Finance Act 1992 (discounts) is amended as follows.
(2) After subsection (5) insert—
“(6) Notwithstanding subsection (3) above, the billing authority shall have discretion to set the appropriate percentage at a rate between 20 and 25 per cent.
(7) In subsection (6) above, the discretion to set the appropriate percentage at a rate other than 25 per cent shall not be exercisable for pensioners.
(8) In subsection (7) above “pensioner” means a person who has attained the qualifying age for state pension credit.””
My Lords, Amendment 2 stands in my name and in the names of my noble friend Lord Shipley and the noble Lord, Lord Jenkin of Roding. It has been drafted by the Local Government Association; reflects exactly the policy of the Local Government Association; and has the support of all four groups on the Local Government Association.
We had a long debate on this issue on Report. As the matter was explained fully at that time, I do not intend to go through all of it again today. The amendment differs from the amendment that we debated on Report last Tuesday in two important respects, and, together, those two differences meet the objections that were raised in that debate. First, the amendment would restrict to only 5% the discretion given to local authorities to vary the single person discount. At present that discount is 25%; under this amendment, it could not be less than 20%. Secondly, everyone of pensionable age would be exempt from the change. They would all remain entitled to a 25% single person discount, as at present.
In her reply to last week's debate the Minister commented that she herself received and welcomed the 25% discount. I can reassure her that if this amendment is successful, she will continue to receive the 25% discount, which I know she will welcome.
Perhaps rather more significantly, the Minister also pointed out that an unrestricted amendment—an amendment which would have allowed local authorities, in theory at least, to get rid of the single person discount altogether—could represent a potential tax increase for more than 8 million people. Although I do not think that that would ever have happened, this amendment will ensure that it cannot happen. A very high proportion of people currently in receipt of the single person discount are pensioners and will therefore be exempt from this, and not all local authorities will need or choose to vary the current discount. Therefore, the number facing a very small tax increase will be very significantly less than those maximum figures quoted in the previous debate on this subject.
Nearly all those people will also have benefited from a freeze in their council tax for the past two years, and they will probably do so for a third year, next year. I do not pretend for a moment that this is easy or welcome—there are many in receipt of the single person discount for whom any tax increase will be difficult—but we are talking about a few pence per week from people who are already paying council tax. Surely that is better, or less bad, than local authorities having to take rather larger sums, and certainly much larger sums as a proportion of their income, from the poorest members of their community, many of whom have not previously had to pay any council tax.
The Bill already gives power to local authorities to vary the discounts that they give on empty properties and second homes. Although that is welcome, in many areas it is nowhere near enough to bridge the gap created by the 10% reduction—or as my noble friend Lord Shipley said in the previous debate, more likely, in effect, the 12.5% cut in funding for council tax support. Areas with large numbers of claimants tend not to have many second homes. If the Government are so willing to allow local authorities to vary these two discounts, why has the Secretary of State so resolutely refused even to discuss allowing them to make a small variation in this third discount scheme? The Local Government Association calculates that if this limited discretion were given to local authorities, all but 14 local authorities would be able to meet the funding gap fully without making any charge on claimants.
If the amendment is not agreed and implemented, the LGA states that 90% of the schemes currently being consulted on by local authorities intend to charge working-age claimants generally between 15% and 25% of their council tax. I suspect that the funding scheme announced last week by the Government will not make a significant difference to that, because local authorities will find that the costs of implementing it for one year only will make it simply not worth doing. We will see, but I doubt if any local authority will charge council tax claimants because it wants to; it will do so because it has no choice.
I understand that the Labour Party is resolutely opposed to the localisation of council tax support, which Parliament approved when it passed the Welfare Reform Act, and to the 10% funding reduction for council tax support which came from the 2010 spending review. I suspect that quite a few Liberal Democrat councillors, and no doubt many Conservative and independent councillors, share that view. I have some sympathy for the Labour Party wanting to see this in the much wider context of local government funding and taxation—but that is not where we find ourselves today. The funding cut will happen next April; council tax support will be localised from next April; and the wide-ranging review of local government funding will certainly not happen by next April, or even in the next few years.
In a few days the Bill will become law. If it is passed as it stands, from next April most working-age claimants will have to pay a significant part of their small income in council tax, often for the first time; and local authorities will have to collect relatively small sums from people who have not previously had to pay and who will find it very hard to start doing so. However, if the amendment is agreed and implemented, that need not happen. The funding gap can be breached by much smaller sums from those in the wider community who are already paying council tax, most of whom will benefit from a three-year freeze in general council tax increases.
That is not the world as we would wish it, but it is the world in which we find ourselves. To borrow a phrase used by the noble Baroness, Lady Hollis, in our debate on Report, this is “the real red line”. That is why the amendment is strongly supported by all four groups in the Local Government Association. I trust that it will receive equally strong support from all sides of the House. I beg to move.
My Lords, I will speak very briefly in support of the amendment because I see that very many speakers are listed for the debate that is to follow, and I am sure that they do not want to sit here too late.
I made my main point when I supported the similar but different amendment moved last week by the noble Lord, Lord Best. I will not repeat it but will instead make two points. First, in the debate on the previous amendment there was a reference to this issue being “poll tax number two”. I spoke about the poll tax on 16 October. The difference is that, for whatever reason—and people may want to criticise it fiercely—it was part of the original poll tax concept that “everybody should pay something”. In the circumstances, that was not acceptable to the public. In the present circumstances, the proposal by the Government is not intended deliberately to do that—but inadvertently this will be the result unless the amendment or something very like it is agreed. As was said in the debate on the previous amendment, and as my noble friend Lord Tope said, large numbers of people who hitherto have not had to pay council tax because they were given council tax reliefs will find themselves having to do this. This is something that we should try to avoid.
My second point picks up on something on which my noble friend the Minister has apparently laid great stress. On 16 October, she said,
“we have never consulted on reducing council tax discounts”.—[Official Report, 16/10/12; col. 1422.]
Does that mean that Parliament cannot pass an amendment for a proposal on which the Government have not consulted? Are we to be excluded from expressing our views and amending a clause in the Bill because Ministers chose not to consult on it? That is an extraordinary proposition, and I cannot believe—I say this with some kindness—that my noble friend has really worked out the consequences of what she said. It would put an enormous barrier in the way of Parliament debating legislation of this kind if Ministers could simply say, “You cannot possibly have this because we did not consult on it”. Ministers may not have consulted on it but some of us in Parliament and the Local Government Association, as my noble friend Lord Tope said, have come down strongly in favour of this amendment.
I simply cannot accept the argument that because the Government chose not to consult on something this House is prevented from passing it. With those two arguments, I totally support my noble friend Lord Tope. As I have made very clear to my Front Bench, if he presses this matter to a Division, I shall certainly support it.
My Lords, I also spoke at Report so I will be brief. It gives me some distress to say to my noble friend Lord Tope that, when he said that this amendment addresses the arguments against the amendment that we debated at such huge length on Report, I cannot agree with him. It does not address certain fundamental points of principle. I acknowledge that it is supported widely within the Local Government Association and by many council leaders who will be glad for a penny if they can get hold of one. However, the reality is that when you are making decisions about council tax you are not making decisions within a single box relating to benefit, you are looking at the totality of a local authority’s budget and budgetary decisions.
I hear my noble friend Lord Jenkin of Roding, who I unreservedly admire and whose expertise on these matters the House respects hugely. With respect, however, I must say that I think he is wrong to try to construct a doctrine whereby the Government are saying that because they had not consulted, Parliament cannot determine—because of course Parliament can determine. I made that point on Report. I say as a local authority leader that we have not consulted on this matter. We have not asked the public about it because it was not within the parameters of the scheme that was proposed.
Were Parliament suddenly to decide that this new broadening of the tax base should take place, it would be an enormous surprise to the council tax payers in almost every authority up and down the land suddenly to discover that a new tax was falling on many single person households. While I acknowledge that the popular and sensible move to protect pensioners is being taken, that only means that this change will bear down more heavily on other people involved as recipients of this discount, such as lone parents. We discussed that on Report. The amendment would mean that it would fall even more disproportionately on those heads.
Regardless of whether the provision is a doctrine of government, I do not think that the amendment addresses the problem. I have said throughout the course of the Bill’s passage that I would have preferred for this to be wrapped up in universal credit. I have been open about that. But it is a bit like the lady who swallowed a fly and then had to swallow a spider to catch the fly. It would make a further structural change in council tax benefit, which by definition has not been thought through or considered, to impose taxation on a large subset of single-parent households. I do not know whether we are talking about 8 million or 5 million of them; it could be fewer. Perhaps the Minister will tell us. But I do not think that that is a good way to make policy. It seems to be making policy on the hoof. Some of us might think that we are having rather a lot of that lately and I do not think that this House should add to it.
My Lords, I rise to support this amendment. Indeed, it would be very strange if I did not support it since I have worked on this issue for some months. With help from my indefatigable colleagues at the LGA, we have formulated this revised version of my earlier amendment after last week’s debate. So perhaps I should explain why it is not me who chose to bring this back before your Lordships.
The original amendment would have given full discretion to local authorities to vary the single person discount. This would have enabled councils to raise the necessary funds to compensate for the Government’s 10% cut to council tax benefit, making it unnecessary for them to start levying council tax on the poorest non-pensioner households. The modifications in this new version of the amendment, as set out by the noble Lord, Lord Tope, seek to address the criticisms raised in the debate last Tuesday. They limit the flexibility for councils to reduce the single person discount from 25% to no less than 20% and maintain the full 25% discount for single pensioners, regardless of their income. These constraints would very probably have been adopted by local authorities in any case, but having them in the Bill means there can be no cries of, “It’s a widow’s tax” or “It could mean lone parents being asked to pay another £5 per week”. The revised amendment means that most widows would be excluded and virtually everyone paying council tax in the bottom council tax bands would be charged well under £1 per week more. The relatively few single people in the most valuable properties, those in the top council tax bands, would be likely to see an increase of only a little over £2 per week if their council chose to use the discretionary power to the full. Since the single person discount reduction would come in a year when the Government are requiring another freeze for the overarching level of council tax, the reduction from 25% to 20% could not be even a fraction as painful and problematic as cutting council tax benefits by £3 to £5 or more for the poorest.
I had hoped very much that the Government and those of your Lordships who were hesitant to support the more open-ended amendment would be brought on board by the modified version. The LGA has articulated the very strong support of council leaders for this amendment, most particularly those leaders representing less affluent areas where more people are in receipt of council tax benefit and there are fewer opportunities to raise more taxation from high-value empty properties or second homes. This is the lifeline that could save councils from having to cut services or support to the most economically and socially vulnerable.
I promised my Cross Bench colleagues, who have been incredibly supportive, that if I failed to secure any movement in the position of the Government or the Labour Benches, I would not try their patience further and take up the time of the House with a battle that could not be won. Sadly, the Minister has made clear to me that despite the strength of feeling of the LGA and local authorities of all political persuasions, the Government will not budge. Equally, noble Lords on the opposition Front Bench have remained adamant that despite the strongest representations by Labour councils, they cannot support any change to the fixed 25% single person discount. I have had to conclude that my efforts have failed and it is not for me to bring back this matter to the Floor of the House. It would be like entering Frankel for a final race in the knowledge that he was bound to lose. However, I entirely respect the efforts of the noble Lords, Lord Tope and Lord Shipley, in continuing the fight, and of course I am hugely appreciative of the magnificent support that I and the LGA have had from the noble Lord, Lord Jenkin of Roding, throughout this lengthy saga.
Maybe there will be a last-minute change of heart by the Government or the opposition Front Bench. Certainly, all concerned have had a chance to see if the Government’s transitional £100 million grant could save the day. The verdict, I fear, is that although it will put back the day of reckoning for a year in some areas, it will not save the day in the least well-off areas, and for future years, of course, the position remains untenable in very many more places.
It may be that all that is left is a protest vote, but if protesting is all that we can do at this stage then protest I do. It is terrible to impose on councils the task of collecting taxes from people who do not have the money to pay; and it is terrible to subject those already struggling to survive on the very lowest incomes to a further reduction in their living standards. I do protest and, of course, I strongly support this amendment.
My Lords, last week, I reluctantly supported a similar amendment and, within a week, I have not changed my mind thoroughly—although I preferred the previous amendment because it was more localist than this one, which is more restrictive. I need to declare an interest as a vice-president at the LGA, but that is not why I support the amendment. I support it because I am a leader of a council and will have to make the kind of decisions that noble Lords have described. This may be the least-worst option for some of us. I do not quite agree with the noble Lord, Lord Best. The amendment will not save the day. As I said last week, it will be a help, but it will not save the day, because the gap between what my authority needs to raise to meet the shortfall in the council tax benefit scheme could not be raised under this particular text. However, it will help to mitigate some of the worst impacts that would be felt by other members of my community who are poor and cannot afford to pay the large amounts that they will have to pay if the council tax benefit scheme is introduced in the manner proposed. While I am reluctant to support the amendment, it is much better than having to do some of other things that, without it, I would have to do.
My Lords, I agree entirely with the noble Lord, Lord Smith, that this is the best of the options that we have available. Crucially—and it is the reason why I thought that the Government might be willing to accept it—the amendment would cost them nothing.
In her Written Statement last week announcing a £100 million transitional grant, the Minister said that it was,
“to help those councils who choose to do the right thing”.—[Official Report, 15/10/12; col. WS164.]
The problem with that is that it does not recognise that many councils cannot do that. There are several reasons why this is the case. We have heard reference to the council tax freeze—last year, this year and now next year. Last year was fine, because the Government built into the baseline of all local authorities the amount that they had lost through the tax being frozen, but, in this financial year and the next financial year, no money has been or will be built into the baseline. That means in practice that councils will have to absorb inflation and rising costs.
There was an expectation that councils, in being able to tax at 100% empty or second homes, would be able to make up the gap in their finances. The problem is that many councils do not have many empty homes or second homes and therefore cannot use that means to make up the gap in their finances.
We should also note, as I reminded the House on Report, that according to figures from the Institute for Fiscal Studies, councils in poorer parts of England have had budget cuts since 2010 at almost three times the rate of councils in the south of England. That is partly a result of the loss of working neighbourhoods funding.
The consequence of all these factors is that many councils have no flexibility or room for manoeuvre. This amendment would give them some extra flexibility. It would mean a small extra weekly sum from a large number of working-age, single person households, most of which have had a freeze in council tax for the past two years and would otherwise have a freeze next year. It would be enough in most cases to take poor working-age households out of paying council tax, thereby preventing a regressive tax being implemented.
Last week, at Report, I reminded the House of a statement made by the Deputy Prime Minister a few days ago. I shall repeat his words because I think they are hugely relevant. He said:
“As we have to tighten our belts … as we have to make more savings as a country … you start at the top and work your way down, not the other way round”.
I agree that those who are poor should be protected. The reason why I give my full support to the amendment is that it does just that: it protects the poor better than the Bill. Given that it has the full support of all political groups on the Local Government Association, I hope that your Lordships’ House will feel able to support it.
At this stage, we get down to essentials, as we did in the previous amendment. That amendment addressed the crux of the problem. I appreciated what the noble Baroness, Lady Hollis, said about this being in the universal credit. That has come through from various noble Lords. However, we are where we are, as my noble friend Lord Tope said, and we must deal with that.
The important thing about the amendment is that it gives discretion to local authorities. That discretion is important. Speaking as a councillor in the London Borough of Barnet, I believe that that would help my council, although it would not help all councils. It is an extension of the localism which we debated previously. This amendment and the previous amendment tabled by the noble Baroness, Lady Hollis, support the poorest in society. That is why, contrary to my normal beliefs, I voted for the previous amendment and will certainly vote for this one.
My noble friend Lord True spoke about the difficulties that it would impose on local authorities to have the change at this late stage and asked how it would help. As I said, local authorities have discretion whether to do this or not, and that discretion does not have to be applied this year—it could be applied next year. Many local authorities may decide to use their part of the £100 million in transitional relief this year to ease the pain but, as I pointed out on Report, it will help only this year. By next year, the amendment, building on the review suggested by the noble Baroness, Lady Hollis, will mean that local authorities can achieve my aim and, I hope, that of many noble Lords: to help the poorest in society.
My noble friend Lord True said that that was swallowing a spider to catch a fly. Without the amendment and the previous amendment, the Bill is a particularly dangerous fly and I think that it is worth swallowing the spider.
My Lords, let me start with a point of agreement with the noble Lord, Lord Tope, which is that the Government—his Government—have underfunded the requirement placed on local councils to introduce local council tax reduction schemes. That is the root cause of the problem that his amendment is intended to address.
It is now widely recognised that the cut in grant to support local schemes is more than 10%. For a start, the national control total is based on falling claimants, although the reverse is the case in a number of areas. That is to the disadvantage in particular of those areas which have been hardest hit by the extended recession. The IFS estimates that the grant for support—this is before the transitional grant—will cover only 81% of the costs of claimants nationally and that for one in 10, the figure will be less than 75%, a grim prospect indeed.
I say to the noble Lord, Lord Tope, and his colleagues in particular, that they accept this position as an inevitability. It is not. We are in this position because they as part of the Government do not knock on the Chancellor’s door or lobby Ministers to get a different outcome. It is in their hands to do it. They can influence their coalition partners better than we ever can. If they could do that, it would be a much more effective way of dealing with what we agree is a very serious problem.
In moving the amendment, the noble Lord explained, and other noble Lords reiterated, that this amendment differs from the amendment moved by the noble Lord, Lord Best in two respects: it gives discretion to local authorities to reduce the single person’s discount by up to 5% so that it cannot be lower than 20% and it does not allow local authorities to change the discount for pensioners, who are protected from any such change. However, as the noble Lord, Lord True, said, it does not address all the issues raised when we debated the amendment moved by the noble Lord, Lord Best. This more restrictive proposal will still have the effect of increasing levels of council tax support, other things being equal, because it will increase council tax levels for some, pushing them into the scope of the benefit. The LGA argues that an average reduction of 5% in the single person’s discount for non-pensioner households coupled with the use of the discretion on empty properties and second homes would close the funding gap for most authorities. It is further argued that this would involve spreading the pain of the cuts so that more people would be contributing, but contributing a smaller amount, towards the shortfall. This may well be right, but it does not necessarily make the resultant distributive effect of the outcome acceptable.
We should also recognise the point made by the noble Lord, Lord Shipley, that not all councils have an equal ability to raise revenue from other freedoms in the Bill. Second homes, for example, are not evenly spread. One of the difficulties with the noble Lord’s proposal is that looking at aggregate in the position is all very well, but things are played out at individual local authority level. This is supposed to be the essence of localism, which the noble Lord supports. The IFS has done some modelling of the proposition, albeit with a 7.5% reduction in the single person’s discount, and I believe that the thrust of analysis holds good. One of its conclusions is, unsurprisingly, that changing the discount would produce more in relatively prosperous areas than in poorer areas. The prosperous areas, which are likely to have lower demands for council tax support and more income from second homes, would be able to retain a higher level of single person’s discount than poorer areas. It is all right for the rich; it is the poorer areas that will bear the consequences of this. Further—and, I grant you, with a 7.5% reduction in the single person’s discount—the IFS estimates that losers would include 20% of the poorest income decile group, 16% of the second poorest income decile group, 22% of the third poorest income decile group and 86% of lone parents in work. This is reinforcing the point that in many respects the proposition requires the poor to pay more to protect the very poor.
