Implementation of welfare reform by local authorities - Communities and Local Government Committee Contents

5  Localisation of Council Tax Support

83.  Council Tax Benefit (CTB) is a national income-related benefit currently administered by local authorities on behalf of the Department for Work and Pensions (DWP) and designed to assist those on low incomes to pay their council tax. In this chapter we examine the implementation of the changes being made to the current CTB system, which is being discontinued and replaced by localised council tax support schemes designed and administered by local authorities. Before we look at implementation we first briefly set out the changes being made.

Separation of Housing Benefit from Council Tax Benefit

84.  Currently those claiming Housing Benefit and Council Tax Benefit apply to their local authority for both benefits. Later in 2013 this will change so that housing payments will be part of Universal Credit (UC) and will be claimed from DWP. Between 1 April 2013 and 2017, all benefit claims, starting with new claims, will be transferred to UC which will cover housing payments. Localised Council Tax Support (CTS), which from 1 April will replace CTB, is not part of UC and will be claimed from local authorities. Under the new arrangements those claiming both CTS and the housing element of UC will need to make separate claims to different government bodies from some point between October 2013 and 2017.

85.  One of the main aims behind UC is to simplify the benefits system by creating a 'universal' benefit. The decision to separate housing benefit from Council Tax Benefit has drawn criticism from witnesses who say that it is contrary to the main thrust of the welfare changes.[171] Their concerns were that incentives to seek work could be undermined; claimants would be confused about where to claim, where to go to for help and by changes in CTS when they moved from one area into another; claimants would have to provide information to two separate organisations; and there would be duplication of administration including appeals processes. We discuss each of these concerns below.


86.  One of the primary aims of welfare reform is to remove disincentives to work. The Department for Communities and Local Government (DCLG) explained in its submission that under the current welfare arrangements "people on out of work benefits have no incentive to do work of more than 16 hours a week as their earnings are deducted pound for pound from their benefit after a small disregard".[172] UC is therefore designed to ensure that claimants would always be better off in work because benefits would be withdrawn on a single taper at a slower rate than their increase in earnings.

87.  A concern expressed to us about giving local authorities autonomy over the design of their own local CTS schemes was that work incentives could be compromised. Shelter said that because each local authority would individually determine eligibility and withdrawal criteria for CTS it would be possible for an authority to undermine work incentives by withdrawing CTS too quickly when a claimant entered work.[173] It said that:

There will be very different schemes for withdrawal rates and that sort of thing, so a lot of the attractions of universal credit, which we would have been happy to support, have unfortunately been undermined by localising the council tax benefit.[174]

88.  The taper rate set for UC is 65 per cent of net earned income, which means that a claimant earning below the tax threshold who was paid £1 extra would lose 65p from UC (65 per cent of their additional earnings).[175] A claimant in work earning an extra £1 would lose 32p in additional income tax and National Insurance payments but then have just 44.2p removed from their UC (which is 65 per cent of their additional net earnings of 68p), making a total of loss of 76.2p. Lord Freud, Minister for welfare reform at the Department for Work and Pensions, said that "the localisation of council tax means that local councils are able to design their own way of providing rebates" and he said that "we are encouraging them to do that in a way that does not conflict with the work incentives of universal credit".[176] The Government provided a taper rate in its template CTS system for local authorities which matched the existing CTB rate of 20 per cent. On the basis of the figures available to us in March 2013[177] the table below shows taper rates with number of local authorities proposing to set at each level:
Taper rate
No. of local authorities

89.  Under the new arrangements from 1 April 2013 two sets of tapers will operate for taxpaying claimants:

a)  gross income tapers for National Insurance (12 per cent) and Income Tax (20 per cent);

b)  net income tapers for UC (65 per cent); and

c)  CTS (between 15 per cent and 35 per cent).[178]

