Council Tax

A tax for the poorest which flies in the face of universal credit too

  • Published: Sep 13, 2012
  • Author: Peter Kenway
  • Category: Council Tax

While Universal Credit is dominating the welfare debate, the replacement for council tax benefit – the most widely claimed means tested benefit – goes largely unnoticed. A key reason for this obscurity is that instead of one, national replacement scheme of council tax support (CTS) there are potentially more than 350, with each council designing its own and releasing its proposals for consultation at different times.

About half of councils have so far started consultation. Based on what a sample of them are proposing, our interim report, published today, tries to pick out what the main features might be. There is certainly a favoured option: three quarters of the councils we have looked at propose to start taxing low income, working-age households who up till now, thanks to CTB, have had a zero liability.

This is a return to one of the key principles of the poll tax, that everybody (now everybody of working-age) should pay something in tax to their local council. 20 per cent of their normal liability is the most favoured figure today. That’s what it was under the poll tax.

The reason why councils are doing this is that the money they receive from central government to finance the new scheme is 10 per cent less than they were getting under CTB. This saves the Treasury money: some £420m a year across England.

Councils have also been told that pensioners have to be protected from the change. With a big chunk of CTB going to pensioners, the 10 per cent overall cut to be borne by those of working-age must be that much larger.

Councils are in a difficult position, either finding the money from somewhere else (cutting services or taking it from reserves) or starting to collect tax from the poorest. As we suggested in a previous report, local councils have been handed a poisoned chalice.

But imposing a tax on the very poorest? Besides its injustice, collecting small amounts of money from potentially millions of extra households carries a heavy administrative cost. The plethora of schemes creates great uncertainty for recipients and will make an impossible job for advisors. The main intention of Universal Credit – to be simple – is thereby undermined.

Charging the poorest something is not the only proposal: we identify eight others including counting child maintenance and benefits as income, which would exclusively hit families, and introducing band ‘band caps’, which would badly impact families in London and the south east. There are also proposals that damage work incentives, flying in the face of another objective of Universal Credit.

No council has finalised its plans. We intend to keep watching and expect to publish an update of this report when more proposals have been published. But where things are heading looks bad, not only for low income households but also for local council administration as well as central government’s hopes for Universal Credit.

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