We well recognise that councils whose resources have been cut to the bone and are struggling to protect the most vulnerable see this as a lifeline, and I understand where my noble friend Lord Smith is coming from, but there has got to be a better way. Frankly, if the noble Lord is supporting an increase in the tax base by a change to the single person’s discount, it would be more logical for him to argue that there should be a mandatory change at national level and the additional resources should be reflected in the local government settlement with a redistribution in favour of poorer areas. That would be a better way to approach it, but that is not his position, nor is it ours. As we argued on Report, the answer is for the Government to provide proper levels of support. The Government have implicitly recognised this in providing the transitional grant but, as ever, that is too limited and time-limited. I suggest to the noble Lord that by pressing this amendment he is seeking to let his Government off the hook and asking poor people, among others, to pay the price. We cannot support the amendment.
My Lords, I thank those noble Lords who have returned to the battle on this front, and I thank the noble Lord opposite for indicating where his party stands on this.
It might be worth reminding the House why we are in the position that we are in. We still sit on one of the largest deficits that this country has ever seen, and everything and every aspect is having to make a contribution to that. If we had not inherited that financial situation, we would not be here.
Let us be clear: the amendment is a tax rise on millions of single people, even in the reduced form that now comes before us. An amendment to give local authorities complete discretion over the level of discount was discussed for over an hour and a half on Report, but ultimately was not pressed. The Government were opposed to any change in the single-person discount then, and our position has not changed now. The single-person discount was part of the regional council tax system. It was part only of the system, not of anything to do with what was then council tax benefit. It is correct that it was not included or considered as part of the consultation on changes to support for council tax benefit. Noble Lords have said, “Well, that doesn’t matter; we can produce this in this House if we wish to”, and of course that is absolutely right—that can be done. In broad terms, though, the country has not been asked about this, although we have heard views about it. The noble Lord, Lord True, is correct in what he said; it goes back to the fact that this was not part of the original local government scheme.
The single-person discount exists because, by and large, single-adult households make less use of local authority services. I accept that there are some who do not—those who need adult support or social services support—but by and large single people, and I return to the fact that I am a beneficiary of this particular discount, do not make as much use of the facilities.
I do not want to repeat my arguments from Report but I want to be clear on the impact that the amendment would have. Changes to the single-person discount would be, as I have already said, a significant tax increase. Although the amendment clearly excepts pensioners, it would still hit other groups such as single parents and low-income people of working age. It is important, perhaps, to be aware that in October 2011—the noble Lord, Lord McKenzie, came to this conclusion in a different way—more than three-quarters of the claimants of single-person discount were in dwellings that were banded A to C. Only one-third live in band A and only 10% of such claimants live in properties that are band E, so the effect would fall disproportionately on the people who lived in the lower-cost accommodation—and I suspect that most of those would be people who by definition would not be considered to be very well off. So the amendment would tax those whom noble Lords are seeking to help.
Noble Lords have previously commented on the amount of revenue that may be raised by reducing the rate of discount. I would like to sound a note of caution. People losing their single-person discount under this amendment may ultimately find themselves in greater need of help with their council tax. This would mean curtailing the impact of any additional resources, putting more people in need of council tax support and creating unintended pressures on councils. I am sure that the House would agree that it is not quite the outcome for this amendment that would be expected or hoped for.
Finally, without a direct correlation between distribution and financial need, it is not at all certain that the limit of new funds that the amendment would realise would indeed help those councils which the noble Lord is trying to support—another point which the noble Lord, Lord McKenzie, made very strongly in his comments.
I have made it clear from the outset that the Government will not be supporting this tax rise on several million people. I tell the House that the Government will not be able to support this amendment.
My Lords, I am of course grateful to all noble Lords who have spoken in this debate, particularly to those who have spoken, from all sides of the House, in support of the amendment. I pay particular tribute to the noble Lord, Lord Best, who has indeed fought this fight, not to make policy on the hoof, as the noble Lord, Lord True, suggested, but who has tried to bring it about for many, many months. The noble Lord, Lord Best, will understand if I say that his view that it is not worth entering the race if you are bound to lose is not shared by most Liberal Democrats. Similarly, we are grateful to him for his offer of a protest vote. That is something that we are also used to gratefully receiving; we sometimes put them to surprisingly good effect, as I hope that we will today.
The Minister has said, quite rightly, that if this amendment were passed, it would be a tax rise for some. It would. It would be a small tax rise where local authorities chose to vary the single-person discount, and not all of them will do that. It would be a small tax rise for those in receipt of the full 25% discount.
The cut in funding for council tax support being implemented in the way that most local authorities are having to do so is itself a tax rise for the people least well able to afford it. I do not pretend for one moment that the amendment is ideal, the perfect solution, the cure-all. Of course it is not. It is what the noble Lord, Lord Smith, quite rightly described as the least worst option. It is the least worst option that is before us tonight. We have heard speeches in support of it from all sides of the House tonight. I hope very much that we will see them translated into support.
I find it inexplicable—I have used that term before—that the Labour Party is choosing today to vote with the Conservative Government and against the amendment.
My Lords, as the noble Lord never ceases to remind us, we are actually part of the Government, and willingly so. We have been lobbying for a long time on this issue. I do not lightly bring an amendment to the House which I know that my coalition partners cannot agree with. I do so because we are at the very last stage of the Bill. This is the last opportunity that any of us in this House have to do something about it. I am now going to give the House the opportunity. I beg leave to test the opinion of the House.
3: Before Clause 9, insert the following new Clause—
“Guidance to authorities
The Secretary of State shall issue guidance to local authorities as to what persons or category of persons shall be deemed to be vulnerable for the purposes of ongoing council tax support.”
My Lords, this is a straightforward issue which was the subject of much debate in Committee. The amendment requires the Secretary of State to,
“issue guidance to local authorities as to what persons or category of persons shall be deemed to be vulnerable for the purposes of … council tax support”.
This issue has to be revisited in light of the actual scope of schemes on which local authorities have consulted and the Government’s reaction by way of the transitional grant. Hitherto, the Government had set their face against prescribing the protection which councils should provide for vulnerable groups and the nature of that protection, other than for pensioners where statutory protections have been included. They have reminded local authorities of their equality duty, the duty to prevent homelessness and the obligation to mitigate child poverty but have washed their hands of greater engagement on the subject.
What effect has this had on councils in drafting and consulting on schemes? The LGA tells us that councils are seeking to give protection to vulnerable groups through their equalities impact assessments, although the outcome of this has not been analysed. Apparently, the groups identified in consultations as being vulnerable are people with a disability, lone parents with children, carers, war widows and young people leaving care. Notwithstanding this, some of the draft schemes appear to pay scant regard to protecting vulnerable people. There is a common theme of everyone of working age having to make a minimum contribution—perhaps 20% or even 30% of the liability. Some draft schemes look to include child benefit and maintenance payments as income.
In introducing the transitional grant, the Government have expressed their concern that while some councils are doing their utmost to avoid increasing the burden on those currently on benefits, who are vulnerable by any definition, other councils are asking, or being forced to ask, for significant contributions. Therefore, the Government are seeking to drive a national uniformity of approach by making transitional grant available if certain criteria are met. In particular, as we have just discussed, the funding can be accessed if those currently on 100% council tax benefit are supported so that they pay no more than 8.5% of what would be the full liability.
Although the transitional funding is too little and only for one year, it is at least a step in the right direction that the Government identified those currently being passported to full council tax benefit as a group who should be protected—at least to a level. If not specific guidance, it is the Government giving clear signals as to some whom they consider are vulnerable. Those being passported are those on means-tested benefits—income support, income-related JSA, income related ESA and the guaranteed pension credit. It will be seen that this is a broad group encompassing lone parents with young children, recipients of carer’s allowance, the unemployed and disabled people subject to employment and support allowance. This should not be the extent of the protection available to vulnerable people, especially those with a disability. At present, if someone is means-tested rather than passported, certain types of income are ignored—DLA, the care and mobility components, and constant attendance allowance. Clearly, guidance should cover these issues. Importantly, they do not need to be identified by reference to local criteria. It is not local judgments that are in play here in the Government introducing this national uniformity approach.
Surely the lesson, even at this early stage of the new arrangements, is that unless some authoritative guidance is provided by the Secretary of State, some vulnerable people will be further disadvantaged. The transitional grant criteria may not endure as authoritative when grant disappears or when those individual benefits are replaced by universal credit. The Government have effectively crossed the Rubicon and accepted that central guidance and/or encouragement to drive good practice has proved to be essential. Clearly, many councils will strive to protect vulnerable people but the financial pressures on them, now and in the immediate future, will be overwhelming. Keeping national markers is one way of helping to avoid the voices of the most disadvantaged being lost. I beg to move.
My Lords, I take pleasure in supporting the amendment so ably moved by my noble friend. In Committee, we asked for guidance as to who were vulnerable and what council tax benefit protection for them was appropriate. The Minister replied, correctly of course, that although there was a power under the Act for the Secretary of State to issue guidance to that effect, he did not propose to do so.
In the past week, we have had the welcome news of the £100 million transitional grant for those on benefit but, as my noble friend emphasised, it lasts for one year only. While reducing the cuts for many vulnerable people for one year, it creates the poll tax mark 2 problem of trying to collect small sums from 2 million people. The following year, vulnerable people will again be fully exposed to the cuts. This is simply not fair to local authorities or to the vulnerable people living in them, who may be facing three different schemes in each of three years—full protection this year, up to 8.5% next year, and the full cut the year after. The Government’s transitional grant reflects the fact that they now see just what localism can mean in practice, and they do not like what they see.
I am glad of the real decency that the Minister has shown, and we expect nothing less of her, but vulnerable people will still have to deal with the fallout when the transitional grant has expired unless, as the amendment argues, funding is provided on a sustainable basis. Let me take Norfolk as an example. I declare an interest as Deputy Lieutenant and a former city councillor and county councillor. There are seven district councils and these are their proposals so far: Norwich is struggling to retain the existing national default scheme and is making cuts to do so, and there is therefore no minimum contribution for people on benefit. Great Yarmouth is proposing a minimum contribution from benefit claimants of 20%. King’s Lynn proposes a figure of 25%. Breckland, Broadland and North Norfolk propose a straight 30%, even though North Norfolk and Broadland have high numbers of second homes, which one would have thought would have given them some head space to protect people against the cuts. South Norfolk proposes to compress bands down to band D and then drop below D to bands C, B and A, and then levy 20%. That means a 28% minimum contribution for benefit claimants in band A properties and potentially up to 60% for the high bands. I am very happy to share my workings with anyone who queries that.
Therefore, there are five schemes among seven neighbouring authorities in one county with different minimum payments for vulnerable people on benefit ranging from 0% to potentially 60%, to say nothing about different rules for savings, income, backdating and the second adult rebate. It is quite likely that many of these councils will take up the transitional grant—I hope that they do—but in the year after that they will be back up there with these awful cuts.
Yet we are still told, although less stridently, that this is all about appropriate local decision-making—for example, that local authorities are uniquely placed to decide that they should permit backdating, because presumably the individual local authority knows its patch and has a high proportion of people with fallible memories and slow response times, so it keeps backdating, while a neighbouring authority is scrapping backdating because it is confident that its residents are much sharper than those of the authority next door and will be quick to claim. For one to have backdating and the other not on some reading of the mentality of the residents is presumably an unusual assessment of local need. Or it may be that one authority knows that its residents need savings of up to £6,000 in total because its unique insight into local need tells it that its residents will not face divorce or disability, which makes such savings necessary, while the authority next door is less sanguine about its capacity to foretell the future needs of its residents, so it allows them £16,000 in savings. Do your Lordships really believe that all this is about unique local insight into unique local needs in the name of unique localism?
Alternatively, let us take income. Every scheme that I have seen regards disabled people as vulnerable, but some include DLA as income and others do not. As DLA—if you take the middle-rate care and higher-rate mobility components—can be nearly £100, if it is counted as income that household will make a significant contribution to council tax benefit and to council tax; if it is not so counted, it will probably be exempt. Therefore, there could be two blind people in identical circumstances but one would be made deliberately poorer than the other because, unluckily, he lives in the “wrong” authority and the value of his DLA awarded nationally is cut by local discretion. Is that what we intended when we awarded DLA? What is the point of a national benefit funded by taxpayers if it is vulnerable to local cuts made by local councillors? That is what is going to happen.
All my life I have fought for and believed in local government. Assessing and meeting housing need, for example, is a proper duty of local authorities and a proper subject for local discretion. However, what is not a proper local decision is for local authorities to determine what income vulnerable people should receive. That is and should continue to be a matter of individual entitlement, national criteria and common responsibility and not a matter for local discretion and local handouts.
Disabled people and their carers are scattered across the country. Although they may happen to live in a particular locality, their disability is in no sense local. Therefore, their income support—and council tax benefit is part of their income support—should not be a local responsibility and it is not up to the locality to meet it. Whether there are 2,000 disabled people in Merthyr Tydfil or 200 in west Oxfordshire, they are the responsibility of us all.
I do not believe for a moment that local councillors want to treat disabled people unfairly or more harshly than their next-door neighbours. They do not want to add more financial distress to the lone parent with a five year-old child, desperately searching for work. They do not want to undermine the support that a carer seeks to give to an elderly parent. However, as my noble friend has argued, without sustainable funding for their vulnerable residents, that is what they are going to be doing in 18 months’ time.
The Government have given themselves and local councils a breathing space of a year. They and we should use that year to come up with fairer, better and stable arrangements for meeting the financial need of the most vulnerable people in our society. I support the amendment.
My Lords, I will intervene very briefly. We have heard two very powerful speeches from my noble friends in support of this amendment. The more I have listened to the debate during the passage of this Bill, the more I have come to the conclusion that all the talk about protecting vulnerable groups is simply a fig leaf. The Government say that they want to protect vulnerable groups but they do nothing to ensure that local authorities do so. Indeed, there is not even any mention of vulnerable groups in the eligibility criteria for the transitional funding. They know full well, while also saying that local authorities should have regard to work incentives, that they are putting local authorities between a rock and hard place.
My own authority, Nottingham, is not going to protect vulnerable groups because it is going to spread the pain out among all working-age people. My noble friend Lord McKenzie has suggested that this is probably what many authorities are going to do. The Government can then turn around and blame the local authorities by saying that it is the local authorities that are refusing to protect vulnerable groups, having set up a scheme but not having given them enough money to ensure that they protect vulnerable groups. It really is not on. What are the Government going to do to monitor the impact of the new scheme on local groups? If this monitoring produces the evidence that vulnerable groups are not being protected, what action will the Government take? Ultimately the buck should stop with the Government, not with the local authorities, in terms of ensuring that vulnerable groups are protected.
My Lords, I thank the noble Lord for introducing this amendment and for his explanation, as well as the other speakers. Amendment 3 is quite a tight amendment—although we have rather waltzed away from it—that would require the Secretary of State to issue guidance setting out who is considered vulnerable for the purposes of local schemes.
As noble Lords are aware, the Government have made it clear that local authorities should make good provision for vulnerable people in their communities. However, we do not believe it would be helpful to create a new definition of vulnerability, particularly when local authorities already operate within a framework of responsibilities in relation to vulnerable groups. The Department for Communities and Local Government is at the moment working with the Department for Work and Pensions to ensure that local authorities will continue to receive appropriate data on current benefits and universal credit for those who would be considered vulnerable. This could include data that would help local authorities identify individuals they considered to be vulnerable, such as those who have a disability, so that they are able to provide that support in future.
As I said before, local authorities are well aware of their responsibilities and their own priorities and do not need further hand-holding by central government. I am satisfied that local authorities are already alive to the need to protect the vulnerable and to draft schemes, which many are considering, on how to support those they consider to be vulnerable. A number of councils, including Arun, South Tyneside, North East Lincolnshire, Portsmouth and Daventry, to name just a few, are all proposing schemes that make some special provision for people who the council consider particularly vulnerable, whether disabled people or families with young children.
As we have discussed previously, we have already published guidance that reminds local authorities of the statutory framework in which they operate and of their existing responsibilities in relation to people who are considered to be vulnerable. I am pleased to have had the opportunity, throughout our discussions at various stages of this Bill, to draw attention to these important responsibilities. As I indicated to the noble Baroness, Lady Lister, on Report, I am content and happy to bring this guidance to the attention of local authorities again, while alerting them to potential future legislative changes relating to carers, as set out in the draft care and support Bill, which they will also want to be aware of. However, given that local authorities already have an established and understood framework of statutory responsibilities in relation to promoting equality of treatment for individuals who are vulnerable through the design of their schemes, I do not believe that there is any value in creating new guidance.
I am aware, however, that a number of draft schemes propose a significant increase in the tax burden on those currently paying no council tax. It is disappointing that a number of councils have not felt able, in the light of their responsibilities towards vulnerable groups, to design schemes that avoid placing very great financial pressures on those least able to pay. That is why we have introduced the transition grant, to help those authorities which undertake to avoid significant cuts to awards in the first year, to find other more sustainable ways of managing the reduction in the future.
To be compliant with the grant criteria, an authority must develop a scheme that ensures that no one who would be eligible for 100% support based on current criteria can be asked to pay more than 8.5%. We have discussed that previously at length, so I do not need to go through the whole system again. I have the guidance here and I give a commitment to the House that it can be put forward again to local authorities to remind them of their duties.
The noble Baroness says that she already has the guidance. The guidance spells out the equality duties and so on under legislation. However, it does not actually cover some groups of people; for example, carers are not part of the groups covered under the legislation. Nor does the guidance easily translate the vocabulary of rights and discrimination, which is what the Equality Act is about, into the need for financial support. If the Minister proposes to reissue that document, could she add an addendum on the implications of that document on this piece of legislation?
My Lords, I thank my noble friends Lady Hollis and Lady Lister for their support for the amendment. My noble friend Lady Hollis ranged over those draft schemes which, to her knowledge, are in a different place on a whole range of different components. She made the point about how local schemes undermine the import of national benefits, particularly DLA. My noble friend Lady Lister questioned whether there was any serious attempt on behalf of the Government to ensure that vulnerable people are protected.
The Minister said that she would reissue the guidance, such as it exists, which is to be welcomed. However, it does not go very far. Is not the lesson to be learnt from this that when you saw how schemes were being developed, what consultations had taken place and what was emerging from that, there was clearly insufficient protection for vulnerable people in many schemes? I think the Minister recognised that. That is still on the basis that councils, in the Minister's terms, should be well aware of their equalities duties, homelessness duties and child poverty duties. They are already in a position where they should be aware of that framework, yet they are still, as we know, being forced, due to a lack of funding, to come forward with schemes that simply do not protect vulnerable people sufficiently and the Minister herself has recognised that. That is why the transition grant had to be brought in, in a sense, to try to bend what individual councils were doing into some sort of national criteria.
