The future postcode lottery for council tax benefit

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Many welfare benefits are to merge into a single benefit called 'Universal Credit' for working-age claimants, but council tax benefit is excluded from the plan.

Instead, the government proposes that each local authority will organise its own scheme, within some basic guidelines. The Low Incomes Tax Reform Group (LITRG) is worried this will mean increased complexity - a retrograde step in plans to 'make work pay' and increased costs.

The government confirmed earlier this year that council tax benefit in its current form would be abolished. A recent consultation set out the proposals for a new system in England which will see each local authority free to adopt its own scheme as long as it meets some basic guidelines.

Instead of being absorbed into Universal Credit, support for council tax will instead be administered through hundreds of local schemes across England. We have yet to hear what the plans will be in the devolved administrations.

In the LITRG's view, any system of taxation should be transparent, as simple and fair as possible and related to the ability of the individual to pay. "But we fear that the new system of council tax support will be none of these things."

It is specifically concerned that:
  • Complexity will be increased for Local Authorities and claimants alike. More mistakes could arise, making appeals much more difficult. It could also make fraud harder to identify and combat.
  • The government wants to make work pay for everyone. Already, there have been concerns that the way in which Universal Credit will work, with increased 'marginal deduction rates' compared to the existing support framework, will not achieve that objective. Moreover, the proposed reforms to council tax support could further erode work incentives, as claimants will no longer be able to clearly see the financial benefits of moving into work.
  • There is potential for creating a system of postcode lotteries. Support will no longer be demand-led. Instead local authorities will have a fixed budget, 10% down on its previous levels. Pensioners will be protected under the new system and will not see any reduction in support. Whilst this is a welcome move for pensioners, it does mean that the cuts will fall all the harder on other vulnerable, working age claimants whose entitlement will also be subject to local demographics and any increases in take-up.
  • Universal Credit aims to align income definitions making the system simpler. It therefore seems counter-intuitive to have hundreds of local schemes, each with potentially different income measures. This can only result in complexity and uncertainty for claimants, and increased administrative costs for local authorities.

"We think many of the problems of the proposed fully localised scheme could be avoided by separating policy and administration and having a national policy that is demand led with administration carried out at a local level," the group said. For the full response click here.
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