Council tax support is a benefit available to low-income
households, giving them a reduction in their council tax bill. It
operates separately from universal credit – the main means-tested
working-age benefit. And, since 2013–14, the working-age council
tax support scheme has been designed and administered by local
authorities in England, and the national devolved governments of
Scotland and Wales. The scheme is a small fraction of total
benefit spending, but plays an important role in supporting the
incomes of the poorest households, on average contributing over
£500 per year for the poorest tenth (worth 6% of their income).
Local authorities in England now operate a wide range of schemes,
with substantially differing choices over generosity and
means-testing. Localisation gives councils the ability to vary
schemes based on local political preferences, objectives or
constraints. But localisation has also generated administrative
costs for councils, including the burden of effectively designing
their schemes. Local policy reforms have in some cases increased
complexity for claimants and lacked clear rationale.
Integrating working-age council tax support into
universal credit is therefore a compelling option for
reform.
These are among the findings of a new report, published by the
Institute for Fiscal Studies. The report also finds:
- Since localisation of council tax support in 2013–14, local
authorities in England have reduced the aggregate size of their
working-age council tax support schemes by around £630 million
(14%) in today's prices, following reductions in central
government funding. The devolved governments in Scotland and
Wales have maintained the level of generosity of their schemes.
- Reductions in funding have hit the poorest households the
most, reducing their disposable incomes by £106 a year (or 1%) on
average.
- The fact that working-age council tax support operates
separately from universal credit weakens incentives to work. A
typical scenario for a low-income claimant increasing their
earnings by £100 would be to see £55 clawed back in universal
credit and a further £9 lost through lower council tax support,
implying an effective marginal tax rate of 64%. In some cases,
more will be lost.
- Many councils have adopted ‘banded schemes' to simplify their
administration, where entitlement to council tax support is based
on which ‘band' of income a claimant is in, meaning it drops
suddenly when income crosses a threshold. This creates very high
marginal tax rates for some people. In addition, the precise way
in which many banded schemes have been implemented means they
sometimes are – for no very clear rationale – less generous to
some groups than others. Working renters, for example, sometimes
lose out compared with otherwise-identical working homeowners.
These complications suggest there are good arguments in favour of
integrating council tax support into universal
credit for working-age families in England, and offering
the devolved governments the option to have their working-age
schemes integrated into universal credit:
- Integration would make the system more transparent for
claimants and make it easier for them to get their full benefit
entitlements, while also reducing administrative costs for
councils.
- It could also strengthen work incentives for most low-income
households, though straightforward options to achieve this entail
either spending more or reducing the incomes of poorer
households.
- On the other hand, localisation allows policymakers to tailor
schemes to the needs or preferences of their population and to
reflect other local constraints. This would not be possible to
the same degree were support fully centralised.
- But even with working-age council tax support integrated into
universal credit, it would be possible to maintain some local
decision-making, by allowing councils to decide, for example, the
maximum share of households' council tax bills that contribute to
the universal credit award.
If working-age council tax support is to remain separate from
universal credit, there is a strong case for avoiding banded
schemes. The intention was to end the need to reissue bills after
small changes in income, but smaller tweaks, such as assessing
income over six months or a year instead of monthly, would be
less disruptive for claimants.
Matthew Oulton, a Research Economist at IFS and an author
of the report, said:
‘In devolving council tax support to local authorities in
England, the government introduced local control over a part of
the benefits system. But localisation has imposed a burden on
councils to both design and administer a complex scheme. In many
cases, local reforms seeking to ease administrative costs have,
from the claimant's perspective, added complexity to an already
complicated system. Banded schemes mean claimants are sometimes
made worse off when they earn more, and they sometimes leave some
groups with lower entitlements, such as working renters compared
with working homeowners, without any clear rationale.
‘There is a strong case for integrating council tax support for
working-age families into universal credit. This would not be
without a downside: any form of integration could create some
losers among both claimants and local authorities and could
create risks for local authority finances if not handled
correctly. However, integration would reduce complexity for
claimants and administrative burdens for councils.'
ENDS
Notes to Editor
How does council tax support shape household incomes and work
incentives? is an IFS report by Matthew Oulton and
Tom Wernham.
