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Local Authorities (Conduct of Referendums) (Council Tax Increases) (England) Regulations 2012

My Lords, whenever I speak in this Room, the pictures on the wall prompt me to make a connection with the subject we are discussing. Today, we have Moses bringing the tablets down—as I understand it, there was no referendum on the 10 commandments—but we also have Daniel, who I suppose could be described as a bit of a returning officer. Noble Lords will recall that ““You have been weighed in the balance and found wanting”” was the interpretation he gave Nebuchadnezzar. Such divine and semi-divine inspiration apart, we have today to deal with an important set of regulations. This Government are addicted to referendums. We have had one, as my noble friend Lord Grocott has reminded us, on AV. They are compelling 11 councils to hold one on elected mayors. They are keen to have one in Scotland, perhaps rightly so, and the Localism Act provides for referendums in the context of local plans. Oddly, the Government have not yet indicated whether they plan one on House of Lords reform—precisely the kind of constitutional issue to which the noble Lord, Lord Rennard, referred when he spoke of the Constitution Committee’s thoughts and recommendations on what would be an appropriate subject for a referendum. Today, however, we debate council tax referendums. There are, in fact, only two things wrong with council tax referendums and the regulations before us. The first is form; the second is substance and effect. Let me, in my perhaps typically perverse fashion, deal first with substance and effect. Rather than rely on their former powers to cap individual authorities, a power to which local government has always objected—and here I suppose that I ought to follow others in declaring an interest as an honorary vice-president of the Local Government Association—the Government are, in effect, capping every authority by stealth. The Government have determined an arbitrary figure for different classes of authority beyond which a council will be compelled to hold a binding referendum to coincide with the date of council elections in May. By this time, of course—as my noble friend Lord Smith has already reminded us—the bills will have gone out. If the referendum rejects the council's proposal, the council will have to re-bill. This in itself, combined with the cost of the referendum, will, as no doubt intended, deter many councils, especially small councils, from proceeding down that route. I recall an incident—I cannot remember which council it was—where the cost of re-billing exceeded the saving that would have been made in terms of the difference to council tax. It should be noted that the definition of excessive increases—and, again, I concur with the scepticism of my noble friend Lord Smith about the use of the adjective there—is simple and crude. There is no scope to differentiate between authorities, or groups of authorities, with particularly challenging problems—financial or otherwise. There is no scope, as under the previous system, for any representations to be made to the Secretary of State or any accommodation reached. Instead, there is a flat target—a referendum irrespective of whether there is any local demand for one—and a plethora, as the noble Lord, Lord Jenkin, has rightly described it, of tightly prescribed rules and regulations about how to conduct a referendum. There is page upon page of precisely that kind of prescription. This is all before the so-called localisation of business rates impacts, as it will, differentially between councils and their council tax payers, with its own impact on the level of council tax to be levied. Consider the background. As Professor Tony Travers pointed out recently, the Government's VAT increase of 2.5 per cent last year cost households twenty times as much as an equivalent percentage increase in council tax. Many council tax benefit recipients will find their council tax going up sharply in the wake of the cut that the Government are imposing on benefit just as council tenants have suffered rent increases of around 8 per cent. However, there is no thought of a referendum about any of those burdens on households. When the department wrote to council chief executives last week, it became apparent that the way the system will actually work is far from the simple, albeit misguided, impression that one would gain from the headlines, as the noble Lord, Lord Jenkin, has pointed out. The rubric looked as though an increase would be excessive if it exceeded 3.5 per cent. It now appears, however, that certain councils could, depending on circumstances, levy a 5 per cent increase without having to hold a referendum. As the noble Lord said, 31 others might find themselves required to hold a referendum if they increase council tax by less than 3.5 per cent; indeed, as he said rightly, if they increase it by less than 3 per cent. Manchester, to which he referred, would have to have a referendum with a 2.05 per cent increase, Sheffield with a 2.7 per cent increase and Newham with a 2.79 per cent increase. All this is after the council tax freeze that we have already had and which, at some point, will have to be made good. In case my noble friend Lord Smith does not know it, I should perhaps advise him that the effective referendum limit in Wigan will be 2.83 per cent. As usual, the authorities worst affected are those most heavily dependent on formula grant, particularly in the north, the Midlands and in some London boroughs. It is a measure of the problems that they face that the cut in formula grant as a percentage of council tax is as high 18.8 per cent in Manchester and 22.7 per cent in Newham, while their permitted increase will be around an eighth of that amount, not that those councils would be envisaging increases big enough to close the gap fully as that would be a very high council tax increase indeed. However, there is an even more startling potentially perverse outcome, referred to by the noble Lord, Lord Jenkin, for it is possible that, due to the arcane working of the system, a council might have to hold a referendum even if it freezes its council tax. So it would go to the public with the question: ““Do you agree that the excessive council tax increase of nil should be supported or not?”” What a ludicrous procedure that would be. As my noble friend Lord Smith has said, no council enjoys increasing