Examination of Witnesses (Questions 40-59)
DR MICHAEL
ORTON AND
DR PETER
KENWAY
18 JUNE 2007
Q40 Chair: That takes account of
take-up then, because that is your 1.2 million OAPs in poverty
but not getting benefit; they are entitled to it but not taking
it. Is that right?
Dr Kenway: I would think almost
all of those pensioners would be entitled to it.
Q41 Chair: But of the 3.2 million
working-age adults and the one and a half million children who
are not getting benefit very few of them presumably are even entitled
to benefit. Is that right?
Dr Kenway: It is certainly very
possible. Because council tax benefit is so much less generous
for working age households because of the level at which you start
losing CTB is so much lower income, for a good number of those,
and I do not have the exact figure, of working age who are in
poverty. It is not a take-up issue, it is, at least in part, a
design issue.
Q42 Chair: Dr Orton, do you want
to add anything?
Dr Orton: Yes. I agree entirely
with what Peter said. In the construction of the debate the issue
related to pensioners is well aired within the Lyons report. Adults
of working age got much less attention. In terms of moving people
from welfare to work, entitlement to council tax benefit is critical.
Q43 Mr Olner: In the memorandum that
you put to the Committee, Dr Kenway, you advocated an alternative
approach to claiming council tax benefit where householders would
tell the local authority how much council tax they should be paying
prior to billing. Do you advocate that this approach is adopted
across the board for all households? Have you thought about how
this would work in practice?
Dr Kenway: It could be adopted.
I know we have to be very brief in our answers. All of our answers
come from a recognition that you can look at this in two ways.
Council tax benefit is the amount of ordinary council tax that
you do not pay but you can also see beneath that. If you say,
"How much council tax is a person who is entitled to CTB
paying?", they are actually paying a form of income tax at
20p in the pound. It is that recognition that says that for anyone—certainly
for people who are claiming through the Pension Service and in
some cases people of working age who are in touch with HMRC, particularly
if they are claiming tax credits—those agencies will have
the information necessary to say, "On the basis of your income
you should not be paying more council tax than X". Whether
that is what they pay or whether they pay ordinary council tax
depends on whichever amount is the lesser of the two. Can I add
one more point of explanation? I think it is very important when
perhaps we come to later questions to look at the council tax
benefit system from this alternative point of view as a form of
income tax.
Q44 Mr Olner: That sounds exactly
as complicated as the present system.
Dr Kenway: What I am not sure
is whether you should go on from that and represent it to the
public in those terms. I am saying that when we think about how
it should be designed we should think about it in those terms.
I think it is a very reasonable point you make. It may not be
simpler to represent it to the public in that fashion; I accept
that.
Q45 Mr Olner: Since we are talking
about take-up of benefits, there is a play-off, if you like, between
fairer and take-up of benefit. Do you think your system would
be fairer?
Dr Kenway: It is, of course, in
arithmetic terms the same system. I am not proposing a change
to the system in that sense. I think it would have this one big
advantage: it would be clearer to people that their council tax
only went up when their income went up. That is after all a great
demand that is made of council tax by the "Is it Fair?"
campaign. That is actually what happens to anyone who is entitled
to CTB but it does not look like that, and that seems to me to
be a very regrettable state of affairs. It would look fairer if
you could explain it in those terms.
Q46 Mr Olner: You were both in earlier
on listening to the evidence given by the previous witnesses and
some of the questions aimed at them were about the introduction
of an automatic system of billing rather than claiming. Have you
any thoughts in particular on this?
Dr Orton: In terms of principle,
yes. If it helps simplify systems then one has to explore it.
My perspective on take-up is not so much to do with the issue
of stigma that was mentioned but to do with the complexity and
the difficulty. Applying for council tax benefit is complicated
and is a very difficult thing to do. Administration of council
tax is not all that it should be. From research I have done it
is not necessarily stigma; it is the sheer complexity and difficulty
of the system that puts people off, and the fear of overpayment
and so on. I shall be honest: I do not know the technical side
but in terms of information sharing I endorse comments that were
made earlier that I do not think members of the public share such
fears about data protection and if one portal leads on to multiple
benefit processing that is an interesting way to go.