One would have thought that that experience would validate the need for some ongoing guidance because that grant will disappear after a year and the import of it will dissipate over time. It is a great pity that the Minister and the Government do not feel able to do more on this front. It is a very critical time for local council tax support schemes. We know that funding is very tight and we should be doing absolutely everything that we can to protect the most vulnerable. This is an opportunity for the Government to be part of that. I regret that they are choosing not to do that. Having said that and given where we are, I beg leave to withdraw the amendment.
Amendment 3 withdrawn.
4: Clause 9, page 5, line 32, at end insert—
“( ) No council tax reduction scheme shall, taking account of withdrawal of other benefits, have a taper which produces an overall withdrawal rate greater than that which would result from the application of the default scheme.”
My Lords, the amendment is designed to help the Government. To that extent, I hope that the Minister will embrace it enthusiastically. I spent some time as a special adviser at the Treasury. During work on my first Budget, I learnt one important fact: it is possible for things to be simultaneously very important and extremely dull. I am afraid that my speech may fulfil that theory completely, but I hope that the House will bear with me. In preparing for it, I was very grateful for advice from many quarters, including the National Policy Institute and the Children’s Society. I am also grateful to the Minister for allowing me access to her officials, to help me understand the implications of government policy.
At present, the taper rate for council tax benefit is 20%. In other words, for each additional £100 of income somebody has, they lose £20 in council tax benefit. That does not sound much, but it comes on top of a series of other tapers. If someone is on a low income but pays tax and national insurance and gets tax credits, after a certain point, for every £100 she earns, she will lose £32 in tax and national insurance, and another £41 in lost tax credits, leaving her with £27 out of the £100. The housing benefit taper is set at 65%, so she will be left with £17.60. The council tax benefit taper is set at 20%, so she will have about a fiver left out of the £100 extra that she has earned. That is what is called a maximum taper of 96%.
That may sound bad, but it could be about to get a lot worse. The National Policy Institute found that some councils were either proposing an increased taper or were consulting on increasing the taper from the current 20%. For example, I looked up the draft scheme proposed by Trafford Council. It includes a proposal to increase the taper from 20% to 30%. Interestingly, the text of the paper outlining the draft scheme states in paragraph 6.6:
“The draft scheme is designed to underpin the principle ‘Encouraging and supporting people back into work’ and the Government’s welfare reform principles below … People should get more overall income in work than out of work … People should get more overall income from working more and earning more”.
Is this what will happen? With a 30% taper on council tax, that person will face a combined taper of 99%. Of the extra £100, she will get to keep little more than £1.
Increasing the taper from 20% to 30% does not save very much, either. The report from the Institute for Fiscal Studies showed that it saved about 2% nationally across the council tax bill. However, as the IFS noted, because it reduces support at low levels of earnings, it reduces the incentive for some families to have someone in low-paid work. If the taper were to go over 35%, the worker would actually lose money. In other words, she would earn an extra £100 but would have less money in her pocket than before she earned it.
What is the solution? The Government explained that their solution to the problem of high marginal deduction rates was the introduction of universal credit. This was explained in another place in a Written Answer by the DWP Minister, the right honourable Chris Grayling, on 1 April last year. In response to a question from Liam Byrne, he said:
“Universal credit will improve the incentives to increase hours of work. At present some 0.7 million households in low paid work lose 80% or more of any increase in earnings. Under universal credit, virtually no households will have deduction rates above 76%”.—[Official Report, Commons, 1/4/11; col. 518W.]
Sadly, that was before taking into account the fact that council tax support would fall outside universal credit. Even on the current 20% taper, someone paying tax and national insurance could just nudge over the 80% combined taper. With a 25% taper on council tax support, the combined taper reaches 82%—and onwards and upwards. Therefore, we have a problem with the plan for universal credit to be the vehicle for stopping large numbers of people having high marginal deduction rates. It also means that the Government can no longer offer any assurance about people being better off in work, because the answer to the question, “Will I be better off in work or if I work more hours?”, will in future be simple. It will be, “It depends where you live”.
It is also worth remembering that the welfare to work programme is national. When the Government increase conditionality and tell a lone parent that she must take a low-paid job even if it means working in the school holidays when she would rather be with her children, they will not in future even be able to guarantee that she will be better off because they cannot necessarily guarantee how her local council will treat council tax support. Of course, by the time she has had to face other changes to tax and benefits and indeed possibly pay 7% of any maintenance in charges, she could be quite a bit worse off.
However, this is Third Reading and we cannot unpick the mess that is caused by keeping council tax support outside universal credit. But we can limit the damage. If the Minister cannot accept my marvellous amendment I hope that she will at least ensure that the guidance issued to local authorities makes clear the consequences of higher tapers. I fear that not all councils will necessarily understand the consequences of these decisions. I therefore hope that she will do that and recommend that the maximum taper be limited to that in the Government’s own default scheme.
I hope that the Minister will be able to accept this narrow amendment. All that it does is to insist that authorities cannot create schemes with means tests that are more aggressive than the Government's own default scheme. In so doing, it would ensure that the working poor could at least keep some of any increase in earnings. Surely we can all agree on that. I beg to move.
My Lords, Amendment 5 deals with the issue of work incentives. One of the central tenets of the coalition Government’s welfare announcements was that there should be no disincentive to work. “We will make work pay”, they said. However, there is no reference to work incentives in the Bill. The proposed schemes devised by councils to localise council tax benefits actually contain many disincentives to work. Since Committee, we have had the announcement of a transitional £100 million to assist councils in 2013-14. The government Statement referred to maintaining positive incentives to work and called for no sharp reductions in support for those entering work. But the changes will still have a massive impact on the working poor. Incidentally, the announcement also laid bare the myth of localism.
Let us remind ourselves that council tax benefits are in-work benefits. Nearly 750,000 people are non-passported recipients of council tax benefit and in work. It is the most comprehensively claimed benefit, despite the fact that a large number of eligible older people do not claim it. People who do claim it are in low-paid and often part-time work. In Committee, I outlined at least seven disincentives to work contained in local authority proposals to localise council tax benefits. I do not intend to go through them today in detail as they are already on the record, but they include: increasing tapers; the further exploitation of non-dependent deductions; removing working tax credit income disregards by varying amounts; making workers with income regarded as greater than need contribute more through increasing the rate of withdrawal; capping support at the level for band D, E or F; and, finally, everyone paying something—a return to the poll tax, but without anything included within income support, jobseeker’s allowance or ESA to counter it.
The £100 million transitional grant is supposed to reassure us that the Government are putting in place protections for the poorest and most vulnerable. That is not the case, as outlined by my noble friend Lady Lister. It is a temporary measure to help push through the new poor law. The irony is that the recently announced transitional grant will benefit councils that are relatively better off, which will find it easier to devise schemes that qualify for the grant. The Local Government Association has indicated that it is “questionable” how many of the 104 councils proposing a minimum payment of 20% stand to benefit.
The Minister’s Written Statement urges the development of well-designed council tax support schemes and to “avoid collecting small payments”. I believe that in practice local authorities are in an impossible position. The impact on those in work is completely sidestepped in that Statement. With 23 applications for every job vacancy, some working people are clinging on to their jobs by their fingernails. Comparatively small amounts being chipped away on council tax benefit, the bedroom tax, wage freezes and energy price increases will, when taken together, make the difference between just about holding things together and the whole pack of cards collapsing. Being presented with a council tax bill or an unexpected increase in that bill could be the pivotal point for some working families in deciding that work does not pay.
Where are the greatest number of working people who will be affected? County Durham has 5,810 working recipients of council tax benefit. There are more than 8,000 in Manchester, over 6,000 in Liverpool, 3,500 in Wigan and 3,500 in Salford. These are some of the poorest areas in the country, while South Bucks has only 420 and the City of London has 40. This redistribution of wealth is shameful and will have consequences for employment. The Government need to demonstrate that they are in favour of work incentives as opposed to benefit disincentives or this measure will be seen as an attack on the working poor. That is why I have tabled my amendment.
Rather than rising to speak, the noble Lord was nodding his head, so I was not sure whether he was going to intervene. We shall have to come to an agreement for the next two groups of amendments.
Amendment 2, moved by the noble Baroness, Lady Sherlock, and Amendment 3, spoken to by the noble Baroness, Lady Donaghy, are concerned with the interaction between the local schemes and work incentives. I share the concern that work incentives should be supported. That is why earlier this year the Government published guidance to which the noble Baroness, Lady Sherlock, referred, setting out the key features that local authorities should consider including in their schemes to support work incentives. All noble Lords have acknowledged that the transition grant scheme will provide a financial incentive for local authorities to implement those schemes that support work, ensuring that there are no cliff-edges—that is the 25%—as claimants enter work and increase their earnings, and that support is tapered away steadily as their earnings increase. Amendment 2 is intended to control the rate at which council tax support and other benefits are withdrawn to help preserve those work incentives.
In Committee we set out our intentions for the default scheme that will come into force if a local authority fails to adopt a local scheme. We clarified in particular how we intended to take universal credit income into account in that scheme. Officials from my department have continued to work closely with officials from the Department for Work and Pensions to refine the proposals we set out earlier this year so as to ensure that the default scheme avoids unintended interactions with universal credit and supports the strong work incentives that universal credit was intended to deliver. Indeed, my officials have discussed this with the noble Baroness, Lady Sherlock.
The approach set out in the default scheme to treating universal credit income clearly supports work incentives, and I will expand on two key features. First, universal credit will be tapered away by 65% before it is taken into account as income under council tax support schemes. This means that the 20% taper under the default scheme will apply only to residual income once universal credit has been tapered away, and helps to control the overall withdrawal rate. For people below the income tax and national insurance thresholds, the combined marginal deduction rate would be 72%, which for many households would be a significant improvement on the current system. Secondly, the default scheme reflects the fact that universal credit will allow people to earn more income before it starts to be withdrawn. The default scheme allows for council tax support to be withdrawn earlier, minimising the extent to which the means tests interact. Local authorities will not be required to treat universal credit cases in the way provided for in the default scheme, but there are very good reasons why they should want to use this framework as a starting point.
Amendment 3 is intended to require local authorities to have regard to work incentives in designing their local schemes. As I explained when this amendment was first tabled in Committee, I agree with the noble Baroness that work should be supported. As I have said, the Government have published guidance that will help authorities to do that. We are very happy to revise and reintroduce this guidance in order to set out clearly the approach that the department is taking to provide for the treatment of universal credit in the default scheme and to emphasise the benefits of this approach to local authorities, which I think is more or less what the noble Baroness, Lady Sherlock, is asking for. I am also content to use the refreshed guidance to set out the implications for work incentives of increasing the taper rate to help local authorities in their considerations. More particularly, officials will continue to discuss the content of the guidance with the two noble Baronesses as it is developed, and I am very grateful to them for their constructive contributions. I hope that, with their help, we will be able to produce guidance that they can accept. While I cannot accept the amendments, I hope that my assurances go some way to addressing their concerns.
My Lords, I am grateful to the Minister. For the record, I would like to clarify that I think her comments about Amendment 2 in fact relate to Amendment 4 and those about Amendment 3 relate to Amendment 5. Obviously the amendment numbers have changed—I see that the noble Baroness is nodding in assent—so I should like to clarify the record for those who read the proceedings in Hansard later.
I would have preferred it if the Government had felt able to accept the amendment, but I am grateful to the Minister for her willingness to change the guidance in the way she has described, and for her department to continue to engage. In the light of that, I beg leave to withdraw the amendment.
Amendment 4 withdrawn.
Amendment 5 not moved.
Clause 13 : Regulations about powers to require information, offences and penalties
6: Clause 13, page 10, line 18, after “or” insert “knowingly”
My Lords, in moving Amendment 6, I shall speak also to Amendment 7. Clause 13 provides for the creation of new criminal offences that could apply to claimants who provide information to the best of their ability, or indeed to advice workers acting in good faith on behalf of their clients. Many innocent people could find themselves liable to criminal charge or under investigation by the police. Proposed new Section 14B(1)(b) introduces a criminal offence for failing to comply with any requirement under specified regulations—I will not go into the detail of the regulations—or failing to comply with the requirements of any arrangements entered into in accordance with such regulations. Proposed new Section 14B(1)(c) creates a criminal offence for,
“failing, when required to do so … to provide any information or document in connection with a person’s liability to pay council tax”.
The sub-paragraphs also apply to a refusal to comply, but these amendments do not apply to people who refuse to comply, because presumably if someone refuses to comply, that is done knowingly and willingly. I am focusing simply on the failure to comply, and I shall try to explain why we need some adjustment. The amendments require that a person knowingly fails to comply with a requirement if their failure is to amount to a criminal offence. My noble and learned friend Lord Lloyd will suggest some alternative wording that might be introduced into this proposed new section, and indeed I sent a note to the Minister to explain that.
I want briefly to explain why the thrust of the amendment is important. Clause 13 will not apply to the great majority of council tax payers whose council tax is based on the predetermined value of their property. They do not have to submit information about their income year by year. The people who may find themselves charged with an offence will be single and vulnerable people entitled to a discount assessed on the basis of their circumstances.
The groups of vulnerable people at risk of criminal charge will include those with serious mental impairment and their carers; spouses or dependants of foreign students who may not speak English very well; people in prison or other forms of detention or in a bail hostel; and people in hospital or in care homes and hostels. Without help, these claimants are at risk of providing wrong information. Many of them have difficulty getting through each day without worrying about whether a form they completed months previously remains correct in every detail.
The circumstances of these vulnerable people often change frequently. People with chronic conditions, for example, move in and out of hospital fairly regularly. The citizen can never be sure, at the time of or after submitting information, that the regulations will not have changed since the year before. A significant risk to council tax payers arises from Regulations 3, 10 and 11 of the Council Tax (Administration and Enforcement) Regulations 1992, which require information to be supplied by taxpayers within 21 days if they are served by written notice or assumptions change in the course of the financial year. If Clause 13 of the Bill is passed without our amendments, council tax payers who are unaware of Regulations 3, 10 and 11—surely nearly all of us—and who therefore fail to act in accordance with them become potentially liable to a criminal prosecution.
Let us put ourselves in the position of someone coming out of hospital, probably still severely unwell. These days, as we know, people do not remain in hospital a single day longer than they absolutely have to. They will probably find a pile of post on their doorstep. We can expect those people to concentrate on getting well, coping with daily life, shopping, cooking and doing the usual daily chores. It may be some weeks before they feel up to dealing with the pile of unopened mail—maybe beyond the 21-day limit. Such a council tax payer will not have knowingly failed to comply with any requirement for information, yet they may find in that pile of mail an order requiring them to provide information which they will inadvertently have failed to comply with. Can any one of us seriously suggest that, in that situation, that person will have committed a crime?
Alan Murdie, a barrister who edited the CPAG handbook on council tax for 14 years and who has kindly briefed me for this debate, is concerned that this situation will be made worse because the standards of administration of council tax are apparently worse than at any time in the past 20 years. He is well placed to make that judgment. At best, says Alan Murdie, people will be pursued in error and, at worst—I must say that this shocked me, but I trust this person who deals with these situations all the time—the provisions will be used to extort money from people by unscrupulous officials. Mr Murdie says:
“The council tax is the most complicated local taxation system ever devised. Even after 20 years many aspects of the tax are unclear and open to argument and errors are rife throughout the system. The council tax has gone beyond what ordinary members of the public can understand”.
The council tax benefit regulations alone are apparently longer than the whole of the General Rate Act 1967.
Z2K is experiencing a growing number of cases involving vulnerable people being targeted with demands for money which they do not owe—that, for me, is deeply distressing. Just one example is that of a young man who was threatened with enforcement and imprisonment for tax that he did not owe to Southwark Council. He committed suicide. How many more people are at risk of suicide if these provisions go ahead without any mens rea requirement? The Government risk a re-run of the 1990s, when thousands of people were wrongly jailed for local tax default, resulting in more than 1,000 cases being overturned on appeal in the High Court on judicial review and in cases coming before the European Court of Human Rights.
The amendments will not prevent any vulnerable people being wrongly charged over debts they do not have. The amendments will, however, reduce the number of such cases—I hope significantly. I know that the Minister is aware of the widespread concerns about Clause 13. I trust that the Government will be able to make the limited concession encompassed in the amendments.
My Lords, I strongly support the thinking which lies behind the amendment, for all the reasons so eloquently given by the noble Baroness, Lady Meacher, and for all the reasons which she gave late at night last week at the very end of the Report stage. I regret that I was unable to be present on that occasion.
My only concern now is that the single word that she has chosen to bring about her purpose may not be the very best one. There may, after all, be all sorts of reasons for a person failing to comply with a requirement, good as well as bad, and there may be good reasons even when a person knows that he is failing to comply with the requirement. What is needed is a word which distinguishes between the good and the bad reasons. The ordinary words which are always used to do that, which I think is the objective that the noble Baroness has in mind, would not be “knowingly” failing but failing “without reasonable excuse”. It so happens that those are the very words which are used in paragraph 1(2)(b) of Schedule 3 to the 1992 Act, which is the Act that we are amending and which there imposes a civil penalty of £50. Those words, “without reasonable excuse”, which we already find in the Act, are all the more relevant and important now that we are turning the civil remedies into criminal offences.
I am of course aware that this is Third Reading and that a manuscript amendment is not permitted, but if the Minister is attracted by the thinking behind the amendment, as I certainly hope that she and other Members of the House are, perhaps she will bear these words in mind when she gives the matter further thought.
My Lords, I join the noble and learned Lord, Lord Lloyd, in endorsing the thrust of the amendment moved by the noble Baroness, Lady Meacher, and I respectfully adopt his formulation, which I think meets the drafting point. In any event, I have an inherent aversion to the creation of absolute offences, which is what new Section 14B does. It is not appropriate to criminalise behaviour which could be dealt with in the way of a civil liability, particularly when there is not a necessary element of dishonesty. I hope that, when the legislation goes back to the House of Commons, the Minister will look sympathetically with her colleagues in government at whether the provision could be improved.
However, in addition to the matters which the noble Baroness’s amendments address, I am concerned about some further provisions in the proposed new section. New Section 14B(4) states that regulations under subsections which refer to false statements and the like—that is, subsection (1)(d), (e) and (f),
“that create an offence that may only be committed by a person acting dishonestly … must provide for the offence to be triable summarily or on indictment”.
I have no objection to that, but new subsection (6) states that regulations under those provisions which,
“create an offence that may be committed by a person acting otherwise than dishonestly”,
would incur a lesser sentence. So there is still a provision within the new provision to allow for somebody not acting dishonestly to be brought before the criminal courts under the provisions of new subsection (1)(d), (e) and(f). That is another example of stretching the creation of an absolute offence.
It is clear that people who deliberately fail should be dealt with but, in my view, not necessarily by the criminal courts. It is equally clear that those who may fail inadvertently or for the reasons advanced by the noble Baroness should not be treated as criminals, although there may be and perhaps should still be a procedure for them to suffer some penalty as an inducement to provide information. That point may be more debatable. I join with the noble Baroness and the noble Lord in thinking that those provisions go too far to criminalise behaviour—particularly, as the noble Baroness said, as that may well affect vulnerable people, for whom a criminal sanction is simply inappropriate.
