Council Tax Support - Public Accounts Committee Contents

1 The Department's objectives and funding

1. On the basis of a Report by the Comptroller and Auditor General, we took evidence from the Department for Communities and Local Government (the Department) on Council Tax support.[1]

2. Since Council Tax was introduced in 1993, people on low incomes have been able to claim support to pay their Council Tax bills. Until March 2013, this support was provided through Council Tax Benefit. Central government decided and funded the amounts claimants received under this national benefit, with local authorities administering it. In 2011-12, five million people claimed Council Tax Benefit in England, at a cost of £4.3 billion. In April 2013, the Department changed this system and transferred responsibility for Council Tax support to 326 local authorities, which now have the statutory duty to provide local Council Tax support schemes.[2] The Department was slow to engage with local authorities regarding the new system, and it was 19 months after the announcement of the change in the 2010 Spending review before it issued guidance to local authorities. However, all local authorities introduced Council Tax support schemes on time.[3]

3. The Department's objectives for this change were: to make savings for central government; to transfer the system to local control; to implement the changes in a way that protect vulnerable people; and to support the work incentives for claimants created by the Government's wider welfare reform.[4] The Department set the funding to local authorities for Council Tax support at £3.7 billion in 2013-14, which was 10% lower than what the Department for Work & Pensions forecast Council Tax Benefit would have been in 2013-14.[5] As a result, the Department made a £414 million saving for central government. However, the Department also incurred implementation costs of £152 million which were not offset against these savings, which included £53 million for a Transitional Grant which it introduced at a very late stage.[6]

4. Local authorities varied in how they implemented this reform.[7] Many passed on some or all of their reduction in funding for Council Tax support to their local claimants by way of reduced entitlements to support. In 2013-14, 71% of local authorities introduced Council Tax support schemes that required working-age claimants to make a minimum contribution to their Council Tax bill.[8] Under the previous system, there were no minimum Council Tax payments for people on low incomes.[9] Most local authorities also made use of new powers the Department gave them to increase their Council Tax income, partly to compensate for their reduction in Council Tax support funding. From 1 April 2013, local authorities have had greater discretion over the Council Tax discounts and exemptions they give to owners of certain types of properties, such as second homes and vacant dwellings.[10]

5. While local authorities have successfully introduced Council Tax support schemes, the Department has not fully met all its policy objectives.[11] We are concerned that a large number of local authorities have opted not to protect vulnerable groups from making minimum payments of Council Tax, other than the mandated protections for pensioners and war pensioners. [12] The Department chose to protect pensioners by legislating that local authorities continue to provide pensioners with the same entitlements as they would have received under Council Tax Benefit. In addition, the protection of war pensioners was strongly encouraged under the Armed Forces Covenant, which sets out the relationship between the nation, the state, and the armed forces.[13]

6. Another of the Department's objectives for this policy was that Council Tax support schemes strengthen work incentives.[14] One way of doing this is through 'income taper rates', which is the rate at which Council Tax support is withdrawn as an individual earns more. The Department told us that 94% of local authorities have either kept the income taper rate at its Council Tax Benefit level of 20% or reduced it.[15] After the hearing the Department sent us a note clarifying that 93% per cent of local authorities had retained the taper rate at the Council Tax Benefit level and 1% (only three local authorities) had reduced the taper rate, potentially benefiting 21,000 working age claimants.[16] In addition, 14% of councils have amended other features of the Council Tax Benefit system that would improve work incentives. The Department told us that this provides "compelling evidence that local authorities understood the importance of work incentives" when designing their schemes.[17]

7. There is evidence, however, that some local authorities' schemes may weaken work incentives for some people. Nineteen local authorities have increased the income taper rate from its 20% level under Council Tax Benefit, potentially affecting 225,000 working age claimants.[18] Of these 19 local authorities, 14 have increased the rate to 25%, and four to 30%. The effects on work incentives of such an increase can be significant: when the withdrawal of Council Tax support is combined with the withdrawal of Housing Benefit, Income Tax and National Insurance a person will lose 93 pence of every additional pound he or she earns under a taper rate of 25%, which increases to 97 pence for each additional pound if the taper rate increases to 30%.[19]

8. The Department told us that it wanted to delegate to local authorities the freedom to design their own schemes.[20] However, it did intervene in the first year of the policy by introducing a Transitional Grant. The Department told us it introduced the Grant after it realised that local authorities were "potentially introducing changes that were more harsh than they needed to be". It interpreted this as resulting from local authorities being cautious about their capacity to absorb the reduction in Council Tax support funding during a period in which they had to implement other significant financial changes.[21] One of the conditions of the Grant was that schemes had to limit minimum Council Tax payments to at most 8.5% of an individual's Council Tax bill. Some 43% of local authorities (out of a sample of 145) changed their scheme to qualify for the Transitional Grant.[22] The Department told us it was unclear, however, whether local authorities will introduce schemes that pass more of the funding cut on to claimants once transitional funding is no longer provided.[23]

9. The Department has been less ready to intervene in other cases where local authority scheme choices appear to conflict with the Government's intentions. Twenty-two local authorities have, for example, chosen to add child maintenance payments to their calculation of income when determining Council Tax support entitlements. The Department told us that it was not "entirely happy" with these local authority choices, but had not taken direct action against them, since "Councils have a choice about how they set up the scheme". However, the Department wrote to us after the hearing to explain that they intend to issue guidance shortly and that local authorities will be notified of that guidance. The Department said that it relies in general on local authorities to implement government policy in accordance with their statutory duties. But by delegating decision-making on certain policies to local authorities, some local authorities will go "in a different direction on specific issues". The Department told us that for each government policy they need to come to a "judgement about the pros and cons of whether you want to delegate the choice at a local level and whether some might therefore take a choice you don't like".[24]