90.  The Government has provided in regulations for the default CTS scheme that the CTS taper should be applied after the tapers at (a) and (b) have been calculated and applied. This approach avoids a claimant losing all, or nearly all, of any additional income they earn by capping deductions at 81 per cent. Currently the maximum deduction rate for in-work benefits is 96 per cent. The Government has "encouraged" local authorities producing their own CTS schemes "to consider adopting this approach" and apply the CTS taper to the income remaining after UC and National Insurance and Income Tax tapers "to help ensure that work pays".[179]

91.  For illustrative purposes and taking no account of taxation disregards and other features of local CTS schemes, the approach suggested by the Government would mean that when a tax-paying claimant earned an extra £1 they would have 32 pence of that £1 deducted by the tapers at (a) which, acting in combination, would leave 68 pence. From this, 44.2 pence (65 per cent of the remaining additional income) would be deducted by the UC taper leaving 23.8 pence. Applied to that, a 20 per cent CTS taper would allow 19.1 pence extra income. In this case the total deductions would add up to 81 per cent. Where an authority applied a 35 per cent CTS taper the total deductions would be 84.5 per cent leaving 15.5 pence in additional income.

92.  Both of these examples rely on the CTS taper being applied on net income remaining after the income tapers at (a) and (b) have been calculated and applied. However, local authorities are not required to adopt this approach and information on how far authorities have taken the Government's recommended approach is not available to us. In the case where a local authority did not follow the Government's suggestion and applied the CTS taper in combination with the UC taper the consequences would be very different. To illustrate, if a local authority had a 20 per cent CTS taper a claimant would have 85 per cent of their additional income deducted because the UC and CTS tapers (85 per cent combined)[180] would leave 10.2 pence from the 68 pence left after applying the tapers at (a). If a local authority had a 35 per cent CTS taper in these circumstances claimants would therefore, in this worst case scenario, lose 100 per cent of their additional earnings.[181]

93.  Even on the basis of the imprecise calculations we have set out we can reach a number of conclusions. As the taper reducing Universal Credit for a claimant entering employment or increasing his or her earnings is fixed at 65 per cent, the level of the local Council Tax Support (CTS) taper, set by each local authority, and how it is calculated will help either to incentivise or produce a disincentive for claimants to move into work. Given the pressures on local authorities to make savings on their CTS schemes many of them are to be commended for setting the taper at the Government's guideline of 20 per cent. These pressures are unlikely to dissipate with the passage of time. As we note later in this chapter, the grant introduced for 2013-14 to assist in the administration of CTS schemes which meet certain conditions—including a taper rate of a maximum of 25 per cent—is not due to be repeated in 2014-15. Those authorities in receipt of the grant may therefore be under greater pressure to increase the taper rate and so remove support more quickly from claimants in work and dissuade others from seeking employment or working more hours. We request that in responding to our report the Government provide information on how many local authorities are planning to apply the CTS taper to remaining (net) income and how many will combine their CTS taper with the UC taper. The Government should also provide an estimate of how many claimants will have more than 95 per cent of their additional earned income deducted. In the light of this information and given the Government's intention to encourage work incentives it should consider giving stronger guidance to local authorities.


94.  The Chartered Institute of Housing was among many witnesses that were critical of the implementation of localised CTS schemes, which it said would cause confusion for claimants unused to claiming for support for housing and council tax from separate organisations.[182] Blackpool Council added that claimants would also be confused about "who to contact, what to provide and where to go depending on whether a local authority area has started Universal Credit or not" between October 2013 and 2017.[183]

95.  Another concern was that confusion could be caused to some claimants when they moved between different local schemes. Differences between local authority schemes, which we look at in more detail later in this chapter, could result in claimants experiencing a significant change in their CTS entitlement. We were told by Citizens Advice that differences between schemes could "be confusing for the general public" when they move across local authority boundaries or if they have family in different areas.[184] Citizens Advice argued that "in times of constraint and difficulty, there needs to be some certainty for people to know what their bills and income are likely to be".[185]

96.   The other side of this coin is "benefit chasing"—where claimants move between local authorities to take advantage of more favourable provision. We asked witnesses whether they thought this might be a consequence of some local schemes being more generous than others. We heard no evidence that this would be the case and Shelter told us that they did not think that this situation would arise because people were "attached to their areas" and "most people's understanding of the different schemes is not going to be that sophisticated".[186]

97.  Bringing housing benefit into Universal Credit (UC) while localising Council Tax Support means that claimants who assume that under UC all benefits will come as a single payment will still have to make two separate applications for UC and Council Tax Support (CTS) to two separate bodies. This will cause a level of confusion for some claimants. DWP should ensure in the guidance it provides for UC claimants that it makes it clear that a CTS claim has to be made separately to the local authority.