Without the Minister committing herself today, I hope that she will at least agree to discuss this further with colleagues to see whether a less draconian process could be used.
My Lords, I assume that the prosecuting authority would have some regard to the circumstances of any suggested offence under the regulations, but it is very important that the regulations should not include people as potentially liable for criminal sanctions who have not been dishonest in some way or other. The noble Baroness has given examples of people who might find it very difficult to comply with regulations within 21 days in some circumstances. I hope that my noble friend, with her colleagues, may find it possible to modify the statutory language to eliminate the risk of people being faced with criminal charges who are not deliberately doing wrong but who find themselves in difficulties of one kind or another.
I have sympathy with the view that the regulations which deal with council tax are extremely complicated and that it would be easy for someone to fall into a mistake without any deliberation. The last thing that we would want is to criminalise people who make honest mistakes; otherwise, most of us would have some difficulty avoiding the criminal law at some stage, and possibly at more than one stage, of our careers.
My Lords, I have listened with sympathy to the noble Baroness, but I think that she is tackling the wrong end of the spectrum. If it was as she suggested, we would certainly need to do something about it. I may need to give the following explanation.
The clause is intended to allow flexibility to create offences similar to those already in existence relating to council tax benefit. It does not create any additional offence beyond those. The offence that exists is under Section 111 of the Social Security Administration Act 1992. It is that of refusing or neglecting to comply with a requirement to enter into arrangements allowing authorised officers to access electronic records. It is also an offence under that section for a person to refuse to provide information or produce any document when required to do so in accordance with the legislation.
The information may be required from one of several classes of persons and bodies: for example, from banks, employers or utility companies. We seek the flexibility to create a similar offence in regulations where a person falling under those categories fails to comply with the requirement to supply information needed in relation to the council tax support scheme. To be clear, that would relate to circumstances where an individual or organisation holding information about a council tax payer has failed to provide information when required to do so. A small number or persons, such as the self-employed, might fall into both categories, but this is not about requesting information directly from vulnerable taxpayers, as has been suggested. I hope that the noble Baroness will be assured on that point.
I am grateful to the Minister, but she referred to the fact that failure may not necessarily apply to the person themselves. My concern is that it can apply to a vulnerable person—just out of hospital, for example—who has not opened their mail and who unwittingly therefore falls foul of compliance with regulations. That is my concern. There may be all sorts of crimes in relation to bankers and what have you, but my concern is for vulnerable people. It seems from the wording that those people could be caught up in those crimes.
My Lords, I am seeking advice from the Box about the words, “not necessarily”. My understanding is that this is not about the person concerned; this is about organisations from which information may be sought with regard to the ability to pay council tax or possible fraud. It is not about the individual taxpayer.
Perhaps I may read what has been passed to me, because it is important. To be clear, the powers that the noble Baroness seeks to amend relate to powers to require information about a council taxpayer—for example, about their income. Many investigations take place across the system. The powers recreate those which exist in relation to council tax benefit, as I said, and regulations made under the powers are subject to the affirmative procedure, so will be subject to debate in both Houses.
What the noble Baroness seeks to achieve is not part of the provision, because it does not affect the person themselves—the noble Baroness described accurately people who might not be able to give that information, who may be vulnerable and who should be looked after in a different way by the council.
I share the desire of the noble Baroness to protect vulnerable taxpayers, but the amendment will not, for the most part, impact on them. It affects powers that would apply only to those who hold information about the taxpayer—I say this again because we need to be clear about it—not to council tax payers themselves and only in certain circumstances which recreate offences which currently exist under council tax benefit. Those are criminal offences, as I outlined.
Council tax payers who accidentally or unintentionally fail to provide information to the local authority should not be prosecuted or convicted for a genuine mistake, but that is not what the power provides for.
I recognise the concerns expressed by noble Lords, but I think that the noble Baroness is shooting at the wrong fox. When the regulations come to this House, which they will in due course, we will be able to make that absolutely clear. I have done my best to assure the noble Baroness that this is not about individual taxpayers who should not be pursued, but is about where information may be required to see whether it is appropriate to undertake further investigation. I hope that with those explanations the noble Baroness will withdraw her amendment.
I am very grateful for the Minister’s response and to my noble and learned friend Lord Lloyd, the noble and learned Lord, Lord Mackay, and the noble Lord, Lord Beecham, for their contributions to this debate. I have to say that if I am shooting at the wrong fox, the fox is very well camouflaged because I do not see it. It is not clear to me—perhaps it should be, but it is not—that the person and their advice worker, who is also feeling very vulnerable in this situation, cannot be caught up in this legislation. Therefore, I ask the Minister for further discussions about this to see whether there is a way of improving the wording to clarify that the council tax payer and their adviser will not and cannot be charged with a criminal offence when they have acted in good faith.
My Lords, it is not possible to change the legislation because we are in the last dying hours of passing it through this House, but the regulations will come to the House for the affirmative procedure. I am happy to have further discussions with the noble Baroness in the interim.
Amendment 6 withdrawn.
Amendment 7 not moved.
Schedule 1 : Local retention of non-domestic rates
8: Schedule 1, page 23, line 18, at end insert “, and
(h) amounts received by the Secretary of State in the year under regulations under paragraph 42 (payments following estimates of amounts to be disregarded).”
This is a group of very minor amendments to tidy up the Bill. The amendments introduce nothing new. They are consequential on amendments accepted on Report in your Lordships’ House and correct or insert references to new provisions inserted on Report as appropriate. I hope that, with that explanation, noble Lords will be happy to accept them.
My Lords, I take the opportunity offered by these government amendments to Schedule 1 to raise the issue that I have been pursuing throughout the course of this legislation, which I discussed with the Minister last Thursday, and to seek clarification at this last stage of the Bill. I declared all my interests at the previous stages of the Bill and they remain the same.
I shall not rehearse the arguments that we have already heard in this House. I am grateful to the Minister for her time at the meeting on Thursday. I also thank Sporta, SEUK, my noble friend Lord McKenzie and the noble Lord, Lord Best, for coming along to the meeting and lending their support and great expertise. I was also able to inform the Minister that the noble Lords, Lord Shipley, Lord Tope, Lord Adebowale, Lord Mawson, Lord True and Lord Smith, sent their apologies. I thank the Minister and her team for the letter which she sent to me and copied to all those concerned.
I am sure that noble Lords and others are very pleased that, at last, the Government seem to recognise a problem which the political parties, the Cross-Benchers and all the organisations concerned with community-based charities and mutuals have articulated for months. Sporta, in particular, has been active in doing most of the leg-work research and in meeting officials during the summer. However, it is a matter of regret that the Government have decided not to take action on the concerns of a wide range of local community organisations with charitable status during the course of the Bill.
In her letter to me the Minister referred to, “the persuasive arguments that you and your advisers have used”. However, she also said that the department would need to see evidence of the problem. I think the fact that all the leaders and ex-leaders of councils in this Chamber and all the organisations concerned at community level are clear that there is a problem should be persuasive. However, all is not lost. The Minister also informed us that a way of addressing the issue is provided by the amendments that were brought forward on Report specifically with enterprise zones in mind. The Minister’s letter gives a broad assurance that, “the same powers could be used in respect of other reliefs such as charitable relief”. The Minister will not be surprised to learn that what I am seeking today is confirmation of that and that the powers can apply to the central funding of all mandatory reliefs given by all local authorities to charitable organisations, should we be able to persuade the Government of the rightness of this decision in the next year.
I would also welcome confirmation from the Government that they will open their doors to the evidence which the many charitable bodies associated with this cause will work hard to gather over the next period and that they will assist the main representatives of these bodies to understand how and when to present this evidence to the department. Indeed, can a specific mechanism be offered to do this? I would also like to take this opportunity to encourage local authorities to co-operate in supplying evidence of the effect of the legislation on their decisions as regards the formation or expanded use—or otherwise—of local charitable organisations. Indeed, I intend to raise this issue with the Local Government Association. This is especially necessary if, as is feared, such decisions are taken with negative effect at an early stage in the consideration of options.
In the year of the Olympics, the Paralympics and the big society, we are concerned about the impact that these changes might have on sport and exercise for the disabled, the less able, the old, working mothers—everybody, actually. I know of no one in the sport and leisure field who has welcomed these proposals. Indeed, Social Enterprise UK has written to the Cabinet Office about the policy clash produced by these proposals and advised the Minister on why the Bill could have a damaging effect.
We suspect that the impact of these proposals will be damaging for the future of theatres and museums outside London; in other words, there will be fewer of them at local level. Social Enterprise UK believes that, as time moves on, this policy could have a chilling effect on new proposals in the Localism Act for the right to bid and the right to challenge community facilities by local charities, so a great deal is at stake. I thank the Minister for her help with this and for the meeting and the letter. I hope that she will feel able to reassure me that arguments will be heard at an early stage and that adjustments will be considered before too much damage is done.
My Lords, so far as the government amendments are concerned, I understand them to be consequential and to correct other parts of the Bill. I am grateful for the short briefing note that the Bill team gave us. I have no problems with these amendments.
As for the contribution by my noble friend Lady Thornton, I, too, thank the Minister for her engagement and the engagement of the team, and particularly for facilitating the meeting last week. I hope the Government will be able to put on the record the assurance that was given at that meeting, particularly as it concerns the prospects of dealing with the matter through secondary legislation, once the Government become convinced, as I hope they will be, that we do not need to amend primary legislation.
My Lords, the noble Baroness referred to mandatory and discretionary rate relief under particular circumstances. She kindly did not put an amendment forward, but she has done very well in getting her speech recorded in Hansard so that there is no escaping what she has been talking about. I gave her two clear messages when we met. One was that while we accept that there is concern about the effect of the percentage amount of relief available to charitable organisations, we are not totally satisfied that it will have the effect that she thinks. If the organisations that were there provide good evidence and the Government decide that it is of serious significance, there are measures within the Bill that would enable us to make the changes that she seeks. I am very happy to see her again if that should be necessary.
Amendment 8 agreed.
Amendments 9 to 11
9: Schedule 1, page 23, line 31, at end insert “, and
(f) payments made by the Secretary of State in the year under regulations under paragraph 42.”
10: Schedule 1, page 23, line 40, leave out “and (d)” and insert “, (d) and (h)”
11: Schedule 1, page 23, line 42, leave out “and (b)” and insert “, (b) and (f)”
Amendments 9 to 11 agreed.
Schedule 3 : Local retention of non-domestic rates: further amendments
Amendments 12 to 14
12: Schedule 3, page 60, line 4, after “(2)(e)” insert “or (f)”
13: Schedule 3, page 60, line 45, after “(2)(e)” insert “or (f)”
14: Schedule 3, page 61, line 21, after “under” insert “or by virtue of”
Amendments 12 to 14 agreed.
Schedule 4 : Amendments relating to council tax reduction schemes
15: Schedule 4, page 65, line 29, at end insert—
“( ) Such regulations must have regard to the possibility of authorities having to hold a further consultation as a result of the necessary alterations that must be made to their schemes in order to make a successful application to the transition grant.”
My Lords, we have reached—at long last, some of your Lordships might think—the final chapter in debating what this side, at any rate, regards as a fundamentally flawed Bill, particularly with regard to the system of council tax support. The Bill will create significant difficulties for councils in terms of administration, collection and indeed decision-making about who is and is not to be entitled, and it will involve significant hardship for too many of their residents.
The amendment, though, does not address the substance of the Bill; it is more about process, albeit about an important part of it. Under the Bill’s provisions, authorities are required under paragraph 3 of Schedule 4 to consult before making a scheme, publish a scheme in such a manner as they think fit and generally consult anyone with an interest, including major precepting authorities, and then they may publish it. However, sub-paragraph (4) states that the Secretary of State may make regulations about the procedure for preparing a scheme, and it is to that paragraph, effectively, that the amendment seeks to add a rider: that the regulations must have regard to the possibility of authorities having to hold a further consultation as a result of the necessary alterations that must be made to their schemes in order to make a successful application—the amendment says “to the transition grant” but I suppose that it should be “for the transition grant”—which we debated at some length last week.
As we debate the Bill before it leaves us on its return to the House of Commons, councils up and down the country are in the throes of consulting on complex changes to the benefits system affecting millions of people. We have heard in previous debates about schemes that run to well over 100 pages, and no doubt authorities are doing their best to consult their citizens, organisations and indeed the precepting authorities about how the system should be developed. If I may again refer to the experience of my own authority in Newcastle, the city council is faced with a loss of some £3.4 million as a result of the changes to benefits. That in itself, had it been a council tax increase, would have substantially breached the 2% limit that the Secretary of State has fixed from next year because it would in itself constitute a 3% increase in council tax. However, technically speaking, that is not what is happening, although I am bound to say that the rather airy way in which the Secretary of State and indeed the Minister appear to assume that after the transitional year it would be possible to meet that bill, simply by magicking some more savings out of the system, strikes me as a little overoptimistic, particularly when in any event many authorities will be not only generating savings already in the pipeline, as it were, but seeking to meet a substantial reduction in government support over the next few years—in my own authority’s case, some £90 million a year within three years.
Be that as it may, however, the council is seeking to consult on its current scheme, a consultation that has produced a two-page densely printed document setting out the proposals that the council makes. We have already touched on some areas: there is protection for a number of groups, and there is the 20% contribution in general from those who may not even be currently paying council tax. Whether, and to what extent, people will be able to grasp what is happening, particularly if they do not have a well informed knowledge of the current system, is perhaps another matter. Still, the council is providing material online for people to reply to and download, as well as a telephone line and indeed 14 public meetings, between now and the closure of the consultation period on 14 November, bearing in mind that the council has to take through its processes decisions about the scheme and about the budget overall, and there is not a great deal of time to do that.
Now, with the transition scheme, there is an additional factor about which we have not yet been able to consult—nor indeed, I suspect, has anyone else in any systematic way. It may, if the council is so minded, lead to a significant change in the scheme. The particular factor that is relevant is the estimated cost because, even with the transitional grant, Newcastle City Council—I cannot speak for others in this respect because I do not have the information, but there may well be a similar situation elsewhere—will receive a grant, but apparently it will also leave a gap of, in Newcastle’s case, between £470 million and £650 million, if indeed the council accepts the offer of the grant. That is a significant figure, and one that clearly needs to be in the public domain as part of the consultation process. However, we will not know the actual figure until the final revenue support grant settlement and all the details are available which, as I understand it, will be around 20 September. The Government have certainly published the figure for the transitional grant, but what is not clear is the implications of that for the council budgets, given the potential cost to the authority, which, as I say, in Newcastle's case is substantial—according to the city treasurer, in the order of between £470 million and £650 million. If we will not know those details until as late as the third week in December, it will be extremely difficult to achieve an effective consultation before the time when the scheme has to be finalised, which, under the Government's proposals, is 31 January—not a great deal of time in terms of the council’s own decision-making process leading up to a budget, but certainly virtually impossible to have a meaningful consultation, given the Christmas and New Year period and the rest of it, within that very short timescale.
In addition, the council will have to consult the police and fire authorities, which are major precepting authorities, and of course in shire areas there is also the question of individual billing authorities, which might have a different approach—they are perfectly entitled to do so under the provisions of the Bill—within the county. The county will also need to be consulted. I suspect that counties are part of the hidden agenda of this whole measure regarding the transitional relief; it seems, cynical though some of your Lordships might think this, not unconnected with the fact that next year we have county council elections in which a great number of Conservative Party seats are at risk. Mr Pickles is an astute politician, and I suspect that this transitional relief may really be designed to offer somewhat more than transitional relief to current serving Conservative county councillors. However, no doubt the electorate will come to their own conclusions about that.
The purpose of the amendment is to seek from the Secretary of State regulations that would allow for a proper consultation to take place in terms of the change that the Government have introduced at this late stage in relation to the transitional grant. That might mean extending the period by which the scheme has to be settled. That seems probably one of the more sensible ways of dealing with what might be a difficult situation. The danger otherwise is that councils would think that they cannot safely consult—my noble friend Lady Hollis rightly referred to the possibility of judicial review if such consultation was not deemed to be effective—and if councils were relying on a position that was valid until just last week in terms of the scheme that they had devised. Given the financial consequences to which I have referred, although I emphasise that they are possible consequences, in my submission it would be a brave council that decided to go ahead without the security of a further consultation.
Again, I am not expecting a commitment from the Minister, but the amendment would not really change legislation; its thrust is to try to secure some consideration by the Government, within the context of the procedural regulations that they will be making, to ensure that such further consultation as may be deemed necessary and desirable can actually take place with effect. I beg to move.
My Lords, I support my noble friend. He is absolutely right. When we raised the issue of whether changes in the scheme following the transitional grant would require going out to consultation, the Minister seemed to indicate that they would not. Some of us were worried about judicial review. Since then, she has written a letter to my noble friend Lord McKenzie in which she says that individual councils must take their own legal advice on the matter. That suggests to me that the department is no longer as clear as it at first was that local authorities might not be exposed to judicial review if they were substantially to change their scheme from, say, a 30% minimum down to virtually nil or 5% as a result of the transitional grant without going out to further consultation. Given that, I hope that, as a result of the move that the noble Baroness has herself made between the earlier stages of Committee and Report and her subsequent correspondence, she will give some consideration to how best she can meet my noble friend’s concerns.
My Lords, in responding to the noble Baroness, Lady Hollis, I have always made it clear that local authorities are, or have been, out to consultation. I think that those consultations are due to close very shortly and may in many cases already have closed. There is no requirement on the Government, and we are not going to make any regulations, on consultation. I have made it clear, and I do so again now, that if a local authority thinks that the changes that it is going to make as a result of the transitional grant are so significant that it changes its scheme so much, then it must decide whether it thinks that it needs, for its own protection, to go out to further consultation. It will seek its own advice about that. I cannot answer the noble Baroness any more clearly than I already have.
No. Local authorities have their different transitional schemes. A transitional scheme has come in. It will provide local authorities which wish to take it up with extra resources to help them ease into the new system. They must know themselves if they decide that they need it. In many cases, it will not be necessary but, if they need to, they will take that advice.
Local authorities now know what they are going to get from the transitional relief; that has already been published. They will know whether they need to change their scheme according to what they have received from transitional relief and on the basis of what they are proposing if they are going to amend it.
I do not believe that they need extra time. January 31 is, after all, a full four weeks. Most local authorities can undertake a quick consultation on this. I imagine it will be very limited indeed. Most local authorities which are principal authorities are very quick and adept at having consultations with other councils. I must resist the amendment on the basis that it is completely unnecessary.
My Lords, I respond on behalf of my noble friend as this is the last time that we will be speaking on the Bill. With great respect to the Minister, she has not fundamentally dealt with the point that my noble friend was probing. We accept that it would be up to local authorities to make a judgment as to whether or not they needed to consult. However, given where they are and the processes that councils have to go through to come up with a revised scheme—and sometimes the agonising decisions as to whether they can put in the additional funding to close the gap because the transitional money is not going to cover it all in many circumstances—I wonder whether there is time to do that. It would be perverse indeed if, in attempting to take advantage of these provisions, the system simply did not allow them to do that in time to hit the 31 January deadline. That is the point that we were pressing, and it has not been fully addressed. However, we are where we are on it.
