Memorandum by the Department for Work
and Pensions (LGR 30)
In a letter dated 6 April 2004, you asked colleagues
at HMT to provide the Committee with an answer to the following
question:
How much would it cost the Exchequer to make
the Council Tax Benefit system more generous to people who currently
fall just above the point (in terms of savings and/or income from
occupational pensions) where they do not qualify for benefit support?
After speaking to you on the 5 May, you confirmed
that you would like me to look at this, as our Department (DWP)
is responsible for Council Tax Benefit policy.
The cost of making Council Tax Benefit more generous
depends on exactly how we do this. Some illustrative examples,
along with costs and numbers of people affected, are shown in
the annex.
I should stress that DWP is not recommending
any of the options presented, or taking a view as to which, if
any, would be desirable. Amongst other things, consideration should
be given to the impact of disaligning the Council Tax Benefit
and Housing Benefit rules.
Hope this information is useful to you.
David Haigh
Economic Advisor
Appendix
ILLUSTRATIVE EXAMPLES SHOWING THE COST OF
MAKING COUNCIL TAX BENEFIT (CTB) MORE GENEROUS
Increase the upper capital limit to £100,000.
This would effectively mean removing the upper capital limit,
and is estimated to cost around £50 million. Around 100,000
benefit units (singles or couples) would gain from such a policy,
with most being pensioners, as they tend to have relatively high
savings. It could make CTB more difficult for local authorities
to administer, as they would have to verify higher levels of capital.
Make the savings credit a passport benefit
to CTB. Here, pensioners in receipt of the savings credit
would be treated as if they had no income or capital, and so would
be entitled to full help. It would help around 500,000 relatively
low income pensioner benefit units, at a cost of around £100
million. Such a change should make CTB easier for local authorities
to administer.
Disregard the savings credit as income in
CTB. For pensioners in receipt of the savings credit and CTB,
this would increase their CTB amount (because we would ignore
any savings credit income when calculation CTB). As with the above
option, it would help around 500,000 relatively low income pensioner
benefit units though at a lower cost of around £30 million.
Again, it should make CTB easier for local authorities to administer.
Increase the applicable amount by £10.
This would increase the support for claimants with partial CTB,
encouraging this group to take up their entitlement. It would
also make people slightly higher up the income distribution newly
entitled to CTB. A £10 increase in the applicable amount
would increase CTB entitlement by £2, benefiting around 1.4
million benefit units at a cost of £125 million. There would
be minimal administrative impact.
Reduce the taper to 10%. As with the
above option, this would increase the support for claimants with
partial CTB, as well as making people slightly higher up the income
distribution newly entitled to CTB. It would reduce the Marginal
Deduction Rates (the rate at which benefits are withdrawn as income
increases) for those currently on CTB, whilst increasing the MDR's
for those who become newly entitled. We estimate that this would
cost around £450 million, helping around 2.3 million benefit
units. As the Housing Benefit taper is currently 65% there is
no issue about disaligning the Housing Benefit and CTB rules.
A £5 minimum CTB entitlement. Such
a policy would increase the support for benefit units in receipt
of small amounts of CTB, as well as sending out a clear message
to prospective claimants that it is worthwhile claiming CTB. It
would cost around £20 million, helping some 150,000 benefit
units. It could be difficult to implement from a legislative perspective.
Notes
— Impacts are estimated using the Departments
Policy Simulation Model for 2004-05. This is based on the 2001-02
Family Resources Survey, up-rated to 2004-05 prices, benefit rates,
and earnings levels.
— Costs are rounded to the nearest
£10 million.
— Benefit units are rounded to the
nearest 50,000.
— Beneficiaries include existing claimants
and newly entitled claimants.
— Estimates relate to Council Tax Benefit
only. There would be additional costs associated with making equivalent
changes to Housing Benefit.
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