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Reforming Council Tax Benefit

By Aaron Barbour

We’re developing a programme of work at the moment that will investigate the impact of national welfare benefits policy changes on local residents here in Newham. We want to use Newham as a local case study, and share the findings back with government. We’ll share more details soon. So last week I attended (yet another) authoritative event at the Institute of Fiscal Studies (they do the detail very well) on the proposed changes to localise support for council tax from 2013–14. This will mean that Council Tax Benefit (CTB) will be abolished acrossBritain and grants will be given to local authorities inEngland, and the Scottish and Welsh governments, to design their own systems for rebating council tax to low-income families. The government is planning to cut funding for council tax support by 10 per cent.

Currently 5.9 million people claim Council Tax Benefit, more than any other means tested benefit or tax credit. Another 2 million are eligible to claim but don’t. This costs £4.9bn (2.4% of the total welfare budget). Criticisms of CTB include: its lack of take-up; the means testing of CTB weakens incentives to return to work and for those in paid work to increase their earnings; and that it weakens incentives to save; and creates an artificial incentive for low income families to live in bigger properties. However the aim of government reforms to CTB is not to address these issues. Their intentions are to localise welfare and cut the benefits budget.

This study supported by the Joseph Rowntree Foundation, examines the likely effects of this policy and the options available to councils.

It found that:

  • Localisation will strengthen local authorities’ incentives to promote employment and growth, but will also give them an incentive to discourage low-income families from living in the area, and a disincentive to encourage take-up of support. Having schemes that vary across the country will reduce transparency and increase bureaucracy (and costs).
  • While total funding from central government is due to fall by 10 per cent, the decision to protect pensioners inEnglandwould imply a 19 per cent cut in support available for working-age claimants.
  • The government plans to give each local authority a grant based on 90 per cent of what would have been spent on CTB in that area. If councils do not find additional money from elsewhere, the requirement to protect pensioners means that some local authorities inEnglandwill need to make larger percentage cuts to support for working-age claimants.
  • Since almost half of CTB goes to the lowest-income fifth of households, it is unsurprising that all the options analysed would hit poor households hardest. Options that protect the poorest claimants either fail to generate large savings, or significantly weaken work incentives, or both.
  • Councils will have to consider carefully how their new council tax rebate schemes will work alongside Universal Credit.

I can empathise with Chris Goulden, JRF’s Prorgamme Manager, who said that “The research done for JRF by the IFS highlights the problems caused by the decision to localise Council Tax Benefit. It is a decision that travels in the opposite direction to the major welfare reform of Universal Credit, which is centralising benefits within a single wrapper under the charge of DWP.  While there are some sound reasons for localisation, given that it is a rebate of a local tax, it is likely to create headaches for claimants and for local administering agencies, as well as for DWP.

Not only is the 10% cut likely to affect people already in or close to poverty, the protection from this cut provided for pensioners means that working-age adults are hit that much harder; on average losing almost a fifth of their current support and, in some areas of the country, up to a third. As IFS conclude, it would have been much better to have incorporated CTB into Universal Credit in order to stick to the principles of simplification and making work pay.”

This change comes at a time of other significant upheavals to the benefit system. For example, the localisation of the Social Fund, changes to housing benefit, the benefit cap, the bedroom tax, as well as the introduction of Universal Credit from October 2013. I remember the difficulties that arose as the tax credit system was introduced. Yet all of this systemic change seems to be happening at once.

We’ll be monitoring the impact of the Council Tax Benefit changes, and these others, over the coming three years and reporting back to you at regular intervals. But for now I’ll leave the last word to the IFS, “while there may be advantages in providing local authorities with more control over various aspects of their finances, the advantages of localising support for council tax seem to be strongly outweighed by the disadvantages, particularly in the context of the introduction of Universal Credit.”

3 Responses to “Reforming Council Tax Benefit”

  1. Aaron,

    A great blog. My thoughts on the (ludicrous) decision to localise Council Tax Support and a possible solution are pasted below.

    http://goo.gl/H7ibZ;
    http://goo.gl/HcbMq;

    Also – you might want to link to or comment on the Universal Credit Calculator.

    http://goo.gl/U7VZy

    Feedback on the above would be appreciated.
    Let me know what you think.

    Local authority visitors might like to check out http://www.welfarereformclub.co.uk for support with managing welfare reform.

    Deven.

  2. Aaron Barbour says:

    Update:
    Here’s another bit of research from the Local Government Assocation (LGA) suggesting that poor communities will bear the brunt of the government’s decision to reduce funding for council tax relief by £500m when it is localised from next year.

    http://www.local.gov.uk/web/guest/home/-/journal_content/56/10171/3602140/NEWS-TEMPLATE

  3. Scott M78 says:

    They poor have been paying since 2009 Aaron :(

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