I close by saying a brief thank you to some people, certainly to the Minister and the Front Bench for engaging on this Bill and to all noble Lords who have participated. Around the Chamber, we have seen a lot of expertise and wisdom, some of it very long-standing, brought to bear. I certainly thank my team, both Back Bench and Front Bench. I conclude by thanking the Bill team. I know that we see a bit of what the Bill team does. A lot goes on behind the scenes and I am grateful for what it has done on this piece of legislation.
Having seen the noble Lord rise, I apologise for the number of times that I have tried to out-step him throughout the Bill. I am grateful for the noble Lord’s good humour. I am grateful to all Members of the Opposition for the way in which they have put their amendments. I am particularly grateful to those of my political colleagues who have, in most cases, supported me. I have enjoyed taking the Bill through the House. I also thank, of course, my Front Bench and also the Bill team who has been completely outstanding.
Amendment 15 withdrawn.
Bill passed and returned to the Commons with amendments.
My Lords, taking advantage of this spirit of good will and excellent relations across the Dispatch Box, perhaps now would be an appropriate time to repeat a Statement that was made earlier on this afternoon by my right honourable friend the Prime Minister. The Statement is as follows.
“With permission, I would like to make a statement on last week’s European Council. The European Union faces important choices in the coming months, to meet tough economic challenges and to deal with the problems in the eurozone. There were no landmark decisions at this Council, but there was some limited progress on both issues.
As I said, we are in a global economic race. All European economies need to become more competitive. That means taking steps like expanding the private sector, reforming welfare and improving education. In terms of action at the EU level, that means, in our view, lifting the burdens on businesses, completing the single market and taking forward trade deals with the biggest economies and the fastest growing countries and regions in the world.
I have consistently promoted these solutions and at the Council we made some good progress. On deregulation, I joined with others to secure a new agreement that specifically refers to withdrawing legislative proposals from Brussels that stifle our businesses. Now, of course, we need to see specific actions, but it is worth noting that the conclusions refer to the,
‘intention to withdraw a number of pending proposals and to identify possible areas where the regulatory burden could be lightened’.
On completion of the single market, as I reported in June, there is now a proper plan with dates and actions for completing the market in energy, services and digital. Once again it is important that these are followed through to secure jobs and growth.
On trade, the Council agreed an ambitious agenda to create 2 million jobs across Europe. This includes completing free trade deals with Canada and Singapore in the coming months, and starting negotiations with the US next year on a comprehensive transatlantic trade and investment agreement. And we made some progress on the launch of negotiations with Japan ‘in the coming months’. This deal alone could increase EU GDP by €42 billion.
Turning to the eurozone, Britain is not in the eurozone and we are not going to be joining the eurozone, but it is in our national interest that the uncertainty surrounding the eurozone comes to an end. I have argued for some time that a working eurozone needs a working banking union. It is one of the features that a successful single currency needs. Obviously, you do not need a banking union because you have a single market; you need it because you have a single currency. So Britain should not, and will not, be part of that banking union.
Britain’s banks will be supervised by the Bank of England, not the ECB, and British taxpayers will not be guaranteeing or rescuing eurozone banks. But we do need eurozone members to get on and form a banking union. At this Council I joined those arguing for progress to be made on the plan announced in June. Put simply, it is not enough to have a banking union that is stripped of the very elements, such as mutualised deposit guarantees, a common fiscal backstop and a framework for rescuing banks, that are needed to break the dangerous link in the eurozone between sovereign debt problems and the stability of eurozone banks.
However, because not all countries outside the eurozone, like Britain, will want to join such a banking union, it is also essential that the unity and integrity of the single market is fully respected. The organisation that currently ensures a level playing field for banking within the single market is the European Banking Authority. We need to make sure that it will continue to function properly, ensuring fair and effective decision-making. This is specifically recognised in the conclusions. More broadly, as eurozone countries take steps to deepen their economic and monetary union, as they will, I also secured an explicit commitment in the conclusions that the final report and road map in December will include,
‘concrete proposals to ensure that the integrity of the single market is respected’.
Finally, the next Council in November will discuss the financial framework for Europe between 2014 and 2020. We have not put in place tough settlements in Britain in order to go to Brussels and sign up to big increases in European spending. I do not believe that German voters want that any more than British voters, and that is why our Governments have led the argument in Europe for fiscal restraint. I therefore put down a marker that we need a rigorous settlement. As the letter signed in December 2010 by a number of European leaders said, given the tough spending settlements that all member states have had to pursue in their own countries,
‘payment appropriations should increase, at most, by no more than inflation over the next financial perspectives’.
On foreign affairs, the Council, led by Britain, once again discussed further restrictive measures on the Syrian regime, and made it clear to Iran that we will increase the pressure if there is not progress on the nuclear issue.
Our agenda is, therefore, making our economies competitive, dealing with uncertainty in the eurozone, keeping the EU budget under proper control, and making sure the EU speaks with a strong and united voice on the key international challenges”.
I commend this Statement to the House.
My Lords, I thank the noble Lord the Leader of the House for repeating a Statement given in the other place by the Prime Minister on the recent European Council meeting.
We on these Benches associate ourselves with the summit’s conclusions on Iran and Syria. The dangers of the civil war in Syria spilling over into the wider region are now all too apparent, and we strongly support the EU playing its part to seek to prevent this happening.
However, the backdrop to this summit is a Europe where there is low or no growth. Five and a half million of Europe’s young people are unemployed, and long-term unemployment is stubbornly high across all countries. I regret that the Prime Minister seemed to come back from this summit with nothing to make a difference to this situation.
First, can the Leader of the House tell us why the Prime Minister went to the summit with no proposals on the immediate economic situation facing Europe or on how growth prospects could be improved in the short term? Europe urgently needs co-ordinated action to boost demand, but yet again there was nothing forthcoming from this summit.
Secondly, the Government boast about progress on the single market, which is 20 years old this year. In particular, the Statement repeated by the Leader of the House points to progress in energy and in digital, and says, with the humility so characteristic of this Government:
“Which is the country that is saying … ‘Let’s get a date for completing the energy market … the digital market’ ... Who is driving the agenda which has made so much progress this year? It’s Britain.”
After the veto that was not, I would have thought that the Government would have learnt about grand claims that fall apart.
On energy, the Council conclusions also sounded very familiar. Will the Leader confirm that the conclusions were exactly the same as the conclusions from the Council 18 months ago?
Concerning trans-European networks as mentioned in the conclusions, I was there at their birth, about 20 years ago, and it is imperative that their development progresses a little more swiftly than it has been of late.
On services, it is all familiar again—exactly the same conclusions as those from March 2012. So much for progress at this summit.
Thirdly, on banking, big issues face Europe as a result of the move toward a banking union in the euro 17 area. The Government are keen to point to paragraph 8 of the Council’s conclusions, which calls for,
‘an acceptable and balanced solution’,
on voting weights. However, this is rather unclear. Will the Leader clarify what is the Government’s key demand in relation to the crucial issue of voting rights, as banking union goes ahead? What special safeguards will the Prime Minister seek? Will the Leader also tell us what support the Government found at the meeting for this position, and how the Government will build on that support?
That takes me to the real problem that Britain faced at this summit. This is what Finland’s Europe Minister said at the summit:
“I think Britain is ... putting itself in the margins. ... it’s almost as if the boat is pulling away and one of our best friends is somehow saying ‘Bye bye’ and there’s really not much we can do about it”.
That is not the French or the Germans—it is Finland, and their Europe Minister is an Anglophile. He is one of Britain’s friends, but this is what he thinks about where Britain is going under this Prime Minister. The Government do not seem to realise that all their bluster about fighting for Britain is meaningless if the Government alienate our natural supporters.
However, the really worrying thing about the Government’s position is that the Government are not just isolated. They appear to exist in a parallel universe. When the Prime Minister was asked about his isolation he said this:
“We are actually a very, very important and influential player ... Britain is right there in the vanguard...”
The vanguard? Do the Government really believe that?
Last October the Prime Minister said:
“This is not the time to argue about walking away”.
However, is that not exactly what his Cabinet is doing now? It started with the decision to leave the European People’s Party. That is why, when 15 centre right leaders gathered on Thursday before the summit, the Prime Minister was not there. We then had the veto that was not, and the treaty that went ahead anyway.
It would appear that the Prime Minister has lost control of his party on Europe. We have a Prime Minister outside the room looking in at Britain’s empty seat at the table. There is one thing that our allies in Europe and the Government’s Back-Benchers agree on: the Government are a shambles, and it is Britain that suffers.
My Lords, the noble Baroness the Leader of the Opposition started off well by associating herself with the conclusions on Syria and Iran. I am very grateful for that. However, I am afraid to say that it was downhill after that. Let me try to tackle some of the questions that she raised and give some answers and get some clarity on where we are on this. This is the first of a series of European Council meetings up until the end of the year that will increase in importance. This is an opportunity to set the scene, to clear the undergrowth and to sort out the most important issues that we need to resolve.
The noble Baroness asked why the Prime Minister did not go along with his plan for growth. When it came to the budget negotiations, he was the first to ask why, if we have to restrain spending in the United Kingdom, we should see profligacy in Europe. I would hope that the noble Baroness would agree with that and look at some aspects of where the United Kingdom is doing well in Europe. In the United Kingdom we see falling unemployment, rising employment, falling inflation, and low borrowing rates which preserve our triple-A rating. These are all things that the noble Baroness the Leader of the Opposition should support, and I hope that in future she will use them in her speeches.
The noble Baroness specifically asked about two aspects: energy and digital. She went on to say that these conclusions look remarkably like other conclusions that we have seen from the European Council. Remarkably, yes—I agree with her up to a point. However, she will know from her own experience in Europe that very often the same old problems come round again and again, and some of these are longstanding issues that have taken a long time to resolve. This year, we celebrate the 20th anniversary of the single market. How come it has taken so long to complete the single market when the noble Baroness’s Government were in charge for 13 years of those 20 years?
The Council did not discuss energy policy in detail but the conclusions refer to an agreement reached in March, which recalls the need to complete the internal market by 2014. It referred to new proposals for a connecting Europe facility. That is a continuation rather than the same point that was made in previous conclusions. Likewise, on digital, it is important to maintain the focus on areas that we have agreed. It would be a mistake to chase the new and neglect to hold others to account. Sometimes agreements are made but we need to make sure that they follow through, which is entirely sensible.
The noble Baroness asked an entirely sensible question—I am not saying that the rest of her questions were not sensible—about the banking union and our key demands in terms of voting rights and specific safeguards. The point was that we have not so far been clear as to what it is that we want. This is entirely deliberate. We have not been explicit yet over what we want to see in terms of a voting regime for X and Y. Several possible proposals are floating around, some of which are quite technical. We want to make sure, for instance, that the ECB does not get a de facto vote. Others are concerned that, should more countries join the euro, the UK does not end up with a veto. Overall, we want to see what I suspect in her heart the noble Baroness also wants to see—an acceptable solution that protects the single market through a change to the modalities of decision-making under the European Banking Authority regulation.
The noble Baroness had some fun with the quotation of the Finnish Minister. I think that he was in the boat and we were on dry land. Dry land might be quite a good place to be over the next couple of years. But she went on to say that we had been left isolated in the EU. We do not think so. We believe that we are an active participant in EU negotiations. We lead the EU on many issues—for instance, improving Europe’s competitiveness, the single market, trade and taking tough action in Syria—and eurozone members are often our closest allies, including the Finns. Member states with different interests do and need to work together in different ways. The EU is not and should not become a matter of everything or nothing.
That is the point of all this. From everything that has happened in the past two years, it is clear that there are stresses and strains within the European Union, which largely emanate from the financial crisis and the terrible problems that the eurozone countries have got themselves in. On banking, it is the responsibility of all of us to work together to try and solve that. In that respect, we are as good Europeans as anyone else.
My Lords, staying with the financial framework, perhaps I may congratulate the Prime Minister through my noble friend on aligning us to the German position. However, he will no doubt be aware that the German position is probably to have a compromise on the budget, which will be to cap EU spending at 1% of European GDP. That, of course, is backed by Austria, Finland, Sweden, Denmark, Netherlands and the Czech Republic. Therefore, will my noble friend reassure the House that when Mrs Merkel meets the Prime Minister in early November, he will not be wedded to the position of no increase whatever on the basis that we need further compromise at the December summit and that we may need to give a little bit here to meet the Germans in order that they might support us in December?
My Lords, I do not think that I can give my noble friend what she would really like, which is an agreement with Chancellor Merkel’s position. The Prime Minister has said that he is willing to do a deal on the budget in November, so long as it is the right deal for British taxpayers. Given the tough trading settlement that all EU member states have had to pursue at home, there simply is not the case for increases in European spending that are above the rate of inflation over the coming financial framework, which starts in 2014 and goes on until 2020.
Furthermore, Chancellor Merkel and three other leaders in 2010 joined the Prime Minister in writing a letter for a call for action to curb the progressive increase in EU spending and we remain committed to that objective. Last Monday, Chancellor Merkel and the Prime Minister discussed the budget and, I gather, reiterated their ambition to limit increases in the budget. Of course, they agreed that officials should work together on this before they meet early in November.
My Lords, I recognise that the so-called banking union involving monitoring and in some cases intervention in banks within the eurozone but not in the UK could be advantageous if it helped to stabilise the financial situation in the eurozone, although some related issues could give rise to problems. It was expected earlier that the European Council would decide to complete the banking union at this meeting but, of course, the conclusions obviously do not do so. Indeed, among the 3,164 words—that is my count—in the conclusions on economic policy, it states on completing EMU that “informal consultations will continue” and that the European Council looks forward to a road map,
“at its December 2012 meeting, so that it can move ahead on all essential building blocks”.
That is not exactly a rousing conclusion. Will the Leader of the House give us a reasonable estimate of the timetable now for the completion of the banking union?
My Lords, that is a very seductive question. But it is really not possible for me or the British Government to give a view as to when we think that those negotiations and discussions will be completed. Apart from being extremely good at counting the number of words, the noble Lord probably has also read many reports in the press over the past few days about the view of other countries on the banking union, and he will understand just how difficult and complicated that is. However, we will continue to play a lead role in the development of common rules for the single market and encourage our colleagues to come to an agreement as quickly as possible.
My Lords, one of the less kindly remarks that Winston Churchill made about Stanley Baldwin was that he was a man who occasionally stumbled upon the truth and that he then got up, dusted himself off and hurried on as if nothing had happened. I think that that is a charge that one could probably level against this Prime Minister when it comes to Europe. Will the Leader of the House tell us whether he honestly has not understood the degree of irritation among our partners at the way in which the United Kingdom is behaving within the councils of the European Union?
The Prime Minister told us in one breath, for example, that he is prepared to do a deal with Chancellor Merkel over the budget but immediately went on to say that it would not be an increase, which is not a deal. That is not a deal in the minds of the rest of our European partners. Chancellor Merkel has offered a reasonable compromise. I notice that he says in his Statement:
“I don't believe that German voters want that”—
meaning an increase—
“any more than British voters”.
If you read about the rapturous reception that Chancellor Merkel got yesterday from, of all people, the Christian Social Union Partners in Bavaria when she went back to report on the results of what she had done at the summit, one would have the impression that probably she had a large section of the German population behind her.
Does the Leader of the House really believe that if the Prime Minister’s so-called deal, which is not a deal, produces no increase, he is prepared to veto the budget? Does the Prime Minister also understand Angela Merkel when she says that if he does that she will call off the budget summit anyway? I do not think that the Prime Minister has many of the attributes of Samson but surely he must understand that if he is going to pull the whole structure down around him because he insists on absolutely no increase, none of his European partners will have a good word to say for him.
My Lords, the noble Lord, with all his experience and knowledge, asks whether I understand how irritated other members of the EU are at the Prime Minister’s stance. I understand how irritated the British people would be to see budgets for austerity in this country and profligacy in the EU. That, of course, is what is uppermost in the Prime Minister’s mind.
The Prime Minister and Chancellor Merkel have agreed to meet early in November. There are, of course, huge budgetary pressures throughout Europe, including in this country. Let them meet. The Prime Minister said what he has said, echoing the words that Chancellor Merkel agreed and signed in 2010. Actually, I think that increasing the EU budget in real terms is a very fair deal for the people of Europe, particularly given that Britain is the second largest contributor to the EU budget.
Britain is not a member of the eurozone. We have decided to keep our own currency. There is no prospect of our joining the eurozone. So why on earth does our Prime Minister keep lecturing the eurozone as to how it should carry on, including whether it should have a banking union? Since we are not part of it, it is nothing to do with us, and we should keep out of it.
The second point I want to raise has already been raised—that is, the position in relation to Angela Merkel, the German Chancellor, who seems to be throwing her weight about increasingly these days. The Prime Minister does not have to satisfy Angela Merkel; he has to satisfy the people of this country, and the people of this country, we understand, will suffer austerity for the next 10 years, which means that they cannot afford to pay any more than the £10.3 billion that we already pay into EU coffers. I hope that the Prime Minister realises that he is not answerable to the EU for taxation and our contributions. He is responsible to the British people, who show increasingly that they are not very happy about remaining in the European Union, and who will be even unhappier if they are asked to pay even more towards it.
My Lords, that is the point that I was trying to make to the noble Lord, Lord Grenfell. I have every sympathy with the view given by the noble Lord, Lord Stoddart. It is entirely correct that, although we believe that the economy is heading for a state of recovery and long-term growth, many budgets are being cut in Britain, and we are not in the business of seeing them being increased in Europe, where British taxpayers will have to foot the bill. But that is a discussion that will take place, first between the Prime Minister and Mrs Merkel and then, later on, in the Council of Ministers.
As for the noble Lord’s question as to why we are interested in the banking union, self-evidently financial services and financial matters are incredibly important to the United Kingdom—it is one of our key interests—and to the City of London. It is entirely right that we should take note of what is happening in the zone where nearly 40% of our exports go. One of the many reasons why this economy has suffered in recent years is because of the uncertainty in the eurozone, which we believe needed to be resolved—and one way in which to do that is through the banking union.
I notice with interest the deft footwork on the part of the Leader of the House on answering a question about the budget and the meeting. It should get him a place in the finals of “Strictly Come Dancing”. But in all seriousness, the story on the front page of the Financial Times says very clearly—and it is a very reliable newspaper on this—that Chancellor Merkel is considering cancelling the summit if the British threaten to use their veto and want no increased expenditure at all. Can he tell us—and I am sure the Financial Times, too, and the people of this country—whether that story is correct or incorrect?
My Lords, I am not quite sure what I am supposed to confirm or deny. I can confirm that there was a story on the front of the Financial Times, but I cannot confirm that it was right that Mrs Merkel has issued a threat. She may have done—I have absolutely no idea. But it must be in everybody’s interest to seek an agreement on the EU budget, and the Prime Minister is quite rightly standing up for British interests and has explained what his position is—and I think that it is a very sensible position.