98.  We were told that the separation of CTS from housing benefit would result in duplication of administrative systems. Thanet District Council explained that there was currently "one form for one process which is dealt with in one transaction" for housing benefit and CTB.[187] The council added that two separate appeal systems could result in different appeal decisions being made about each benefit causing confusion for applicants.[188]

99.  The Government said that measures to reduce duplication and improve information sharing between central and local government were being put in place.[189] New applicants for UC "will be asked if they are interested in applying for a reduction of their council tax liability, but they will not be able to submit an application via DWP outlets".[190] DCLG explained that:

Government departments are working together to ensure that data relating to claimants of current benefits and Universal Credit can be shared with local authorities to minimise the administrative burdens on both authorities and individuals wishing to claim council tax support.[191]

The DCLG told us that this would mean that those making a CTS claim following a UC application could have to do "little more than confirming that they wish to apply and that the information they provided to DWP was correct".[192] DWP would then send this information to local authorities on request.[193] This would not apply, as the Department recognised, if a local authority scheme required additional information from the claimant.[194] Despite this reassurance some local authorities were concerned about how the process would work in practice.[195]

100.  The primary concern for local authorities was over the arrangements for sharing claimants' information between central and local government, including the legal challenges encountered in doing so. Blackpool Council said that it did not expect to receive sufficient information from DWP about UC claims to allow it to start CTS claims. The information would not include a breakdown showing how much had been allocated for housing benefit which the authority would need to establish how much should be awarded in CTS.[196] The council would have to ask the claimant for their entitlement letter from DWP for this figure. This, it said, "will potentially increase the length of time it will take for a claim to be made and processed and in some cases customers may no longer have their entitlement letter" for UC.[197]

Passporting benefits

101.  Once separate successful claims for CTS and UC have been made the need to exchange information between local and central Government would continue. We raised the extent to which there could be "passporting" between CTS and UC to reduce duplication.[198] Citizens Advice pointed out that "separate reporting of changes of circumstances to different agencies would be burdensome and inefficient".[199] We asked Lord Freud what had been done to address this issue and link applications and changes to information for UC with local CTS systems and whether, in the case of CTS and the housing element of UC, a claimant's information could be passported between UC and local authority CTS systems. He said that this was not impossible and that DWP "may look at that in the medium term" but that it would not be possible to undertake such a project in the "next couple of years, given the work stream we already have".[200]

102.  There is potential for confusion among claimants with the separation of Council Tax Benefit from housing benefit as well as for duplication of administrative tasks. This situation could be improved by making it possible to transfer information from Universal Credit to local authority Council Tax Support systems. DWP and DCLG should have begun work to develop a system to passport claimant information between Council Tax Support and Universal Credit rather than require claimants to submit the same information twice to two separate bodies. DWP should now make it a priority to achieve passporting between Council Tax Support and Universal Credit, in order to help claimants and limit confusion resulting from the separation of housing and council tax benefits.

Design of local schemes

103.  By 31 January 2013 all 326 lower tier and unitary local authorities had decided on their new CTS schemes for 2013-14. We examined the characteristics of the schemes using data collated by the New Policy Institute.[201] The main features of the schemes are set out below.
232 require all working age people to pay at least a proportion (between 5% and 33%) of their CT liability, around half of those requiring 5-10% and the other half 11-33%;

60 lower (from £16,000) the level of savings which make people ineligible for benefit to between £6-10,000;

29 count other benefits as income when calculating how much CT someone should pay:

171 remove or lower the second adult CT rebate paid when a low-earning adult, not their partner, lives with a CTS claimant'

63 cap CTS based on property band for council tax with those living in higher value houses receiving less CTS;

44 remove CTS from those claimants entitled to payments of less than 50p to £5 per week:

23 increase the rate of withdrawal of CTS as a result of increased earnings (to between 15 and 35%);

79 specify a vulnerable group (other than pensioners) to be protected from the changes.