Q47 Mr Olner: Is that how radical
both of you want to go in overhauling the council tax system?
Dr Orton: Something has to change.
Council tax is under pressure. Council tax benefit uptake is appalling.
The figures in terms of the regressive impact of council tax are
tremendous in terms of the demands made on low income households.
In order to remedy that something dramatic has to change.
Dr Kenway: If I were in your position
writing this report I would advocate that one should do away with
the whole idea of council tax benefit and make it clear to people
that what they are actually paying is the lesser of normal council
tax or an income-based council tax. That is true for all of us,
in fact, but obviously for the majority of us the property-based
normal tax is less. I would go that far but then I am not a politician.
Q48 Martin Horwood: I am a politician
and my party suggests a local income tax which seems to be what
you are advocating.
Dr Kenway: I am saying it is there
already.
Martin Horwood: That is outside the remit
of this inquiry, luckily for everyone else.
Chair: We did not hear that.
Q49 Martin Horwood: If you are not
going to go all the way for a local income tax and have a logical
income-based system that gets rid of all these complications surely
your proposal to have a hybrid version is actually just going
to complicate things. It is fine in an academic ivory tower, if
you do not mind my saying so, to come up with these schemes but
the idea of having a pre-form which could delay the calculation
of income tax, could then delay the bill, would cause confusion
for the finances of the council, let alone confusion for the person
paying it, surely is just going to be much more complicated, is
it not?
Dr Kenway: Let me make one point
clear. For these purposes I am not advocating any real change.
I am saying, and perhaps it is disappointing to some politicians,
that we already have a form of local income tax. Anybody entitled
to CTB is actually paying their council tax on an income basis.
The rough rule, and it is easiest to explain for a single person
of working age, is that you pay nothing on the first £60
and then you pay 20p on every pound of net income after that.
I am not advocating it. I am saying that is the system that we
have at the moment.
Q50 Martin Horwood: But you are advocating
this new approach to a form before billing?
Dr Kenway: Yes, I am advocating
that we be open about that, partly because, as you know, people
think income tax is a fairer way of doing it. I am saying that
for low income households actually that is what the present system—on
paper in the ivory tower that is the DWP—delivers, but nobody
really appreciates it.
Martin Horwood: It does not.
Chair: Obviously not even Liberal Democrat
politicians aspire to it.
Q51 Mr Betts: One of the things that
has been mentioned is the fact that people start paying council
tax, as lots of working families do, at a lower level of income
than they pay income tax. Is that not one of the obvious changes
that could be made to make council tax fairer for low income working
families?
Dr Kenway: The answer undoubtedly
is yes. If I can anticipate another question, it seems to me that
one of the real gains for calling the wretched thing a rebate
is that it might help government to root this system, if you like,
in the tax system rather than the benefit system. The reason that
people of working age start losing CTB at such a low income is
that it reflects the low levels of income support for working
age people compared with pension credit. It seems to me to be
wholly unacceptable that we say to people, "In your proper
income tax system you should not start paying until £90 a
week"—and I do not know what the figure is—"but
for council tax purposes you should start paying at about £60
a week". That seems to me to be the wrong principle. It seems
to me that the income-based council tax should be no more harsh
for people than the proper income tax system.
Q52 Mr Betts: Have you any idea how
many children that would take out of poverty?
Dr Orton: I can quote figures
for you. You talked about a quarter of a million households with
children and the percentage figure of children who are in poverty
who would be helped is very high indeed. That is the one figure
I cannot recall. We are not talking small numbers. We are talking
very significant numbers.
Q53 Chair: If when you get back to
your ivory towers you find this data, please do send it in because
it would be really useful.
Dr Orton: Very well.
Q54 Mr Betts: Just coming back to
the idea of treating council tax benefit within the concept of
the tax system, presumably then you would also be taking the cumulative
impact of the various multiple tax effects, people losing the
council tax benefit, losing housing benefit, if they are on that,
and probably paying income tax at the same time?
Dr Kenway: Yes.
Q55 Mr Betts: The idea we have is
that people pay 20p in the pound tax and that is true for most
working families?
