New council tax benefit system set to be a tax on the workless and working poor

Two in three local authorities in England have plans that mean from April they may demand council tax payments from working-age households which are currently exempt, analysis from the New Policy Institute and the Resolution Foundation shows.

Following the government’s decision to scrap council tax benefit, 326 councils in England must decide by January how they will implement its local successor, council tax support – which comes with a 10 per cent cut in central funding and rules ensuring pensioners are fully protected.

Council tax benefit, a widely claimed means-tested benefit, is paid to more than three million working-age families in England – nearly 700,000 of which have at least one person in work.

As a means-tested benefit it is only paid to the poorest – those that are unable to pay their council tax.  The impending changes mean that local authorities face a decision on whether to ask for a minimum payment from families who currently receive a full or partial rebate and so pay little or no council tax, spread the burden across all households, or to keep the current system and find the savings in other parts of their already over-stretched budgets.

Figures examined by the New Policy Institute and the Resolution Foundation for a report to be published later this month show that of 86 councils which have already published their plans, 57 intend to introduce a minimum council tax payment – ranging from 6 per cent to 30 per cent of a full council tax bill. A number of councils are still consulting on their plans.  The NPI/RF report will consider what these council plans will mean for households on different incomes.

A minimum payment system means that families who currently receive a full rebate (primarily workless households) and so pay no council tax will be asked to start to pay small amounts each month. Councils who go down this route will have to grapple with the potentially significant costs of pursuing non-payers through the courts to recover bills which may be as little as £2 per week for some of those facing council tax bills for the first time.

But in many local authorities this change will not be isolated to those who get full council tax rebate – it will mean a reduction in benefit for everyone, so low income working families currently getting a partial rebate will also have to pay more.

Only 23 of these 86 councils with firm plans are introducing a minimum payment of 8.5 per cent which will makes them eligible for a share of £100 million of extra money made available by the Department for Communities and Local Government to help cushion the transition to the new scheme. There is no condition on this funding to stop councils from removing support from households currently paying reduced rates of council tax – typically the working poor.

This transitional money is only available for one year, and is much smaller than the cut to the budget that councils are facing, so 32 of the 86 local authorities are rejecting it all together and introducing a minimum payment of over 8.5 per cent (most often around 20 per cent).

The system of localised council tax benefit also poses a major threat to the underlying principles of universal credit, which will be phased in from 2013, and is designed to incentivise work by wrapping means-tested benefits into one payment. The exclusion of council tax benefit, which will be set locally, from Universal Credit means that families in identical circumstances but living in different areas will face varying work incentives, with some facing little incentive to take work.

Matthew Pennycook, Senior Research and Policy Analyst at the Resolution Foundation, said: “With so much attention focused on the introduction of universal credit, many have not yet grasped the major implications of the upheaval in council tax. It’s already clear that many local authorities are feeling pushed into a corner and are preparing to raise more money from some of the poorest households in the land. This is going to be on one of the big policy and political issues of 2013”

Peter Kenway, Director of the New Policy Institute, said: “By leaving cash-strapped local authorities to impose their own tax on the poor, this change has gone largely unnoticed nationally. It’s a lot like the poll tax, but the public doesn’t know it yet.  Come April, we will have the spectacle of councils without a penny to spare pursuing citizens without a penny to spare through the courts for a tax that until now they have been deemed too poor to pay”.

Ends

Notes

Council tax benefit is paid to more than three million working-age families in England. In total, across the whole of Great Britain over 5 million households, including pensioner households, receive council tax benefit.

Households receiving income support, income-based job seekers’ allowance, income-related employment support allowance or pension credit get an automatic “passport” to maximum council tax benefit and pay no council tax.

Households receiving none of the benefits above are non-passported. Their council tax benefit is calculated under a complex formula which takes into account savings and income. A few may still receive a full rebate on council tax benefit system but the large majority of this group will have to pay some council tax.