Memorandum by the Local Government Association
(CTB 13)
COUNCIL TAX
BENEFIT
1. The Local Government Association is pleased
to submit written evidence to the CLG Select Committee on the
question of council tax benefits, following the recommendations
of the Final Report of Sir Michael Lyons' Inquiry recommending
reforms to council tax benefit.
CONTEXT
2. The LGA has long been concerned about
council tax benefit. In a paper published in January 2005 we made
the following points:
(a) Council tax as whole is regressive. For
the poorest fifth of pensioners, council tax, before benefits
are taken into account, represents 10.1% of their income. In contrast,
council tax represents just 1.4% of income for richest fifth of
the non-retired population. This situation has continued. According
to more recent Lyons Inquiry analysis, [37]for
the lowest income decile council tax before benefits are taken
into account represents 14% of income, compared to 3% for the
highest decile.
(b) Council tax benefit (CTB) provides an
inadequate safeguard. After taking account of benefits, council
tax still represents almost 7.6% of income for the poorest fifth
of pensioners. CTB also fails to provide protection for people
who are low-income earners if they have savings above £16,000.
Research by the Warwick Institute of Employment Research[38]
estimated that approximately 39-52% of pensioner owner-occupiers
in band E-G properties who have a low income(less than 60% of
median income) have savings above £20,000. Although the actual
number of low-income earners in band E-G properties is small (around
10%), the research claimed that the "severe impact of council
tax rises... should not be underestimated", citing an example
of a band E pensioner paying £23/week in council tax from
a net weekly income of £123.
(c) The savings limit for CTB hasn't changed
for 15 years. Neither has the "tariff income" formula,
which determines how much savings affect entitlement to council
tax benefit between the lower and maximum savings limits. We recommended
increasing the lower savings limit (it was in fact increased to
£6000 in the 2004 budget) and raising the upper savings limit
to £32,000 or abolishing it entirely. For pensioners, we
recommended a lower savings limit of £12,000.
(d) We argued, in line with work done by
the New Policy Institute, [39]that
CTB should be changed from a benefit to an entitlement.
(e) Finally, we argued that measures to increase
benefit takeup promoted by many authorities were welcome but not
enough.
3. We have welcomed Sir Michael's recommendations;
that the Government should increase the savings limit on council
tax rebate eligibility to £50,000 for pensioners and that
it should, over time, abolish the savings limit in CTB for pensioners,
so aligning council tax rebates with the criteria for eligibility
to the pension credit. However it is not only pensioners, but
the low paid who are disadvantaged by the council tax benefit
system. We are concerned the current system offers a disincentive
to work. Raising the CTB thresholds and aligning them with other
parts of the tax system, as detailed in paragraph 16 below would
be of help here.
4. We have also made the point that reforms
to council tax benefit should ideally be seen as part of a comprehensive
reform of the council tax system. This could include, for example,
new bands at the top and at the bottom as recommended by Sir Michael.
The Government have made it clear that they will not be going
ahead with revaluation until the end of the forthcoming spending
review at the earliest. This strengthens the case for early and
substantial reform to the council tax benefit system.
THE CASE
FOR REBRANDING
COUNCIL TAX
BENEFIT AS
A REBATE
5. We agree with this recommendation of
Sir Michael's, as it more properly explains the function of CTB.
We understand that Government ministers have indicated that they
agree with it. There would have to be primary and secondary legislation
changes and some administrative costs for authorities, but it
would be worth it within a package of changes to CTB which made
it fairer. Particularly as the Government has in its response
to the Lyons Inquiry report ruled out a revaluation of Council
Tax in England within the lifetime of the current Parliament,
early and decisive action to improve the working of CTB would
do much to improve the perceived fairness of Council tax as a
whole.
THE ROLE
AND EFFECTIVENESS
OF GOVERNMENT
IN INCREASING
COUNCIL TAX
BENEFIT UPTAKE
LEVELS
6. We would see the role of Government as:
(a) Ensuring that local government has the
resources to process council tax benefit applications speedily
and effectively. One unwelcome development is the cutting of the
Council Tax Benefit Administration Grant, Initially DWP proposed
to reduce this by 5% although we understand they may now be rethinking
this proposal. The amount of council tax subsidy grant should
not be cut in CSR 07.
(b) Simplification of the eligibility policy
for CTB and its interaction with other benefits and with tax credits.
(c) Taking the lead in delivering a consistent
benefit verification framework across all benefits, whether administered
by central or local government.
(d) National benefit take-up publicity campaigns.
7. It is local government's particular role
to administer CTB efficiently, and to promote take-up as part
of Councils' overall responsibility for well-being in their localities.
Councils have been active in encouraging take-up, although we
have noted the role of the Pension Service below. Sir Michael
mentions work in Halton, through their "Benefits Express"
and in Milton Keynes; [40]we
would also mention East Sussex County Council, which has increased
take-up by £3 million through work with Age Concern, as part
of the Council's Local Area Agreement, and the Kent Benefits partnership.
Many other authorities have run benefit take-up campaigns as part
of their wider anti-poverty work. Authorities which have offered
council tax discounts for pensioners have also found that this
publicity leads to increased benefit applications; Kirklees Council
report this to have happened.