Source: New Policy Institute website, as at 22 February 2013

104.  While we welcome the freedom which local authorities have to design their own distinct CTS systems, as we noted in our 2011 report, this freedom is constrained by several factors.[202] Three Government policies:

  • a 10 percent cut in the budget for CTS
  • protection of work incentives and
  • protection of pensioners from reductions in support

limit local authority designs. The data shows that 58 of the 326 local authorities in England replicate the existing system. All of the remaining 268 local authority schemes include changes which will reduce the amounts paid out in CTS. The New Policy Institute estimates that the average loss per year to claimants in England will be £130.[203] We examined the possible consequences of these policies in our 2011 report on the localisation issues in welfare reform.[204] In this report we address the concerns that have been raised about the time given to local authorities to develop and implement schemes.


105.  Some witnesses suggested that local schemes would not be innovative or truly local because of time-constraints. Camden Council told us that "the more innovative you are, the more cost is involved in trying to get the IT to support it".[205] We were also told that the timescale for introducing local CTS had prevented some local authorities from working together to create efficiencies. The District Councils' Network told us that the timetable for the changes:

poses a threat and could create a postcode lottery due to differing implementation policies. In respect of the Localised Council Tax Support Scheme, the need to make decision at an individual authority level has resulted in missed opportunities for pooling or collaborative approaches to move to a localised discount scheme.[206]

106.  Lesley Pigott from Camden Council said that her council had looked at working with other London councils to create a wider scheme because they were "conscious of the fact that would help claimants".[207] However, she told us that it "very quickly became apparent that there just was not the time to go through the public consultation, consulting with councillors of 30 different boroughs and different political persuasions, and of course the biggest challenge, as well, is the different finances".[208]

107.  One of the factors that councils told us had squeezed the time they had to finalise their local CTS schemes was the late announcement of funding from the Government. The Government originally provided £30 million for local authorities to develop their CTS schemes. In October 2012 the Government announced a transitional grant for local authorities to help with their local CTS schemes. However, the funding of £100 million for one year was contingent on local schemes meeting certain criteria.[209] In order to qualify, local CTS schemes had to set minimum council tax payments at 8.5 per cent or less of a claimant's net liability and keep the taper rate below 26 per cent.[210] The New Policy Institute said that schemes including a band cap or "a savings limits lower than £6,000 [...] would also make a scheme non-compliant".[211]

108.   The lateness of this announcement on additional funding had several consequences. Firstly, it meant that councils wishing to take advantage of the funding had to delay publishing their proposals and interrupt or curtail any consultation exercises they were engaged in.[212] Secondly, to meet the qualifying criteria for the grant councils can only make limited savings from the design of their schemes, and they risks becoming reliant on the grant to sustain them. Southwark Council was one of the councils that chose not to alter its scheme in order to meet the eligibility criteria for the grant. It said that by the time the announcement was made the scheme had been "designed, consulted on and was due to be presented to Council cabinet".[213] Southwark was also concerned at the level of the grant:

Our estimates show that a funding gap of over £0.5m would remain if we adapted our scheme to fulfil the eligibility criteria for the funding.[214]

Steve Thompson from Blackpool Council told us that he was "aware of some authorities who would like to take the transition grant, but whose IT systems cannot cope".[215] In addition, the grant is only available in the first year of the scheme so those councils which altered their plans to take up the Government's offer might have to redesign their schemes for 2014-15.[216]

109.  The New Policy Institute released figures in March 2013 showing that 195, that is 59 per cent, of authorities qualified for the transition grant from central Government.[217]

110.  We welcome the Government's introduction of a grant to assist local authorities with Council Tax Support schemes that meet certain criteria. However, we note that the lateness of the announcement and the fact that the grant is only available for 2012-13 has, regrettably, introduced confusion and uncertainty into the development of local schemes. We also note that only 59 per cent of local authorities qualify for the grant meaning that the rest will need to meet the full cost of the schemes either by reducing the money they pay to working age claimants or by making cuts in other budgets.