Will the Leader of the House accept a warm welcome for the recognition in the Statement that he has just repeated that it is better to be there at the negotiating table in the European Union than to wield vetoes that are not really vetoes and absent yourself from the subsequent negotiations? It is a distinct improvement on what happened in December last year that the Prime Minister is working at the table and will continue to do so to make sure that the interests that he is quite rightly seeking to protect of the single market, and the way in which the banking union will interact with the single market, are defended by being at the table.
Secondly, on the budget in the Statement and in what he has subsequently said, the Leader has reiterated again and again that the British position, which incidentally is supported by your Lordships’ European Union Committee, is that there should be no increase in real terms. But those words never manage to get past the lips of the Downing Street spokesmen; they just talk about no increase. The Leader knows quite enough about these matters to know that between 2013 and 2020 no increase in real terms will mean considerably higher figures in nominal terms—that is, by the amount of inflation. It is really not sensible to give the impression that we are trying to keep the budget steady at nominal terms, when that is not what we are trying to do. All that does is to distance ourselves from the other members of the European Union that take very similar views to our own.
My own view is that we are heading towards a very satisfactory outcome to the budget negotiations if we play our cards right. There is a solid body of support for a very low outcome, way below what the Commission proposed, and I just hope that we are not going to snatch defeat from the jaws of victory.
I have two points on that question from the noble Lord. First, we have every intention of continuing to work at the table and to be part of the negotiation. There are some very important and crucial issues that need to be resolved over the next few weeks, and I will be back at this Dispatch Box discussing and debating them, as I have done over the past two and a half years. But it is important to get some sense of the economic reality, which is very different to when the last EU budget was negotiated. For example, the level of public debt across the 27 EU member states in 2012 will be 50% more than it was in 2007. Across the EU on average, countries are expected to see expenditure as a percentage of GDP fall by about 8% between 2010 and 2014, and more than 16% of Commission officials earn more than €100,000. At a time when we are trying to boost growth, it is hard to justify a budget in which 45% is spent on the common agricultural policy.
Let me deal head-on with noble Lord’s concern that when we talk about a nil increase we mean a nil nominal increase. We do not. We mean that we do not see the case for increases in spending that are above the rate of inflation.
My Lords, in the Statement the Prime Minister specifically quoted, and thus emphasised, a passage in paragraph (g) of the European Council conclusions on the right regulatory framework for growth. The conclusions go on to state:
“The European Council looks forward to the Commission communication expected in December, which will take stock of progress and signal further action to be taken by the end of the current parliamentary cycle at the latest, including the follow up on the top 10 most burdensome pieces of legislation for SMEs”.
Will my noble friend remind your Lordships’ House of whether this is an actual or approximate date that constitutes the end of that parliamentary cycle so that our anticipation can be further whetted?
My Lords, I think that the parliamentary cycle comes to an end in 2014. However, we would like to see real progress on deregulation and dealing with regulation, particularly as it affects businesses and small businesses, as soon as possible. What was apparent at the end of last week was that that was a view shared not just by other member states but by the Commission itself. There are important prizes to be won here. If we can make the economies of Europe more efficient and effective, that will lead to growth, which is something that we all want to see.
My Lords, I agree with the Leader of the House that the British people will not support profligacy abroad while having to suffer austerity at home. Is not one way of trying to bridge that gap to have a bit more of what he would call profligacy at home, in which case at least the economy might start growing again, which it has notably failed to do over the past two years of coalition government?
My Lords, as I said earlier to the Leader of the Opposition, it has been a difficult two and a half years in Britain. What have we seen? We have seen nearly a million private sector jobs being created in the past two and a half years. For the first time since 1976 we have seen net exports of motor cars made in the United Kingdom. We have seen the AAA rating and record low levels of borrowing. Employment is the highest that it has ever been and unemployment is falling. I hope that the noble Lord, Lord Skidelsky, agrees that these are very good signs for our long-term growth prospects.
Will the noble Lord confirm that he is about to ring the editor of the Financial Times to say that the Government’s policy is that when they talk about no increase it is in real terms, and that Chancellor Merkel takes some heart from that clarification?
My Lords, one of the Council conclusions on which I hope the noble Lord can enlighten the House is headed, “Developing a tax policy for growth”. Is this a tax policy for having higher taxes or lower taxes? Secondly, the same paragraph of the conclusions refers to,
“enhanced cooperation to be launched on a Financial Transactions Tax”.
Was that supported by the British Government?
My Lords, on the first point, we are not in favour of any new taxes emanating from the EU. Secondly, we have not supported a financial transactions tax. We know that certain elements within EU countries have got together and decided to impose a financial transactions tax. I believe that in the long term that will prove to be against their interests.
Arrangement of Business
My Lords, the next business is not time limited. As noble Lords are aware, the Companion guidance on debates such as this states that the mover of the debate—in this case my noble friend Lord MacGregor of Pulham Market—has about 20 minutes in which to speak and the Minister responding has about the same time. All other noble Lords contributing to the debate can speak for up to 15 minutes. I and other Whips on duty this evening will do nothing other than help noble Lords to follow the guidance in the Companion. However, as the debate is starting just after seven o’clock and 22 speakers have signed up to it, noble Lords might like to know that if the House wishes to rise at about 10 o’clock this evening, the average time for people to speak in order to come in at around that time would be in the order of six to seven minutes. However, I stress again that the Whips on duty will not try to intervene in any way. I just thought that noble Lords would find it helpful to have that guidance.
EAC Report: Development Aid
Motion to Take Note
My Lords, I have great pleasure in moving the Motion that stands in my name. Before I attempt to summarise some of the key themes in our report I would like to make three preliminary points. First, I hope the House will conclude that it is a thorough piece of work. Our inquiry took nine months. We had, altogether, 30 sets of oral witnesses and written evidence from many more. Our report contains 28 conclusions and recommendations. I warmly thank our specialist adviser, Christopher Adam, Professor of Development Economics at St Cross College, University of Oxford, and our Committee Clerk, Bill Sinton, and his team for all their hard work, assistance and support to us.
Secondly, our report does not cover humanitarian aid for emergency relief following natural disasters, conflicts or social breakdown. We fully support Governments and NGOs in their responses to humanitarian emergencies which are no more than 10% of DfID’s budget. Our report focuses only on development aid which is nine-tenths of the official budget.
Thirdly, development aid is an emotive subject. There are many different views, strongly held. The members of our committee, who span the political spectrum and are members of all parties and of none, also hold strong views. I was anticipating an interesting and challenging chairmanship. In the event our report was unanimous, even on what we anticipated would be some controversial conclusions. I believe that that is because we based our report, as Lords’ reports do, on the evidence before us and the responses to the many questions we raised. I am delighted to see the interest that it has aroused, not least judging by the number of your Lordships who wish to speak in this debate. I anticipate that there will not be unanimity in the Chamber—indeed, the Government have already disagreed in part with our report—but I repeat that we were unanimous.
As the first words of our report say:
“One in five of the world’s population still lives on less than $1.25 a day. This poverty is a source of great human misery, and, if effective ways can be found to reduce it which are acceptable to the taxpayers of the developed world, then reduce it we should”.
In other words, the aim of our report is to see how best donors, and in particular the British Government, can deploy aid to reduce poverty and promote sustainable development while getting value for taxpayers’ money. We set out to look beyond the total money spent to assess the impact, effectiveness and outcomes of aid programmes as well as their cost.
It is worth putting development aid in a wider economic context. Official aid from OECD member states and international organisations to developing countries has, as we all know, grown fast over the past 50 years. In 2010, official aid was about $130 billion in total, but private capital flows to developing countries were vastly greater—more than $1 trillion in total, made up largely of foreign direct investment, remittances and portfolio investment. Put another way, private capital flows to developing countries are about 10 times official aid flows. To this should be added developing countries’ export earnings, which in 2010 were more than 40 times official aid flows. In summary, official aid is about 2% of financial flows from developed to developing countries. As Professor Paul Collier wrote:
“Aid is almost a sideshow in the portfolio”.
The global picture shows that trade and capital flows, not aid, are the real external drivers of economic progress in the developing world.
It is also worth recording, particularly in the context of the 0.7% target, just how relatively well the UK does in aid spending compared with most other countries. In terms of actual amounts, as figure 3 in our report shows, we are the second largest donor, with only the US ahead of us. We compare equally well on the proportion of our gross national income spent on aid. Indeed, all of the six countries ahead of us contribute much smaller amounts of total aid, with the possible exception of the Netherlands. On this measure, the proportion of GNI, the US is well down the list.
To put aid in a broader financial context is not to dismiss its importance. The global figures mask a greater degree of aid dependency in some of the poorest developing countries, which struggle to attract private financial flows. Official aid is the direct contribution on behalf of their citizens which Governments, including our own, make to development. The sums involved are very substantial and growing fast. For example, DfID’s programme increased by more than half in four years to £7.7 billion in 2011 and will rise to £12 billion by 2013. This rate of growth is in striking contrast to the restraint imposed in current economic circumstances on most other public spending programmes. Our report is largely about the aid budget’s impact on development and how far it represents value for money.
An evaluation of the effectiveness of the aid programme needs to start from its aims and the means deployed to achieve them. The basic aim of aid, as set out in the International Development Act 2002, is to reduce poverty by promoting sustainable development. We fully support this aim. We are less clear about means. We are glad that DfID enjoys a high reputation as an aid agency, and that came out clearly in evidence to us. However, directly funded aid projects are now rare. DfID aid goes mainly on financial support for programmes devised and managed by host Governments in, say, education, health or training. The DfID contribution is increasingly made through multilateral organisations such as the European Commission or one of the UN bodies. As a result, DfID is often not in full control of its spending programmes and their effectiveness and value for money or otherwise depends largely on the efforts of others.
We welcome the review of bilateral aid carried out by the Government and the decision of the previous Secretary of State to run down bilateral aid programmes in various countries including China, and to concentrate bilateral aid on 27 countries. Indeed, at this point, let me stress that we strongly supported in many of our recommendations the new directions and policies being pushed through with such vigour by the previous Secretary of State. However, more needs to be done and many of our recommendations follow that course. Let me touch on some of them.
The Government should prepare an early exit strategy from the very substantial bilateral aid programme for India. It is true that India’s impressive economic growth and technological attainments coexist with widespread extreme poverty, but British development aid to the poorest Indian states may provide a perverse incentive to the Indian Government to use less of their own resources to relieve poverty. We recommend that the Government should make plans to run down the British bilateral programme in India.
We also welcome DfID’s recent decision to cease funding some ineffective multilateral programmes, but here again more needs to be done. We advocate reduction of DfID funding of aid programmes run by the World Bank and the UN Development Programme, at least until a revaluation of their work is carried out.
We support DfID’s commitment to reduce general budget support—that is, support that can be spent in any areas—in the coming years, but are concerned that while budget support for specified sectors is to increase, much of DfID’s funding of aid programmes by multilateral agencies goes to budget support. The trouble with budget support is that money spent in that way is difficult to monitor and account for, and therefore does not help build the British taxpayer’s confidence that aid funds are being well spent.
We fully support and endorse the high priority that the Government give to the fight against corruption, but they need to make a greater impact on this front, where the level of fraud identified by DfID in use of its aid funds—which it has assessed at a little over £1 million a year—seems paltry and implausibly low. Given the critical reports of the National Audit Office, the Independent Commission for Aid Impact and some of our expert witnesses, we believe that DfID must make much more stringent efforts to detect and deal with corruption—not least because, as we have seen recently, it is increasingly becoming the focus of some parts of the media. The spotlights that are being shone on some of these issues will increasingly undermine public confidence in an expanding aid budget. We welcome the focus that the previous Secretary of State put on this and his setting up of the independent commission. However, I have to say that the commission was not among our most impressive witnesses, and it seemed to be seriously underresourced.
There is much to commend in the Government’s new approach to running the aid programme. As well as the range of issues of which I have spoken, there is the Government’s commitment to disperse more aid via the private sector and to badge British aid more clearly, which we welcome. Time prevents me from dealing with other important recommendations in our report, which I hope other noble Lords will comment on. For example, the Government should do more to explore with other G20 countries the scope to discourage illicit capital flight from developing countries. We also have recommendations on the quality of aid through multilateral agencies, which I have briefly mentioned, including the World Bank, the UN Development Programme and the European Commission’s aid programmes—including the fact that much of the funding of those agencies may be used for general budget support. I have noted the Government’s response on this point, which I welcome. We also comment on the vital role of the private sector.
I come now to possibly the most controversial aspect of our report and our recommendation. The committee parts company decisively with the Government over their commitment rapidly to reach the UN target of spending 0.7% of gross national income, or about £12 billion a year, on aid. Whatever its merits when it was adopted in 1970, we do not accept that meeting the UN target by 2013 should be the main yardstick of British aid policy. This part of our report is so important that it is worth quoting our main reasons from the report itself. In summary, we gave four reasons. The first was that the policy,
“wrongly prioritises the amount spent rather than the result achieved”.
“it makes the achievement of the spending target more important than the overall effectiveness of the programme”.
“the speed of the planned increase risks reducing the quality, value for money and accountability of the aid programme”,
“reaching the target increases the risk identified in [the report] that aid will have a corrosive effect on local political systems”.
I speak as a former Chief Secretary to the Treasury. For me, it is always axiomatic that all areas of government spending are rigorously examined at the appropriate times within, but also outside, the individual government departments to ensure of course the right priorities but, above all, that all taxpayers’ money is effectively spent and gives value for money. No department should be immune from Treasury scrutiny and evaluation compared with other departments’ programmes. That is particularly important when a key priority is reducing the fiscal deficit. I can think of no other department where the department itself will be the sole judge of value for money, which is effectively what the commitment implies, and where the department will feel that it is, above all, judged by whether it pushes the money out of the door, rather than whether it is properly spent. In the committee’s view, therefore, the core of aid policy should be choosing and funding the best ways of promoting international development and stability, rather than finding new ways to spend ever increasing resources.
We therefore urge the Government to drop their commitment to enact legislation to enshrine in British law an obligation on future Governments always to comply with the UN target of spending 0.7% of gross national income on aid. It would deprive future Governments of the flexibility to respond to changing circumstances at home and abroad. It seems likely that the scramble to meet the target will reduce the scope to achieve the better focus and accountability in the aid programme we advocate in our report, and ring-fencing aid spending in a uniquely privileged position where it can never be cut, irrespective of economic conditions or priorities, seems most likely to bring aid into disrepute with the British public. We are very supportive of many of the directions and policies now being pursued by DfID but we believe that there are areas where it can go further and we urge it to do so. Of course, the one exception is the commitment to an aid target of 0.7%.
In conclusion, I thank, above all, my parliamentary colleagues on the committee for the huge contribution that they made. They were stimulating, probing, thoughtful, experienced and always a pleasure to work with. I wish that I had more time to comment on other parts of our report but, given the lateness of the hour and in the interests of other speakers, I commend the report to the House.
I start by thanking the noble Lord, Lord MacGregor, for his concise—owing to this evening’s time limits—introduction to the debate and for the hard work that he clearly did on the Economic Affairs Committee to produce the report with the support of all members of the committee. I also thank the noble Lords who were members of that committee for the time that they put into gathering so much evidence, producing such a comprehensive range of recommendations and dealing with such a comprehensive range of issues, and for the priority that they gave to this issue, allowing us to have this debate tonight in your Lordships’ Chamber. Much is worth while in the report and in many of the recommendations, but I believe that the report contains a contradiction at its core, and I welcome the opportunity to outline it at the start of this debate.
Although I believe that the report, the evidence gathered and much of the analysis outlined make the case for some changes in policy and spending on aid and development, I do not believe that they make the case for the reductions outlined in far too many of the recommendations. There is a contradiction between, on the one hand, saying that we should not set an arbitrary target for spending increases or decreases and, on the other hand, the arbitrary impact that that then has on that spending. In fact, in too many cases the report seeks to reduce the level of spending either on individual objectives or through individual institutions or as a general goal. In paragraph 115 the report specifically says that,
“the prize, at the end of the day, [is] less taxpayer-funded aid”.
I believe that in our world today that is an appropriate target for the United Kingdom. Therefore, my remarks will concentrate more on the overall case for development aid and the objectives set out by the British Government and less on individual instances and individual countries.
For this country and elsewhere around the world, these are no doubt difficult times. We live in an imperfect world where every decision made, particularly in fragile, delicate or post-conflict countries, can have messy outcomes. However, the United Kingdom also has a duty and a responsibility to meet its international obligations and to be a force for the stabilisation of fragile states and, of course, for the reduction of global inequalities and poverty. That is a necessity. It is in our interests here in the United Kingdom—economically, environmentally, socially, diplomatically and particularly perhaps in relation to our security—just as much as in individual developing countries or the communities that make up those countries to ensure that the gaps between the developed and the developing world are minimised. However, there is also a duty on the United Kingdom—partly because of our colonial past and partly because of our responsibilities as a permanent member of the UN Security Council, as a leading member of the European Union, as the heart of the Commonwealth and due to our role in many other international institutions—to be at the forefront of the global efforts to deal with conflict and poverty. In this country, we should ask not only what is in it for us but, crucially, what is the right thing to do.
The committee argued that there is too much corruption, bad management and inefficient government in developing countries and that that should be used as a reason for reducing development aid. However, when Members of Parliament in this country were spending public money inappropriately on their homes and offices and on personal possessions we did not use that as a reason to cut the amount of money we made available to their constituents. Therefore, we should not use it as a reason for action that would have such devastating consequences elsewhere in the world. There is inefficiency, greed and bad management all over our world. Our job should be to try to help to improve the world, not to make the conditions worse.
The committee argued that at times development aid can have very little purpose or, indeed, sometimes no purpose in relation to economic growth, and that there is a far stronger role for the private sector. I have no doubt that a strong private sector and a growing private economy—particularly one that is free of corruption and is transparent and based on the long-term stability that comes from regulation and the rule of law—are absolutely critical in the fastest-growing developing countries. However, so, too, is an educated and healthy workforce, as well as the infrastructure that allows people to get goods to market, whether that infrastructure is physical or electronic or whether it is about human potential and capital in the 21st century. Governance and institutions that can provide the stable framework for business in which the private sector can properly operate are also critical.
As the noble Lord, Lord MacGregor, said, the committee argued that the target of 0.7% should not be legislated for by the Government and that, indeed, it should be dropped. I accept that that conclusion will have been reached after much deliberation and that a serious point is being made there. It would be possible for me simply to say that, in fact, UK aid and aid internationally is making such a huge difference that we should not countenance that suggestion. I could talk about the 46 million children who now start school because international aid has made a difference, the 6 million people receiving treatment for HIV, or the fact that UNICEF reported just last month that the number of children dying before the age of five in our world today is half what it was in 1990. However, those arguments are not enough. I could argue from the point of self-interest—that for every £1 in aid that we spend in Africa, we get about £2 back in trade. I could make that point and many others in relation to our self-interest.