council tax or does so willingly. It is noticeable that, this year, even a number of Conservative councils have felt compelled not to observe the freeze that the Government have called for, paid incidentally for those councils that accept it, from money which would have gone to local government anyway in the distribution of formula grant. Those Conservative councils have, no doubt, taken this course because freezing the base will make future financing more difficult. Alas, they have incurred the wrath of Mr Pickles accordingly. Making a council budget is a difficult and protracted process at the best of times. Making it at a time when demand for services is growing, partly as a function of the state of the economy and the fact that people's capacity to pay is shrinking, is even more difficult, despite local government's outstanding record in increasing efficiency, which is much the best across the whole of the public sector. Extremely hard choices between competing demands have to be made by every council. These are not easily mediated by a simplistic choice between different levels of council tax. The proper way to come to a decision locally is for councils to consult widely on a range of options and then to determine the budget and set the tax. The Government’s covert capping undermines representative local democracy by proposing the veneer of democratic engagement in the form of a single question about the level of an increase. The proper occasion for judgment about a council’s policy and record is at local elections, not in the form of ad hoc referendums. That brings me to the question of form. The Electoral Commission which, as we have heard, has responsibility for these matters, consulted widely last year and commissioned research on, in particular, the question to be asked. Instead of accepting the commission’s proposed question, the Government produced an alternative, embodied in the regulations, on which they neither consulted nor conducted research. The commission states that it is not possible properly to assess whether the question is clear, simple and neutral. The commission conclude that the question, "““risks introducing an unknown level of complexity and potential bias””," to these referendums. I note, parenthetically, that the whole problem is caused by reducing complex choices and deliberations to the form of a simple question in the first place. Somewhat disingenuously—of course this is not the responsibility of the Minister—the Explanatory Notes for the regulations refer to the Electoral Commission’s position, saying, that the Government consider that, "““the alternative question proposed by the Commission did not make it sufficiently clear that voters are voting on a council tax increase that has already been set””." The next paragraph says: "““The commission also offered views on the draft regulations and raised a number of points of detail which informed the drafting of the regulations””." I find that an extraordinary assertion in the light of the explicit recommendation that the Electoral Commission made in a document circulated recently, in which it says, "““The Government should withdraw these draft Regulations and lay new draft Regulations specifying a revised referendum question which more fully reflects the recommendations””," which it made in December. It is quite extraordinary that the Explanatory Notes should be published with no reference at all, either in the original or, if the response of the Electoral Commission came in later, by way of a supplementary note. The noble Lord, Lord Rennard, is quite right to emphasise the importance of respecting the views and recommendations of the Electoral Commission. I concur with him that the setting of questions should be entirely a matter for the Electoral Commission, and that is not the position at present. The Government are within their rights to ask about the question posed. Sticking to those rights does not answer the problem that we are facing and that is posed by the Electoral Commission. I therefore call on the Government to do precisely what the Electoral Commission suggested—to withdraw these regulations and to come back with a revised set, if they proceed with the policy at all. Frankly, I also call on them to rethink their whole approach to council tax capping, which is what this is by another name, which is compounded by the enormous difficulties faced by councils of all political persuasions and none in the light of the unprecedented, front-loaded cuts volunteered by Mr Pickles, which of course bear most heavily on the most disadvantaged communities. At the very least, if they insist on retaining some kind of capping, in whatever guise, it should be capable of reflecting different local circumstances, which these regulations do not, and allowing an element of ministerial discretion. I urge them to abandon this process. As I understand it, the noble Lord, Lord Jenkin, with his long experience of these matters, also urges them to abandon it. The Minister said that the Government will consider this question again. I am assuming that it will not be necessary to do that very quickly because it is anticipated that there will be no call for a council tax referendum this year. In my judgment and that of my noble friend Lord Smith, it is extremely unlikely that it will ever be the case. We have capping under a different name, but that is what it amounts to. It is much cruder than when the noble Lord was dealing with it because then there was discretion and a capacity to look at different situations. Here, perversely, the notion is that there is a single rule for all, but in practice, as we have heard and have learnt from the Local Government Association, there is a differential. It does not really discriminate on the basis of a conscious decision by an authority but is an accident in the way that the system works. It makes it more difficult for a council to deal with its financial problems and remain outside the capping procedure. This is a very sorry saga, and I hope that in the light of what has been said here today and, more importantly, by the Electoral Commission and others outside, the Government will take the opportunity to rethink their position completely. I hope that the Government will withdraw the regulations at this stage and, preferably, not bring them back; but if they are brought back, I hope that they are brought back along the lines of the Electoral Commission’s suggestion.