31 Jan 2013

Council tax benefit cuts – the key questions

Millions of people on low incomes will be hit by increases in their council tax bills from April. How many will be affected and who will pay most?

The government is cutting the amount of money it spends on council tax benefit (CTB) by 10 per cent. From April, local authorities will be given responsibility for CTB, and they have been weighing up whether to absorb this 10 per cent cut and make savings elsewhere or pass it on to poor households.

What are councils going to do?

Research by the Resolution Foundation, an independent research and policy organisation dedicated to improving the lives of people on low and middle incomes, suggests that three quarters of councils in England will demand increased payments from people claiming CTB.

How many people claim council tax benefit?

Six million families receive CTB, but the changes only apply to those of working age (3.2 million). Pensioners are excluded.

How will they be affected?

The foundation has analysed data from half of all authorities (184 out of 326).

Of these, 51 councils (28 per cent of the total) are not introducing cuts and people’s benefits will not be reduced.

In 60 authorities (33 per cent), people will have to pay up to 8.5 per cent more.

In 26 authorities (14 per cent) people will have to pay up to 20 per cent more.

And in 39 authorities (21 per cent), like above, people will have to pay up to 20 per cent more, as well as being hit in other ways, like having child benefit payments assessed as part of their income.

What does this mean in cash terms?

Many of the 2.5 million who are not in work and do not pay any council tax will be charged between £96 and £255 a year.

There are also 700,000 people in work who receive CTB.

The foundation says the worst affected families will be single parents who work part time and depend on childcare.

A typical single parent with children in childcare who works part time for the minimum wage faces increases ranging from £96 a year to £577.

A typical couple with children, with one parent working full-time work for the minimum wage, will see a rise of between £96 and £304 a year.

Do others agree with what the Resolution Foundation is saying?

The Local Government Association (LGA), which represents councils, believes the foundation’s findings are credible.

In May, an Institute for Fiscal Studies analysis – funded by the Joseph Rowntree Foundation and contributed to by the Chartered Institute of Public Finance & Accountancy – reached the conclusion that there was likely to be an average 19 per cent cut in support for working-age council tax benefit claimants.

It said: “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.”

What about Scotland and Wales?

The Scottish and Welsh governments have decided not to cut people’s council tax benefit payments, but to find savings elsewhere.

What will councils do if people do not pay the new charges?

The Resolution Foundation says many councils raising people’s bills “are preparing for an increase in the number of council tax payments they have to pursue through the court system and for more extensive use of bailiff powers to collect outstanding payments”.

It adds: “Many are also making financial provisions for extensive non-payment.”

If this happens, councils will find themselves under even more financial pressure than they are currently experiencing as a result of government austerity measures.

What do councils say?

The LGA says authorities are already enduring a 33 per cent cut in funding from central government, with 85 per cent of them freezing council tax bills for the last two years.

It says councils have “little choice but to reduce the council tax discount offered to people on low incomes”, with authorities “concerned about the possible impact on collection rates and the knock-on effect it will have on council finances”.

What is the government’s rationale?

The government says spending on CTB doubled under Labour and reforms are necessary to help bring down the deficit.

It says these reforms will give councils an incentive to “get people into work”.