Council Tax

Council Tax Benefit: the effect of a 10 percent cut

  • Published: Jan 13, 2011
  • Author: Peter Kenway
  • Category: Council Tax

To cut Council Tax Benefit by 10% risks damaging a very effective political safety valve.  Are Coalition politicians sure this is what they want in 2013?

With some 5.8 million recipient households across Great Britain, Council Tax Benefit (CTB) is not just some minor part of the benefit system.  Excluding the State Pension (entitlement based on contribution) and universal benefits like Child Benefit or the winter fuel payment for those over 60, it is in fact the benefit with most claimants of all.

CTB is surrounded by paradox.  For one thing, it is not really a benefit at all but a reduction in liability to tax. 

For another, it transforms the whole council tax system (that is, the tax proper based on property values, plus CTB) into a household-based income tax in which income is taxed at 20 per cent. 

The fact that CTB is little known and certainly misunderstood does not mean, however, that it isn’t working or hasn’t done a good job.  Because, as a local household income tax, it has both protected pensioners from above inflation rises in council tax, and provided at least some respite for those of working-age on low incomes.

Imposing a 10 per cent cut on CTB from April 2013 puts all this at risk.  Dan Paskins’ paper for NPI looks at the people and areas that will be hit, on the assumption that the cut is applied proportionately.

If spending on CTB is too high, it is because council tax itself is too high for low income households.  High CTB is a symptom of the unfairness of the council tax system.  The proper way to cut CTB is to reform the council tax that gives rise to the liability in the first place. 

There is no way that the government is going to do that.  But in its absence, cutting CTB – in effect, a tax rise for low income households – cannot but add to the burdens of those who already have face severe financial pressure. 

Since the Coalition has already said it will protect the ‘most vulnerable’, that once again leaves the low income in work as most likely bearing the brunt of the cut.

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