171   Ev 50 [Chartered Institute of Housing], Ev 87 [Shelter], Ev 82-83, para 2.8 [Citizens Advice], Ev 76-77, para 3.1.1 [Hyde Group], Ev w120, para 8 [Waverley Borough Council], Ev w125, para 3.0 [RNIB], Ev w26, para h [Chartered Institute of Public Finance and Accountancy], Ev w30, para 3.6 [Southwark Council], Ev 67, para 8 [Blackpool Council], Ev w38 [District Councils' Network], Ev w44 , para 24 [British Property Federation] and Ev w48-w49, para 3.6.1-3 [London Borough of Croydon] Back

172   Ev 88 Back

173   Ev 87, para 14 Back

174   Q 180 [Kate Webb] Back

175   Institute for Fiscal Studies briefing note 116, Universal Credit: A Preliminary Analysis, 2011, p 9 Back

176   Q 235 Back

177   New Policy Institute, "Impact of the localisation of council tax support",  Back

178   New Policy Institute, "Impact of the localisation of council tax support", Back

179   DCLG, 'Localising Support for Council Tax: Taking work incentives into account', December 2012, p 4 Back

180   That is, 68-(68/100x(65+20))=10.2. Back

181   That is, 68-(68/100x(65+35))=0. Back

182   Ev 51 [Chartered Institute of Housing], Ev 87 [Shelter], Ev 84-85, para 2.8 [Citizens Advice], Ev 78, para 3.1.1 [Hyde Housing], Ev w120, para 8 [Waverley Borough Council], Ev w125, para 3.0 [RNIB], Ev w26, para h [Chartered Institute of Public Finance and Accountancy], Ev w30, para 3.6 [Southwark Council], Ev 67, para 8 [Blackpool Council], Ev w38 [District Councils' Network], Ev w44, para 24 [British Property Federation] and Ev w47-w48, para 3.6.1-3 [London Borough of Croydon]  Back

183   Ev 67 Back

184   Q 180 [Gillian Guy] Back

185   As above Back

186   Q 181 [Kate Webb] Back

187   Ev 64; see also Ev w30, para 3.6 [Southwark Council]. Back

188   Ev 64 Back

189   Ev 94-95, paras 48-54 Back

190   Ev 94, para 49 Back

191   As above Back

192   Ev 94, para 49 Back

193   As above Back

194   Ev 94, para 49 Back

195   Ev 94, para 51 Back

196   Ev 67 Back

197   As above Back

198   'Passporting benefits' automatically entitle those receiving them to other benefits and are used to reduce the number of times individuals need to be means-tested making applying for multiple benefits simpler. Back

199   Ev 82-83, para 2.8 Back

200   Q 252 Back

201   New Policy Institute, "Impact of the localisation of council tax support",  Back

202   HC (2010-12) 1406, para 72 Back

203   New Policy Institute, "Impact of the localisation of council tax support",  Back

204   HC (2010-12) 1406, paras 2, 3 and 37 ff Back

205   Q 95 [Lesley Pigott] Back

206   Ev w38 Back

207   Q 88 Back

208   As above Back

209   Ev w23, para 5.1 [Core Cities Group] Back

210   DCLG, Localising Support for Council Tax: Transitional grant scheme, October 2012 Back

211   Ev w74, para 8 Back

212   Ev w74, paras 11 and 13 [New Policy institute] and Ev w119, para 4 [Waverley Borough Council] Back

213   Ev w28, para 3.1 Back

214   As above Back

215   Q 88 Back

216   Ev w74, para 15 [New Policy Institute]; see also Ev w37 [District Councils' Network]. Back

217   New Policy Institute, "Impact of the localisation of council tax support", Back

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Prepared 3 April 2013