8. However, Councils' effectiveness in encouraging
CTB take-up is hampered by the underlying complexity of the benefit.
Sir Michael Lyons refers to Help the Aged's conclusion that the
effort involved in claiming the benefit may put older people off
applying. [41]The
findings of the Warwick Institute of Employment Research, referred
to earlier, document compelling evidence of the complexity of
CTB and of its interaction with other benefits and tax credits.
Simplification of policy is therefore likely to assist efforts
to improve take-up. It would also reduce the unit costs of administration,
making delivery of the benefit more efficient.
9. Currently the administration grant available
to local authorities is allocated on a weighted caseload basis.
If the caseload increases as a result of take-up campaigns, there
is not an automatic increase in the grant due to the lagged nature
of the data. There is therefore no immediate incentive for authorities
to increase take-up. This is a major concern for Councils and
the LGA, given the significant pressures on funding for local
authority services highlighted in our submission to the Comprehensive
Spending Review.
10. Changes should be considered to the
verification framework for CTB. Examples of this are:
(a) Standardise and simplify all verification
standards (currently local authorities work to a higher specification
than government departments);
(b) Simplify non-dependent deductions;
(c) Increase the working income disregard
allowance; and
(d) Reduce the excess income tapers which
would allow applications to retain more of any increase in income
before becoming ineligible for benefit.
11. These would, if actioned, assist in
bringing more low paid applicants into the scheme. There is however
a national concern that even under the current rules, low paid
workers may qualify for CTB and Housing Benefit but fail to claim.
THE CASE
FOR IMPROVEMENTS
TO THE
PROCESSING OF
PENSION CREDIT
CLAIMS TO
ENABLE THE
PENSION SERVICE
TO ACT
AS A
PORTAL TO
REBATES FOR
ALL CALLERS,
REGARDLESS OF
PENSION CREDIT
ELIGIBILITY, AND
TO EXAMINE
STEPS TO
IMPROVE DATA
SHARING
12. There are encouraging developments here.
New applicants for pension credit are being automatically considered
for council tax benefit. As Sir Michael notes, [42]through
this method 120,000 applicants for council tax benefit last year
received a pre-completed form in this way. We also understand
that the Pension Service has undertaken a project by checking
cases in receipt of Pension Credit and not shown as in receipt
of CTB.
13. The Pension Service is also involved
with the simplified three page form to encourage application for
CTB at the point of Pension Credit application. This could develop,
when all relevant CTB and Housing Benefit information is incorporated,
to the point of "near automatic"' awards.
14. A number of other IT projects are being
discussed or developed which could improve takeup or lead to near
automatic awards of CTB.
15. However, there is more that could be
done. There is scope for more data transfer between the Pensions
Service and local authorities; as the aim of this would to increase
benefits for applicants we would not see the data protection legislation
as a bar to this. The new Welfare Reform Act increases data sharing
powers and this would enable local authorities to issue targeted
mailshots as part of their take-up campaigns. Action to improve
the processing of pension credit claims, whilst helpful, does
not address fundamental issues of low take-up of CTB which among
pensioner households stands at 53-58%, a drop of 11 percentage
points since 1997.
THE CASE
FOR REFORM
OF THE
COUNCIL TAX
BENEFIT ELIGIBILITY
CRITERIA INCLUDING
THE CASE
FOR CHANGING
OR ABOLISHING
THE SAVING
LIMIT IN
COUNCIL TAX
BENEFIT FOR
PENSIONERS, AND
THE CASE
FOR ALIGNING
COUNCIL TAX
REBATE THRESHOLDS
WITH OTHER
PARTS OF
THE TAX
SYSTEM
16. As we have said above; we agree with
Sir Michael Lyons that the savings limit should be raised to £50,000
for pensioners and it should be abolished over a period of time.
We would also like to see thresholds rise in line with inflation
non pensioner claimants. This would raise the minimum to around
£12,500 and the maximum savings limit to £25,000, applying
the change in the RPI from April 1991 to April 2007.
17. Consideration should be given to bringing
CTB into line with tax credits, to deal with the problem highlighted
by the New Policy Institute whereby for a person who was entitled
to CTB but then receives Working Tax Credit, 20% of the latter
is immediately "lost" as CTB is reduced because of the
income from the tax credit. This is a specific example of a more
general issue of complexity of interaction between benefits whose
policies have been developed separately.
8 June 2007
37 Final Report, March 2007, Chart 7.9 on page 250. Back
38
The research was commissioned by the Joseph Rowntree Foundation
and published in September 2006.. A summary of its findings is
at www.jrf.org.uk/knowledge/findings/socialpolicy/pdf/1947.pdf Back
39
Published in Making it fair: Council Tax Benefit and working households
(June 2005) Peter Kenway and Guy Palmer and available at http://www.npi.org.uk/publications/council%20tax.htm Back
40
Final report, March 2007, page 252. Back
41
Final report, March 2007, paragraph 7.131, page 251. Back
42
Final report, march 2007, paragraph 7.137, page 252. Back
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