However, there is a more fundamental point here. Legislating for the 0.7% target would allow the very outcome that the Economic Affairs Committee of this House is seeking to achieve. If we legislated for that 0.7% and we did so on an all-party basis, first, the amount spent in aid could well decrease as well as increase because it would change according to the conditions of our own economy, not because of some arbitrary decision by a politician or departmental official in DfID, and, secondly, it would take the debate on the amount of spending out of party politics and ensure that we spent our time in this Chamber and in the other place concentrating on how that money was spent and on making sure that it was spent more effectively in the years to come.
Therefore, my case for legislating for the 0.7% is based not on an arbitrary target but on the fact that it would lead to the outcome that I believe the members of the committee were seeking to achieve of ensuring that the United Kingdom is at the centre of these affairs globally—a position we should be proud to be in. By legislating for a target of 0.7%, we can take the discussion forward and have a real debate on impact, moving forward in capacity-building, in building human capital, in ensuring that there is better governance and in getting decent relationships with good Governments who are transparent, corruption-free and more effective. At the same time, perhaps we could learn some lessons from those new corruption-free, transparent, efficient and effective Governments in the developing world that we could bring back home.
My Lords, I, too, thank the noble Lord, Lord MacGregor of Pulham Market, for the opportunity to speak about aid effectiveness. Some causes take on an aura of inevitability and become incontestable by their very nature. So it is with international aid for the Liberal Democrats. One of the things that drove me into political activism in the 1980s was the belief, articulated by the Liberals of the time, that we as a country needed to reach the UN target of 0.7% of GDP to alleviate poverty beyond our shores.
Liberal internationalism has always been one of the foundational values within this party and is virtually a part of its DNA. Therefore, the coalition agreement committing this Government to honouring the commitment given by all three parties to the 0.7% target was, and remains, an entirely valid and honourable promise to those who have the very least on this planet. However, to say that one believes in the moral imperative of alleviating hunger or sickness is not to say that one should be impervious to the evidence of what works. Moreover, a balance has to be struck between providing relief today and ensuring that relief is sustainable. The most powerful helping hand is one that lifts a person to his feet with sufficient strength that he may stand on his own feet thenceforth.
This report provides a sharp analytical framework for assessing where a helping hand is most effective, and I congratulate the committee on its work. I will confine my remarks to the general issue of the effectiveness of aid and then pick up the more controversial aspects of the report to do with whether we should commit to the timescale that we set ourselves and the manner of so doing. The consensus across the report that poverty alleviation and sustainable development should continue to be our priorities is welcome. I was much taken by Professor Collier’s succinct description of the need to continue with giving when he said,
“growth is not a cure-all; but the absence of growth is a kill-all”.
That speaks volumes. The other area of great consensus across the field is that private investment and capital flows, along with remittances, are far more powerful levers and actually do most of the heavy lifting when decent governance is in place and countries are able to move from being low-income countries to middle-income.
I was disappointed to note that the share of technical assistance in the overall development assistance budget expended by us both in the UK and in EU programmes was rather lower than the budgetary support provided. The report points to all the evidence showing that technical assistance, and the expertise provided through it, strengthens institutional capacity in low-income countries through improved tax collection, audit and legal systems and can embed capacity within those countries in the longer term. Can my noble friend give the House the Government’s current assessment of the Commonwealth’s technical assistance programme, which they found to be less than effective in their last review?
I also have to disagree profoundly with the report’s scepticism about using aid to put in place mitigating measures for climate change. There are good reasons why we have to help developing countries with the mitigation challenge. First, we have a historic responsibility as one of those countries that have pushed the earth’s atmosphere close to the point where further climate stability can no longer be guaranteed. Secondly, there is a need to put developing countries on a development trajectory that does not repeat our mistakes in pursuing a fossil fuel-based industrialisation strategy. Thirdly, it is imperative to widen the participation of developing countries in international mitigation efforts so that we can build a broad coalition in support of a stronger climate regime post-2015. I note that the noble Lord, Lord Stern, is in his place and look forward to hearing his remarks in this regard.
One of the main thrusts of the report is that it is rather difficult to measure the marginal impact of spending with an increase in growth. These things are different for each country at each stage of its development, so I welcome the committee’s view that it is clear that there is no negative impact on growth. However, leaving aside economic growth as measured by GDP, there is good evidence that it is very useful, and promotes growth in the long term, if it is used for building resilience. My noble friend Lord Ashdown of Norton-sub-Hamdon noted in his Humanitarian Emergency Response Review that for every £1 spent on preventing disasters, £4 was saved in responding to them. Likewise, the committee notes that post-conflict states also have better marginal returns for every dollar expended. Again, as Professor Collier points out, it is important to provide jobs if you want sustainable demobilisation for soldiers.
I know that the committee was rather taken with the evidence of Mr Rory Stewart, who dismissed the concept of a “lessons learnt” model whereby one can to some extent extrapolate from one particular circumstance to another. Although I agree with the idea that there is no template for stabilising post-conflict situations, we do have useful experience to draw on. Mr Stewart, in my view, misunderstands what he describes as liberal imperialism. The idea was founded in the 19th-century context that if you were going to expand empire to other parts of the world, you should try to promote standards there that reflected what you thought was successful at home. The idea that our development assistance today, whether disbursed bilaterally or multilaterally, is to replicate “civilisational standards”—in the lexicon of 19th-century liberal internationalism—is, frankly, to treat today’s endeavours with contempt. I wonder whether the role of the Marshall Plan in providing aid in post-conflict Europe or the writing of the Japanese and German constitutions to entrench the rule of law would count as liberal internationalism. Furthering gender equality or the rule of law is the right thing to do in a post-conflict society and some of us are sure that Afghanistan will emerge the better for our engagement there, even if it takes longer than we expect.
I will touch on the enduring concerns that we all have on the propensity for aid to be wasted through corruption. In 1950, the economist Lord Bauer said:
“Foreign aid is a system of taking money from poor people in rich countries and giving it to rich people in poor countries”.
It can do no justice to the taxpayers of the DAC countries to find that their donations are siphoned away by corrupt elites in developing countries. The fungibility of aid clearly makes this a trickier problem to solve, so will my noble friend be able to tell the House whether the Government intend to take up Transparency International’s recommendation that they should attempt to get the G20 countries to agree rules to discourage illicit capital flight from those developing countries?
I come to the issue of whether we should stick to our target and, secondly, whether we should enshrine this in law. The argument for spending 0.7% seems irrefutable for the UK currently. It is certainly a significant sum of money in raw numbers but looks rather different when seen in perspective: it amounts to just 1.6p of every pound of government spending, when 75% of the world’s poorest people live on less than $1.25 a day. Setting our sights on fulfilling our target is right, despite the current state of our finances.
However, I will speak to the merits of legislating for the target ad infinitum. I am not speaking for the Liberal Democrats here but as an individual who has seen, more than once, the effects of legislation that is not fit for purpose after some time has passed. I am also keenly aware that if I were a taxpayer in Greece, Spain or Portugal—all three of which are DAC members—in the current climate I might feel that restoring my own country’s finances, in light of the enormous strain that those economies are under, might be my priority. Were we to enshrine this commitment in law, it would take away any flexibility on our part should our own financial situation weaken. Even more importantly, noble Lords might be able to imagine some sunny uplands in the future where our statute-enshrined obligation for development assistance is no longer needed to the same extent or for the purposes it was defined for.
To use another analogy, if we were to take peace and stability as our target in this increasingly unstable world, then perhaps we should have enshrined our implicit commitment to NATO spending, which is at least 2% of GDP but below which we have fallen.
I wholeheartedly support the target but am concerned about enshrining it in law. However, I accept that all political parties committed to this and that it is part of the coalition agreement. My own proposal, which might assuage some of the concerns about an enduring commitment, would be that if we do move to legislate, we have a requirement for a substantial review at the end of a 10-year period and perhaps insert a sunset clause into the Bill that will come into play should the conclusions of the review suggest that we are able to adjust the target either up or down. This would allow us to fulfil our current commitments, provide space for the planning of programmes and provide certainty of funding for the next period; but would enable us to reconsider, if necessary.
I conclude simply by thanking the committee for this report, which has added significantly to our understanding of the issue.
My Lords, in this House we do not get many opportunities to debate the general case for development aid and the place of Britain’s aid programme within it—probably fewer than we should. So I very much welcome the chance to discuss the report on the economic impact and effectiveness of development aid produced by the Economic Affairs Committee and so ably introduced this evening by the noble Lord, Lord MacGregor, even if I disagree quite sharply with some of its recommendations—I am in rather greater sympathy with the Government’s response to them.
Development aid is a crucial part of Britain’s projection of soft power; it is a practical expression of our role in the world as a leading developed nation, able to help others less fortunately placed. Frankly, that is a moral obligation as well as a self-interested one. It is a not insignificant part of an overall effort, under the aegis of the United Nations, to make the world a more equitable and thus a more secure place. It matters and we need to get it right. Broadly speaking, I believe that the coalition Government have done precisely that, particularly by their decision to ring-fence the aid budget from spending cuts. They have taken a large amount of criticism for that decision, mainly from their own supporters, but it was a bold and laudable decision. They got it right.
The report recommends the dismantling of the UN’s 0.7% of GNI target for official development aid. What is the justification for that? Is the quantum excessive? Far from it, I would argue. Developing countries, particularly those whose populations make up what has been called by Professor Collier—who I was delighted to see gave evidence to the committee—the bottom billion of the world’s citizens, have needs in developing agriculture, education, health services, infrastructure and environmentally responsible policies far in excess of their own fiscal capacity, even when that capacity is put together with the sums that would be raised by the UN target, if only the donors actually provided them, which most of them do not. If our own aid budget is currently growing rapidly to meet that target, it is largely because, for many years, we shamefully fell far short of it while continuing, year after year, to sign up to it in any number of UN resolutions. Should that target be dropped? What signal would that send to the world’s poorest people? I suggest a disastrous one. We should not forget that by setting the target in terms of a percentage of the donor’s gross national income, the system already takes account—the noble Lord, Lord McConnell, made this point—of recession or stagnation in those economies.
The report is also rather critical of efforts to focus aid on fragile states. No one would dispute that mounting aid programmes in such countries is fraught with technical, security and political problems, but a situation in which aid to fragile states simply dries up, as was the case some years ago in a number of those countries, drives those states into a downward spiral, leading eventually to state failure, which puts huge costs on the international community to remedy. I believe that the previous Labour Government, who began a shift in our aid policy to give fragile states more prominence, were quite correct, as has been this Government’s decision to continue that effort. Above all, the development work in fragile states requires the most intensive co-operation between DfID and the Foreign and Commonwealth Office. I very much support the call for that co-operation by my noble friend Lord Jay of Ewelme, and the progress in getting away from the unhealthy dichotomy between the two departments, which tended to be the order of the day under the previous Government. It must not be allowed to return.
Thirdly, I do not entirely agree with the criticism of the European Union aid budget, to which we make a substantial contribution, of not concentrating enough on poverty alleviation in the poorest countries. I note that the new Secretary of State for International Development took up that theme recently in one of her first public pronouncements. I rather regret that. The EU has a whole string of fragile states around its periphery, from the states of the former Soviet Union, through the Caucasus, to the Balkans and north Africa, which are not among the poorest countries in the world but which it is surely in our interest to see emerging as stable democracies and market economies and which need European help, including trade outlets and investment, to do so. We invariably support the EU’s neighbourhood policy when it comes before the EU Council and rightly so, so we should not be sniping at one of its inevitable consequences, which is a substantial aid budget for those fragile states on our periphery.
I have two more positive themes. First, nothing was heard in this report, or naturally enough in the Government’s response, about the desirability of our working closely with the principal emerging powers, such as China, India and Brazil, which are just beginning to become important players in the aid field. Often those countries have really valuable experience of programmes to lift their own populations out of poverty. Should we not be co-operating with them rather than regarding them as competitors? Perhaps the Minister could say something about that in her reply to the debate.
Secondly, there is the future of the United Nations’ millennium development goals after 2015. The Prime Minister is joint chair with the presidents of Indonesia and Liberia of the UN panel set up to prepare the post-2015 phase, which is a welcome tribute to the role that Britain is playing on development issues. Perhaps the Minister could say something about our approach to the MDGs post-2015. How can we get a better focus on the problems of that bottom billion? How can we refine the very broad-brush approach of the present MDGs? How can we ensure better monitoring of the recipients’ performance in using and in matching up to their own targets? She may also take on board that it might be really good if we had a full debate in the House, in government time, before too long on the post-2015 MDGs and the objectives that the Government are pursuing in respect of them.
My Lords, I add my thanks to those of this House to the noble Lord, Lord MacGregor, for bringing the subject of development aid to our attention. Crucial to the public discussion of this subject is a central question, to which the noble Lord, Lord McConnell, drew attention earlier, about how the debate is framed—the question raised in sharp terms by the report of the Select Committee. Are we, as other noble Lords have said, to spend our time and energy discussing whether to backtrack on the Government’s commitment to 0.7% of GNI or could we move on to engage in what I believe would be a different but more fruitful debate about the effectiveness of our aid spend and the effective scrutiny of that spend?
In August of this year, I spent two weeks in Tanzania visiting our link dioceses of Mount Kilimanjaro and Kiteto. The advantage of visits to churches is that in African culture you travel straight to the heart of local communities; you meet the key leaders in towns and villages; and you see both the hope and despair of populations rarely visited by politicians or even NGOs. You are also brought face to face with unavoidable moral questions, as the noble Lord, Lord Hannay, suggested. What is the responsibility today and tomorrow for the unrecoverable childhoods of those stricken with curable disease and avoidable malnutrition? How do we calibrate responsibility to these children against our responsibility to the children of our own country? What sort of moral value do we put on the obligation of the United Kingdom to keep its commitments, repeated in recent years at United Nations, G8 and EU summits?
These questions stand in some contrast to the tone of the Select Committee report, which lists the great range of complex issues on which, according to the report, experts are not agreed. The range of disagreements is vast and includes questions about the effectiveness of aid in promoting growth, the forms of aid most appropriate to achieving independence, the best way to channel aid, the relationship between aid and the need for better governance, the relationship between aid and the need to combat corruption, and so on. This list cannot be used as an alibi for reneging on our commitment to a target. Rather, it precisely illustrates my point. If the Government are to wait for consensus among experts on these issues before becoming resolute in standing by their original commitments, we will be left looking indecisive and incoherent in a fundamental area of government policy.
This House can properly feel some pride in what has been achieved through British aid programmes to date. In 2009-10, UK aid ensured that 15 million people had enough food to eat and it provided more than 1.5 million people with clean water. The United Kingdom’s aid helped to build or upgrade 1,500 kilometres of roads, and in 2012 to 2015 it will help more than 77 million people to access financial services. It can be argued that, far from being unaccountable, DfID is one of the most scrutinised departments in Whitehall, with the Independent Commission for Aid Impact and the International Development Select Committee, in addition to the National Audit Office.
If we could move on from the debate about 0.7% of UK income, we could reach the point of discussing other, more fruitful and urgent questions such as the relative merits of microfinance, social entrepreneurship and grass-roots advocacy. It is after all commonplace in other areas of government spending to explore these kinds of questions, so why is the debate about aid not framed in this way? That would allow us to move on to deal with other crucial matters, including how we plan for a future beyond aid, how we tackle global forces that keep people poor, how we address the tax avoidance that creates the huge inequalities that hurt the poorest and most marginalised and how we push for international co-operation to end the tax-haven secrecy that preserves these inequalities.
Our polarised debate seems to assume that aid is often seen as the only source of external funding and that external funding is all there is to development. This is a sterile and erroneous position. Important though aid is, access to markets and technology, especially green technology, is arguably far more important to a country’s strategy for development than any external financial assistance. Aid is but one part of the solution, not the whole solution. I hope that our debate this evening will help us to move on from narrow terms focused on government targets.
My Lords, I hope that the right reverend Prelate will forgive me if I do not address the points he made in his contribution to the debate. We are strongly constrained for time, which unfortunately prevents us having a debate in the real sense of the word.
As the first member of the Economic Affairs Committee of your Lordships’ House to speak after our chairman, I start by paying a large tribute to his outstanding chairmanship. He pointed out that in this tricky area we produced an absolutely unanimous report. I think that the main reason for our unanimity, if I may say so, was because the weight of evidence that we received was so overwhelming—evidence that noble Lords who have spoken so far seem to regard as of no account. However, his outstanding chairmanship also played a part, and I thank him.
This country’s aid programme stands out in at least three ways. First, as my noble friend said, we give more in overseas development aid than any country in the world with the sole exception of the United States. Secondly, while in order to achieve sadly necessary fiscal consolidation, all other public expenditure programmes are being either frozen or cut back, the UK overseas aid budget is roaring ahead—at a time when most other countries are slowing down on this front. Thirdly, we are doing this explicitly in pursuit of a pledge to meet the 42 year-old United Nations target of spending 0.7% of our GNP on aid by next year; and, unlike any other country in the world, and in contrast to all other areas of public expenditure in this country, we have said that we will introduce legislation to bind this and all future UK Governments to maintaining this level of spending in perpetuity.
As my noble friend Lord MacGregor pointed out, the principal conclusion of our report, although not the only one, was that, far from making it a legal obligation, we should abandon this antique and wholly arbitrary target altogether. He admirably set out why we unanimously reached that conclusion. In particular, he pointed out how the 0.7% target prioritises the amount spent rather than the results achieved, and thus makes the achievement of the spending target more important than the effectiveness—if any—of the programmes. The Government’s pathetic response to our report was that the 0.7% commitment was a solemn pledge by all three political parties, and that is that.
I very much hope that the Minister will do better than that this evening, even if the Leader of the Opposition is unable to do so.
In my rather long political experience, when all three political parties are agreed on a policy, it is nearly always mistaken—as it is in this case. There is a very clear reason why that should be. The existence of all-party consensus ensures that the policy in question is never properly debated or scrutinised. If the evidence shows that a policy is mistaken, it should be abandoned: it is as simple as that.
I do not question for a moment that the policy is well meant, or that the intentions behind it are noble. However, as we all know, the road to hell is paved with good intentions. Policies need to be judged by their outcomes, not by their intentions. I cannot stress this too strongly. I believe that all of us on all sides of the House are well intentioned, but that does not prevent us frequently disagreeing strongly with the proposals of those who sit opposite us, on the grounds that the consequences of what they propose would be damaging. For example, I am sure that Mr Blair had the most high-minded intentions when he took this country to war with Iraq. However, that does not mean that he was right to do so. It is outcomes, not intentions, which matter.
I return to the proposal that the 0.7% aid target should be abandoned. I suspect that we might not have felt quite so strongly about this had there not been serious doubts about the efficacy of development aid more generally. To quote the cautious conclusion of our report,
“the evidence that aid makes a contribution to growth in recipient countries is inconclusive”.
We did not go deeply into the question of why development aid does not, on balance, promote economic development, although we did point to the malign relationship between aid and corruption, which has already been mentioned in this debate. But corruption—important as it is—is only part of the story. The real issue is more fundamental than that.