Dr Kenway: No, not at all. Because
of the way that it works after income tax, the answer is that
the two together amount to 36 per cent rather than the 40 per
cent that you might expect—the 20 plus 20—but the
fact that we are taxing people at 36 per cent at bottom is, I
think, really rather remarkable given the way in which we have
been trying to incentivise people to get into work. I would say
this, that the thing to do is to reduce that taper, reduce the
20 per cent as low as you can persuade the Treasury to reduce
it. The great advantage of doing that is that that only benefits
people not only in poverty but also low income households, whereas
if you cut the tax rate at the bottom in the ordinary income tax
system we all benefit. It has long seemed to us that making changes
here at the bottom of the council tax system to council tax benefit,
however much it may cost, and I think there are figures in Lyons,
is nevertheless pretty well targeted on the people you would want
to benefit from it.
Q56 Mr Betts: Just looking at the
different treatment of savings then for council tax benefit compared
with income tax, again, that is a complete contrast, is it not,
where in income tax it is the genuine income you get from the
savings that count as opposed to some notional income, and indeed
there is an absolute bar beyond which you cannot go and you do
not get any council tax benefit if that savings limit is breached,
and so are you looking to reform the calculation of notional income?
Dr Orton: On the previous point,
Lyons did some specific modelling on applicable amounts for working
age households and simply raising applicable amounts by five or
ten per cent I think brought in over a million households, so
large numbers of people could be helped for the reasons that Peter
has just explained. I think in terms of savings I am perhaps a
little more sceptical than other witnesses, largely because of
the lack of data. Lyons in his modelling said some of his figures
should be treated as indicative for the reason that sample sizes
are quite small. My own work on this did raise some questions
as to which households would gain most from changing rules regarding
assets—and certainly with the new ONS survey on assets and
wealth, which comes out at the end of this year (and I think CLG
is one of the sponsors of that survey) hopefully by the end of
this year there will be better data for a much more informed view
as to which households would gain most—so I am a little
more sceptical, I think, than other witnesses on that.
Dr Kenway: The great advantage
of having this sort of in-principle answer is that I do not have
to get involved in the numbers. I do think that once one says
we have got an income tax of a sort then you say, "Why do
we treat savings more unfavourably here than we do in the ordinary
income tax system?", and one comes to conclusion (a) that
you should, of course, be taxed on your real income from savings,
as you are in ordinary income tax, and (b) there is no reason
as such to have a limit. The logic of the limit comes from the
fact that you, perhaps quite understandably, have that when you
are talking about genuine benefits, but we have this anomalous
thing of a benefit on a tax, and I think if one recognises that
it is not really a benefit then a lot of the answers follow quite
straightforwardly from it.
Q57 Mr Betts: In terms of actual
help is the reality of what you are saying that the savings issue
is one that is more for pensioners because there are few poor
working families who are caught at that savings level anyway and
if we were to look to be helping to take children out of poverty
then raising the threshold at which council tax becomes payable
and doing something about the tapers would be more significant?
Dr Kenway: I am sure that is right,
do you not think?
Dr Orton: Yes.
Q58 Chair: Dr Kenway, you have been
talking about making the system more generous, largely, but a
major issue, at least for pensioners, is the take-up. It is not
actually making the system more generous. It is just making sure
they claim what they can get. I do not know if you have any comments
on that?
Dr Kenway: I think the previous
witnesses were better equipped to talk about take-up being in
the real world, but I think there is an argument, given the difficulties
with take-up and the expense of take-up campaigns, at least for
considering whether one should do something more radical along
the lines that we suggest is possible.
Q59 Mr Hands: Just on take-up, what
kinds of measures do you think there might be to encourage local
authorities to improve take-up of council tax benefit?
Dr Orton: I used to work in the
real world, including within local government and for the Local
Government Ombudsman, so I am always far better at knowing what
councils do wrong in terms of benefit administration, and after
ten years and lots of good effort within local authorities to
promote take-up, the position really is not changing. We heard
an example of excellent good practice from a previous witness.
I think what Lyons said was that there are systemic failures and
I think that is where energy has to be directed. It has to be
done. We have to take a step change. I think simply hammering
away at the same take-up campaigns that there have been for over
ten years is not going to do it. I can see no reason why it would
but you may think differently.
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