A poisoned chalice for local government
NPI's new analysis of the Government’s consultation document on council tax benefit shows that English local authorities will either have to absorb the CTB cut themselves or tax the poor. Any new scheme will have to be complex. And local authorities rather than the Treasury will in future be bearing the financial risk.
When it was first announced a year ago, abolition of CTB was welcomed by some on the grounds that “localisation” had to be a good thing. The consultation document shows how mistaken that view was.
Under this type of “localisation”, government departments continue to decree what the replacement schemes for CTB must do. They do so, however, without having to take responsibility either for ensuring that those decrees can be met or for considering the consequences.
The first decree concerns the support to be guaranteed to pensioners. The difficulties here seem to stem from CLG’s failure (as authors of the document) to take account of the way that CTB support for pensioners is not just confined to those on low incomes. At the moment, support can even to pensioners with incomes that are average for the population as a whole.
While Government needs to clarify its position, the issue is not just the amount of money that is at stake. Any replacement scheme will have to be much more sophisticated (and intrusive) if it is to provide the support to pensioners that CTB does now.
Second, the DWP demands that replacement schemes do not create disincentives for workless households to enter work. To comply with that, replacement schemes must reduce the support going to low income, working households only gradually. Again, this adds greatly to the complexity of any new scheme. It also introduces a requirement for co-ordination with the DWP to ensure that new schemes and universal credit do not undermine one-another.
Third, the Treasury demands that the total amount of money going to CTB is reduced by 10%. Important though the size of the cut is, its deeper significance is that CTB is to be limited. At the minute, local authorities reclaim the CTB they pay out from the Treasury. Treasury in other words bears the risk. In future – and this would be true even if there were no cut, or even an increase – local authorities will bear that risk.
The merits of these decrees can be debated. In our view, if the first is understandable and the second unquestionably correct, the third is indefensible. But it is not their individual merits that matter here so much as what they imply together. With pensioner recipients protected, a 10% cut in CTB overall translates into a 16% cut for recipients of working-age. The sheer size here, combined with the need to taper support, means that that cut simply cannot be absorbed by those working-age recipients with slightly higher income, that is, those in work.
Given the difficulties associated with collecting a few pounds a week from low income households who have nothing to spare, we assume that local authorities will opt instead to absorb the cut in CTB elsewhere in their budgets. If they do collect the money, and if the cut is a uniform 10% across the board, it will be the working-age low income households in non-urban southern England – places like East Dorset, Wealden, Purbeck – who will end up having to pay the most.
Read our analysis in full here