From the TUC

Council Tax Support: localism at half cock

03 Apr 2014, by Guest in Society & Welfare

Why are the changes taking place this week to council tax support (née council tax benefit) across England so important? Introduced in 1993 as part of the Major government’s repair of local government taxation in the wake of the poll tax, CTB as it was known provided anyone receiving a means-tested income benefit – JSA, IS and (nowadays) ESA and PC – a 100% discount on their council tax. Though councils administered the system, central government picked up the bill.

20 years on, in April 2013, this all changed.

First, CTB was abolished.

Second, instead of a single national scheme, each of England’s 326 lower tier or unitary councils was left to devise its own council tax support (CTS) scheme. But councils didn’t get a completely free hand, central government insisting both that pensioners continue to be supported exactly as before and that other aspects of council tax, in particular, the 25% single person discount, remained unchanged.

Third, instead of picking up the tab, whatever it was, central government turned the money into a grant, based on the previous year’s spending but reduced for good measure by 10%.

Although it is this 10% that catches the eye, the switch to a fixed grant is the more significant because it means that the financial risk of any increased need for CTS has to be met from local funds. In essence, councils and their taxpayers now have a direct financial interest in keeping the number of low income households entitled to CTS down as much as possible. This ‘conflict’ may remain latent but it is there, councils are aware of it and although only a couple have done so thus far, introduction of a residency qualification (living in the area for several years) in order to be entitled to claim CTS is a logical response. They’re only the first steps, but this is the road back to the poor law.

Having gotten cold feet rather late in the process, the government announced a transitional grant in late 2012 to encourage councils to keep the discounts high (at least 91½% of the full tax liability). But this was only for one year. The CTS schemes that come into effect in April 2014 represent the first set of schemes without that softening influence. The picture painted is neither pretty nor straightforward but the key facts, as summarised in our report published this week by the Joseph Rowntree Foundation – and set out in much greater detail on www.counciltaxsupport.org – are these.

As far as the schemes themselves are concerned, 244 now include a minimum payment (that is a discount of less than 100%), 15 more than in 2013. The overall level of these minimum payments has also increased – of the 229 councils that already had a minimum payment in place last year, 56 have increased it.

As a result, 2.34 million low-income families will pay on average £149 more in council tax per year than they would have under CTB. This nearly £3 a week has to come out of IS, JSA or ESA and represents, for a couple on JSA, a 2½% cut in the income available to spend on everything else.

Within this total, 650,000 low income families face a rise in council tax in 2014 compared with what they had to pay in 2013. Around 580,000 who had to pay some tax last year, the amount to be paid has increased on average from £97 to £151. For the other 70,000, who continued to receive a full discount last year, the increase is much greater, estimated at £114 over the year. Taken together, the 650,000 face an average increase this year compared with last of £60. This is around five times the average increase overall, councils being constrained to keep the headline increase to less than 2% on pain of a local referendum.

So why is this important? Certainly, this is yet another burden on heaped upon the shoulders of families in no position to bear it. Of the 2.34 million families affected, 1.5 million are in poverty (measured after housing costs) and 1.8 million are workless.

Yet the cut in living standards of the poorest families is only one reason to oppose this. With tax collection rates falling and debt rising, it is unclear how much money councils will really raise from this. All legal costs incurred in chasing this debt are a pure waste of money. Councils further alienate themselves from their poorer citizens by being seen as unsympathetic chasers of debt – but once they have set off on this road, they have little choice.

At some point, this mess will have to be cleared up, almost certainly at Treasury expense. In the meantime, the lesson that should be drawn is that this is an example of what happens when localism goes off at half cock, heavily constrained by central diktat and with the purse strings not loosened by the Treasury but tightened.

One Response to Council Tax Support: localism at half cock

  1. Cllr Joe Goldberg
    Apr 3rd 2014, 2:34 pm

    It is helpful to have the fallacy of the Government’s decision to “localise” Council Tax and the impact of the 10% top slice exposed, but many of these articles miss the point.

    The real scandal is that the money for the replacement Council Tax Reduction Scheme has been rolled into the Revenue Support Grant (the core grant from Government), and which has already and is likely to be exposed to further cuts in future years.

    At Haringey we estimate that we will receive just under £25m total in RSG. At the point of localisation we had 36,000 households (from 95,000 approximate) on Council Tax Benefit costing in the region of £34m.

    The fact that our RSG which is used to pay for core social and environmental services will not even cover this figure highlights just what a disgrace this decision by the Lib Dem/Tory coalition is.