10. Council Tax support is one of the major funding and welfare changes the Government has introduced in recent years. Welfare recipients may be affected by more than one welfare change, for example, a reduction in Housing Benefit, changes to their Jobseeker's Allowance and reductions in their Council Tax support entitlements. These combined effects may lead to increased demand for, and therefore raised costs of, local services, such as pressures on temporary accommodation or council housing when individuals can no longer afford to rent in the private sector. The Department recognised that the effect of changes to the welfare system needed to be considered in the round.[25] Where local authorities experience increased service costs this will add to the financial risks they experience from other funding changes. For example, local authorities that experience economic decline may see a simultaneous rise in Council Tax support claimants and fall in business rate income.[26] These combined financial impacts will further reduce the flexibility local authorities have in dealing with increased demand for their services.

11. The impact on local authorities of the welfare changes will vary across the sector. For Council Tax support, local authorities had to retain the same level of entitlements for pensioners as they would have received under Council Tax Benefit, as the Government decided to protect pensioners through legislation. The impact of this varies across local authorities, depending on the number of pensioners that claim Council Tax support.[27] Under the previous scheme, the amount of pensioners claiming Council Tax Benefit as a proportion of total claimants ranged from 25% to 74% across local authorities.[28] If all local authorities decided to pass on their 10% funding cut, then this would translate into cuts to entitlement for working-age claimants of between 14% (where the ratio of pensioners was lowest) and 33% (where it was highest).[29]

12. In our report Financial sustainability of local authorities, we concluded that the Department had not yet assessed the cumulative impact of funding cuts and reforms on the financial sustainability of local government.[30] The Department has since developed its understanding of the combined effects of funding changes, so as to protect the financial future income of every local authority. The Department told us that it has a dedicated team that works exclusively on welfare issues and is keeping in close contact with local authorities, to learn about the cumulative impacts of welfare changes. The Department said it is also working closely with the Department for Work & Pensions to understand more about the effects of welfare changes. The Department admitted, however, it does not have the systems to calculate all the financial impacts from the welfare changes on local authorities.[31]

13. Local authorities have incurred new costs by taking on the responsibility to provide Council Tax support. These include the cost of designing and modelling schemes, communicating changes to entitlements, consulting with local residents, paying IT suppliers for new benefit processing software, and setting up a system of appeals against Council Tax support decisions. In line with its 'new burdens' doctrine, which requires the Department to fund local authorities fully for any new costs arising from Government policy, the Department provided £98.3 million to local authorities over two years to 2014-15 to cover these new costs.[32]

14. The Department told us that the new burdens funding was an estimate based on the best information available to it in spring 2012, but that this was before local authorities had a full understanding of their full implementation and recurring costs.[33] However, the new burdens funding did not cover all the costs local authorities have incurred. Some local authorities have had to increase their Council Tax collection efforts, after designing schemes which charged claimants a minimum Council Tax contribution for the first time. Birmingham City Council and Epping Forest District Council, for example, employed additional members of staff to deal with the increased burden of Council Tax collection.[34]

15. The Department told us that it intends to review its new burdens assessment with the Department for Work & Pensions. The Department explained that it does not compensate local authorities for any additional Council Tax collection costs they incur because "it is down to each authority how they organise the collection of their council tax and the extent to which they need to use additional measures to collect council tax".[35] The Department expects, however, that Council Tax collection costs will decline over time as local authorities will find it easier to collect money from people who are now paying Council Tax for the first time.[36]

1   C&AG's Report, Council Tax support, Session 2013-14, HC 882, 13 December 2013.


2   C&AG's Report, paras. 1.1- 1.2. Back

3   Qq 13-14 Back

4   Q 1; C&AG's Report, para 3. Back

5   C&AG's Report, para 2. Back

6   Q 6; C&AG's Report paras 1.19, 2. Back

7   C&AG's Report, para 1.9. Back

8   C&AG's Report, para 2.4. Back

9   HC Deb, 30 June 1992, col 779. Back

10   C&AG's Report, paras. 2.13-2.14. Back

11   C&AG's Report, para 17. Back

12   Qq 23, 62-63 Back

13   C&AG's Report, paras. 2.20, 3.11 Back

14   Q 1; C&AG's Report, para 3.6. Back

15   Q 17. Back

16   Ev 13  Back

17   Q 23; Ev 13  Back

18   Ev 13  Back

19   Q. 17; C&AG's Report, para 3.7. Back

20   Qq 67-68. Back

21   Q 7. Back

22   C&AG's Report, paras. 2.8, 2.10. Back

23   Qq 9-10. Back

24   Qq. 64-68; Ev 13  Back

25   Qq 42-43. Back

26   C&AG's Report, para 3.26. Back

27   Q46. Back

28   C&AG's Report, Figure 5. Back

29   Q 37, C&AG's Report, para 2.20. Back

30   Committee of Public Accounts, Third Report of Session 2013-14, Department for Communities and Local Government: Financial sustainability of local authorities, HC 134, May 2013, conclusion 1, p 5. Back

31   Q 42; C&AG's Report, para. 3.29. Back

32   Q 70; C&AG's Report, paras. 1.15-1.16. Back

33   Qq 71-72; C&AG's Report, para 1.17. Back

34   Q 76; C&AG's Report, para 2.5-2.6. Back

35   Qq 74, 76; C&AG's Report, para 11. Back

36   Q 78. Back

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Prepared 11 March 2014