A useful analysis, which I commend to the House, is to be found in a penetrating new study, Why Nations Fail, by a couple of economists, Acemoglu and Robinson, which unfortunately was not published until after we had completed our inquiry. They say that what the nations that fail,
“all share is extractive institutions. In all these cases the basis of these institutions is an elite who design economic institutions in order to enrich themselves and perpetuate their power at the expense of the vast majority of people in society”.
In parenthesis, my noble friend Lady Falkner reminded us earlier of my old friend, the distinguished development economist the late Professor Peter Bauer, who many noble Lords will recall was a stimulating Member of this House. He used to say that the principal effect of official development aid was to transfer money from the poor in the rich countries to the rich in the poor countries. That is far too true for comfort.
Be that as it may, Acemoglu and Robinson continue:
“The idea that rich Western countries should provide large amounts of ‘developmental aid’ in order to solve the problem of poverty in sub-Saharan Africa, the Caribbean, Central America and South Asia is based on an incorrect understanding of what causes poverty. Countries such as Afghanistan are poor because of their extractive institutions—which result in a lack of property rights, law and order, or well-functioning legal systems and the stifling dominance of national and, more often, local elites over political and economic life. If sustained economic growth depends on inclusive institutions, giving aid to regimes presiding over extractive institutions cannot be the solution”.
That must be right. But I would myself put it more simply. The crucial requirement for economic development is a variant of the separation of powers: in this case, a separation between the political and the economic spheres.
Without that separation, if the route to individual wealth is via political office, government becomes a means of extracting wealth for the benefit of those in government, at the expense of the governed; and the notion of facilitating economic development or growth by providing conditions in which the governed can escape from poverty by their own efforts, outside the political process, is conspicuous by its absence—hence the futility of development aid.
I stress that I am not speaking here about disaster relief, although even in the area of disaster relief, the reality is all too frequently far from the intention, as Linda Polman has devastatingly documented in her book War Games: The Story of Aid and War in Modern Times..
The record of development aid, however well intentioned— and I admit that it is—is as disappointing as it is because it does not and cannot achieve the indispensable political and institutional requirement of a separation between the political and economic spheres in the recipient countries. Without that, development aid is futile; with it, development aid is unnecessary. Indeed, official development aid is likely to be worse than futile, and actively counterproductive overall—even though individual projects may bring useful if minor benefits, such as better paid schoolteachers and thus, we hope, better schools.
This is because the principal consequence of the provision of official development aid to Governments in the developing world is to boost the already excessive dependence on government and, more specifically, to reinforce the concentration of political and economic power—the very reverse of what history has shown is required for successful economic development, without taking into account the extent to which aid promotes corruption in the recipient countries; a well documented phenomenon.
It is, of course, important that we do nothing actually to impede the economic development of what used to be known as the third world. That means, in particular, putting no barriers in the way of their exports to us. But if we seriously wish to use taxpayers’ money to help the people of the developing world, the best thing we can do is probably to spend a fraction of what we are currently mis-spending on development aid on educating the future leaders of those countries in our best schools and universities. It is only they who may, in future, be able to effect the political and institutional transformation that their countries so badly need.
My Lords, this is an important debate. We owe the Economic Affairs Committee of the House a debt of gratitude for making it possible and for the serious and weighty consideration, so well exemplified by the contribution of the noble Lord, Lord MacGregor, that it has given to this subject. Even when one disagrees with some of the committee’s conclusions—and I certainly do—no one can doubt for one moment that they are worthy of very careful consideration. It would be dangerous in the extreme for anyone to dismiss them out of hand.
From the outset, I declare an interest in this debate. I was the Chief Secretary whose fingerprints are all over the commitment to the UN target on ODA. I confess that. I am an adviser to and trustee of a number of not-for-profit organisations that either have been or hope to be the recipients of grants from DfID. I make no apology for that. I believe that NGOs have an enormous contribution to make, not always realised, frankly, on the part of government donors, to the development of the poorest parts of our world, and have insights into how best to innovate and deliver to the very poor that governments very often do not have.
I must put my hands up, too, to the responsibility of having led a mission for four and a half years. As its head I held a notional responsibility for the operation of DfID in a particular region. I say “notional responsibility” because the reality is that the Foreign Office-appointed head of mission in any country has very little influence let alone control over the activities of the Department for International Development in that country. I shall come to that in a moment because it is an issue that has to be addressed. For all those reasons, I have form as long as your arm when it comes to DfID.
I regard myself as a friend of the Department for International Development and appreciate enormously the dedication and commitment of its staff globally. In my experience, no other development organisation globally enjoys the universally high reputation that ours does. It deserves real credit for that. Although I am a friend of the department, I am not an uncritical one because there are areas, a number of which are highlighted in the report, where the department could certainly do much better. I want to address a number of those in the course of my remarks.
First, a department with the responsibilities and the budget that this one has ought to be capable of working in a more collegiate way across government than in fact it does. The reality is that not only does it often fail to work collegiately with the Foreign and Commonwealth Office, it also fails to take advantage of the huge expertise across government in certain areas that are absolutely central to the alleviation of poverty and the development of those countries that are so desperately in need of development. I shall give a number of examples of that from my own ministerial experience, quite apart from anything else.
The Department of Health, about which no doubt we will hear more in due course from the noble Lord, Lord Crisp, is full of expertise when it comes to healthcare delivery systems. There are nurses and doctors all around the country at various stages in their careers who very much want to and often are making a contribution to the alleviation of poverty and suffering in our world—underfunded or unfunded. Do they get the help and support from the Department for International Development that they ought to? I am afraid that they do not. The department, which has more money at its disposal than it can deal with and which is busy handing it over in large quantities to the European Union and a range of other multilateral organisations, some of which frankly do not deal with the money as they ought, has not been prepared to make money available to another government department so that it can be spent more effectively on behalf of the taxpayers of this country to meet the objectives that we as a country have signed up to. That, quite frankly, is a scandal. I would like the Minister to tell us just how much of the ODA budget is expended through other government departments. If, as I suspect and indeed as I know, it is a minute proportion of the total amount available to it, why is that the case?
DfID does not have the staff to monitor and deliver the resources at its disposal as the department itself accepts they ought to be monitored and delivered, so why not allow other government departments to take responsibility for facilitating the sort of partnerships between hospitals, universities and a range of organisations in this country and their counterparts in the developing world which, with just a little seed corn funding—and sometimes with more than just a little bit extra, but a steady and sustainable stream of funding—could make a huge difference to the poorest in our world? There is a case that the department has to answer for its failure in this regard. I hope that HM Treasury will look at this carefully, will drive in a way that it has not always driven in the past—indeed, I put up my hands because I did not drive as I ought to have done—and will encourage co-operation between government departments across the piece. That is an issue to which I hope we will return in the course of our debates on this subject.
I turn now to one area where the department needs to be prepared to abandon some of the orthodoxy that hitherto has tended to predominate. For all its strengths, the department has a tendency to be theological in its approach to development. If something does not fit in to the mindset that is the established wisdom of the department, it is treated with the utmost suspicion. I give the example of science, technology and innovation. I have yet to see a country that has been able to develop and grow its economy without science, technology and innovation, and yet for years the department has had a downer on promoting science. It had to be dragged kicking and screaming by a line in the Chief Secretary’s letter to appoint a chief scientist in the first place. We were told that it was not necessary for the department to have a chief scientist because it was not something that had a direct bearing on the alleviation of poverty—please, do me a favour. The reality is that the poor need science. Without the growth that is stimulated by science and innovation, we are never going to see the developing countries of the world reach the level of human and economic development that is their due. I would like the department to assure us that, this time around, it is giving its chief scientist a budget so that the department can do the work that it is there to do.
I would like an assurance that the department is actually working with higher education institutions in this country and that it is actually prepared to spend some money in those institutions on promoting science and innovation across the piece, particularly in relation to agriculture. We are facing one of the gravest crises in food security that our world has ever seen. That is the reality on the ground. It cannot be solved simply by resorting to food parcels and humanitarian relief. Today, a number of parliamentarians met MPs who represent farmers in Uganda. They are desperate for hands-on technical support in relation to their crops, for the development of drought-resistant seeds, and for the most basic forms of agricultural research and development. Their own Government are not spending up to the AU targets on agriculture as they ought to be. Sometimes we look at issues of conditionality when we grant direct budgetary support and sector support, but ought we not to make it a condition, when offering general budgetary support, that at least the Governments should set their budgets so that they spend up to the targets they have already committed to? If they do not, why should British taxpayers expend their hard-won resources on support for budgets that do not meet the needs of the poorest in those countries? While I do not advocate a return to conditionality—indeed, I am opposed to it and sceptical of some of the new forms now being imposed on the developing world—there are some forms of conditionality that relate to fitness for purpose that should be required by DfID if it is to continue with direct and sector budgetary support along the lines that it indicates it intends to do. I hope that it will take into account the Economic Affairs Committee’s strictures when it comes to sector and general support because there is a great deal of good sense behind them.
My final point is one where, again, you come up against the theology within DfID and the most amazing resistance to co-operation with the Ministry of Defence. There can be no development without security. In the Sahel, we are witnessing, centred around Mali but spreading throughout that region, one of the gravest threats to development and security that Africa has ever seen. I hope that we will hear some reassurance in the course of the debate that DfID will be prepared to co-operate with the Foreign Office and the Ministry of Defence in using the conflict pool to address the situation in the Sahel. If it does not, and we find that the African Union is unable to access the resources it needs to offer a military, economic and public diplomatic response to the crisis in the Sahel, we will reap a terrible whirlwind across the continent.
If ever there was a time for an agency such as the British Council to be freed up to work in that region, with resource, it is now. Scandalous as it is, the proportion of resources available to the British Council for that sort of work has gone down and has done so when DfID is awash with money. How much money has DfID made available to the British Council in each of the past five years? How much does it intend to make available to it in the next five years? I am afraid that the answer to that question will reveal a continuing reluctance on the part of DfID to share the taxpayer largesse that has been made available to it.
I support and applaud the Government’s commitment to the 0.7% target. I support and applaud the incredible work being done by DfID and our partners throughout the world. But there really is much more to be done. We need to be bold; we need to be innovative; and we need to be prepared to work together in ways that go beyond the old and established ways of thinking and doing things. We need to be prepared to take some risks if we are to fulfil the moral commitment that we have made as a nation. At the same time, we need to applaud the fact that we have made it and have done so with the overwhelming support and concurrence of the British people. It says something about a nation when the majority—61% of UK adults—agree that we should be spending what we are on overseas development. It says something about a nation when, up and down the country—in church halls, in village halls, in chambers of commerce, in trade union branches, in communities rich, poor, rural and urban—people are getting together on a daily basis to see how they can make the world a better place. This House is doing the right thing by giving this report, its conclusions and the Government’s response to it the serious consideration that they deserve.
My Lords, this report is the outcome of many months’ deliberation by the Economic Affairs Committee, during which we heard from many expert witnesses who challenged our perceptions of development aid.
I present the apologies of my noble friend Lord Smith of Clifton, who as a member of the committee hoped very much to speak on this report but is absent because he is recuperating from surgery. I am sure that he would agree with me that this report should be seen as the report of a critical friend. It is about the effective use of public money in helping to drive growth in poor developing countries, in reducing inequalities in income, wealth, health and life expectancy between countries and peoples, and in making the world a safer and more secure place by spreading wealth and opportunity.
The UK is a better place because it gives international aid and wants to give more. I pay tribute to the previous Secretary of State for International Development for his personal commitment to the importance of overseas aid. He had a clear programme to get 11 million children into school, to vaccinate 55 million people against preventable diseases and to stop 250,000 newborn babies dying needlessly, and a plan to promote education and access-to-finance schemes for women and girls.
Aid is morally right for richer countries to give, but it should not lead to fraud, corruption, capital flight or arms purchase. The committee heard worrying evidence that it did. We also heard convincing evidence that development aid can be a driver for growth where it acts as a catalyst for a recipient country’s institutions and its economic and social infrastructure. We heard that aid is not necessarily a driver of growth itself but that it can increase the rate of growth, led by the private sector, by investing in health, skills, internal infrastructure and strong political governance.
Since the report was published earlier this year, three trends are impacting negatively on poor countries. First, the international debt crisis is pushing up the debt repayments of poor countries by about one-third. The Jubilee Debt Campaign has identified that because European demand is lower, income derived by poor countries from exports is reducing. Also, European banks and companies are repatriating money and poor countries are being asked to reschedule debt themselves and thus carry greater burdens. Cutting debt repayment matters because it can be followed by specific, measurable action. We should remember, for example, that in 2001, when Tanzania was granted debt relief, school fees were abolished and school enrolment rose from 50% to 80%.
Secondly, there is a food crisis: 250 million people in Africa are undernourished, and food production in Africa is reported to have dropped by 10% in the past 50 years. I read that more than $33 billion a year is spent on food imports into Africa. Prices are rising and becoming unaffordable and faster agricultural modernisation and expansion seems essential, as the noble Lord, Lord Boateng, pointed out a moment ago.
Can the Minister update the House, either now or later, on whether British multinationals will in future be able to direct profits into tax havens that could cost developing countries significant losses of tax income? What estimates have officials of DfID made of that? Is the estimate of ActionAid correct when it estimates that loss at £4 billion—one-third of our planned development aid budget?
All those trends matter deeply to the amount that we give in aid, which is why the Government’s ambitions to increase the amount we give are right. However, we know from research and from the evidence we heard that only about 50% of aid reaches its target. That is far too low. The other 50% goes in administration and overheads, particularly where money goes through a chain of agencies, in consultancies but also in corruption and fraud.
I move to the issue of fraud and corruption. Some of our witnesses claimed that DfID emphasises quantity, not quality, with poor monitoring. An important consequence of that is a lack of public confidence that money is well spent. Indeed, last year, DfID admitted to the Public Accounts Committee that it did not know how much aid money was lost to fraud and corruption—so much for audit. In 2011-12, the sum identified as fraud and corruption from our direct aid was only £3.1 million, a tiny portion of overall spending.
The Government have created the Independent Commission for Aid Impact. It would be helpful to know what it has achieved since we reported. I understand that it has subcontracted some of its work to KPMG. It would be helpful to know the terms of that. For example, is there an element of payment by results?
A recent National Audit Office report into multilateral aid stated that none of the institutions acting on behalf of DfID had any quantified details of known frauds or losses, although departmental staff were aware of investigations into potential fraud in some cases. That rather suggests that not a lot is done to limit fraud. I hope that the Minister can put my mind at rest and confirm that multilateral aid is indeed subject to proper audit.
As the Government spend more to reach their goal of 0.7% of national income, it is crucial that the public have confidence in our aid programme. Rightly, they want giving aid to be dependent on positive outcomes, improving in-country governance and delivering proper audits on the ground, not supporting Governments who are complicit in terrorism or attacks on civil liberties. The target of 0.7% of gross national income for OECD countries has been a 40-year target. It exists as a statement of the responsibility of rich countries to support poor countries across the world, and I subscribe to it.
I have been concerned, and I have heard much evidence to support that concern, that achieving 0.7% cannot be an end in itself. It should be the consequence of what we do project by project and programme by programme because success can be measured only through positive development outcomes. I have also questioned the speed with which 0.7% is to be reached. The committee’s conclusion in paragraph 95 relates to reaching it by next year, and whether it should be made statutory, which presumably future Governments could change if they wanted to.
In financial terms, there is a planned 37% real-terms increase in aid spending by 2015, which is three years away. I am still uncertain whether it can be done without substantial waste, losing large amounts to overheads and administration and, indirectly, to capital flight and fraud. I hope my doubts are misconceived—I would like them to be. Our committee has stressed throughout that its report is not about cutting aid, nor about freezing it, but about ensuring that the criteria used to define success are not just a proportion of national income. Interestingly, in his reply to our report, the International Development Secretary said:
“0.7% is not a central plank of aid policy”.
I am reassured by that and I hope that means there can be a meeting of minds. I am very happy to spend 0.7%, but the impression has been given that it is indeed the central plank of government policy. I am happy to accept the previous Secretary of State’s clarification. He is right to have added in his response that reaching 0.7% will send a powerful message to other countries, and it is doubly important that we do so given the problems of debt, the loss of tax income and reduction in food supplies that I referred to earlier. All I ask is that reaching 0.7% is done by delivering real outcomes on the ground that are sustainable, drive economic growth and maximise the development impact for each pound spent, which will in turn give the public confidence that their money is being wisely spent.
For that reason, we need to be careful that when we pass money to intermediate agencies, we do so with agreement that money will not go to projects that we would not have agreed to fund ourselves. For example, we are the fifth largest contributor to the World Bank. While our contribution is only around 10% of our total spending on aid, some of that money is going to projects that DfID would not have funded directly itself: there are examples in projects in Iran, China and India. The International Development Secretary promised that there would be a tighter focus on 27 of the poorer countries, and that seems to be right.
The same problem seems to have occurred with the EU, where British aid has been used to support some projects that would not have been supported directly by the UK. I welcome DfID’s intention to go with “what works”, in the words of the previous Secretary of State. Certainly, the bilateral aid review he undertook, resulting in country offices bidding against planned results rather than just for access to funding, will help. In education, might this mean longer contracts to allow for vital institution-building and implementation? Might it mean educational consultants working alongside rather than for an overseas ministry? Might projects be clearly part of a bigger picture rather than one-off without proper follow-up? In building civil society, might it mean focusing on outcomes so that large and prolonged aid programmes do not have a corrosive effect on local political and government systems? In health might this mean following the advice of Professor Sachs of Columbia University, which is quoted at paragraph 108 of our report? It says:
“‘I am not keen on programmes that say, “You are a good Government, you get high governance scores from the World Bank, therefore you are going to be a recipient of budget assistance and we trust you”. I trust nobody.’ Handing over money to central government and expecting it to reach the local level is, unless very carefully designed, ‘a hope too far’. Professor Sachs is instead ‘a big fan of well targeted, well defined programmes that can accomplish well designed and specified purposes’, such as delivery of bed nets or vaccines”.
Health projects like that drive growth because people are well.
In the past 20 years, 18 out of 54 countries have moved from being classed as low income to being classed as middle income. Our job is to help many more low-income countries to move from aid to trade and from low income to middle income.
This is not just about 0.7% or any other number; it is about doing what we can and should do to help poor countries to grow their way out of poverty. It also means the Government reassuring everyone that there is indeed capacity in DfID to spend effectively and, in so doing, to build public support for development aid.
My Lords, I, too, have high regard for our aid programme, and it is encouraging that so authoritative a committee as the EAC should have decided to report at length on its impact and effectiveness. I say this sincerely because, like the noble Lord, Lord Hannay, I believe that aid, although universally popular in this country, is a neglected subject in Parliament. Even in this House, which has a good record on foreign affairs, aid tends to come up only in general or country-specific debates. With such a large budget, though, international development should be examined like every other aspect of our economy. Indeed, in many ways much overseas assistance provides a catalyst to our own domestic economy.
I still cannot decide whether the committee was attacking the 0.7% target as an intellectual exercise or whether members of the committee such as the noble Lord, Lord Lawson, disapprove of the use of the aid target as a mantra of the political parties. It helped that the media picked up on the report and ran the headline, and I in no way attribute base motives to the committee in seeking attention from th