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Under the current system of council tax, local authorities are reimbursed by the government for the council tax benefit they pay out to those who, through no fault of their own, are not in a financial position to pay it.
However, from April 2013, the government has announced that council tax benefit will no longer exist in its current form and the amount of financial support that councils receive from the government will be reduced by 10%. Instead, councils have been informed that they will need to design and operate a local Council Tax Support scheme and decide themselves how this funding cut will be met. The government has also stated that people of state pension age who currently receive council tax benefit must be protected.
Those affected will include the following groups of people who are currently entitled to claim Council Tax Benefit:
- Those who claim state benefit e.g. Job Seekers Allowance
- Those who work full or part time – including self-employed workers – but earn a low wage and also those who have children and claim Working and / or Child Tax Credit
- People who share their home with one adult or more who cannot pay towards their Council Tax – this is called Second Adult Rebate
Before making a final decision about how the scheme will be imposed, local authorities are in the process of sending consultation documents to residents. This started in July and consultation forms must be returned by early November.
Borough of Poole
If we take Poole as an example, the local authority have announced that the current benefits scheme will be replaced by a local Council Tax Support scheme and the consultation document states “the draft scheme proposes that all working age residents who qualify for Council Tax Support, except the most vulnerable, will be required to pay a minimum of 20% of their Council Tax Bill.” In the council’s quarterly magazine, Poole News, also states “it is likely that most working age people who qualify for Council Tax Support will have to pay more than they do now”.
In Poole, during 2011/12, there were around 12,000 residents who received Council Tax Benefit and the total expenditure was £10.6M. This means Poole funding will be cut by just over £1M for 2012/13. About half of these people are pensioners and hence, the reason why the govt’s 10% funding cut equates to a vague 20% contribution for those who currently receive benefit.
A vast majority of those receiving Council Tax Benefit are unemployed and only receive Jobseekers Allowance (JSA). The amount paid to each claimant is the minimum the govt considers that is needed to live on. This is currently £56.25 for fewer than 25s, £71 for over 25s and £111.45 for couples. It must be emphasised that this figure does not take into consideration paying Council Tax.
It is highly unlikely that the rate of JSA will be increased to compensate for having to pay towards Council Tax. During the winter months, due to ever increasing food and energy costs, people receiving benefits are already left with the stark choice of eat or heat. If these people are then asked to pay 20% of their council tax out of their benefits, the reality and scant consolation will be that this “choice” will be taken out of their hands and for many, it will simply be a matter of “no food – no heat”.
Is it right that the council demands those who the govt have already recognised as not earning enough to live on, and thus paid Working Tax Credits, pay even more towards their Council Tax and push people already facing financial difficulties into even more hardship.
Poole News states “we need to decide what our new local scheme is by January 2013”. Therefore if we assume that the council are carrying out a genuine consultation where the views of residents will be genuinely considered and then a whole new benefit system will be introduced within 3 months. The more cynical could, maybe rightly, assume that the decisions had already been taken and the consultation is nothing more than a whitewash of democracy. This seems to be another policy that was not in either of the coalition party’s manifestos being steamrollered into the people.
Council Tax is already “means tested” so it is totally unacceptable that those people the Council have previously decided cannot afford to pay full (or part) Council Tax will now be required to pay a minimum of 20%. Both Bournemouth and Poole council allegedly hold millions of pounds in financial reserves. In the Borough of Poole Council Financial Regulations, it states “Financial reserves and balances are maintained as a matter of prudence against unforeseen events and future contingencies. They enable the Council to provide for unexpected events and thereby protect it from extraordinary expenditure and overspends.” It seems totally reasonable that if our councils have sufficient reserves, this money is used as an interim measure to cover the government funding cut to ensure the burden does not fall solely upon the poorest in our society.
BPACC have put in Freedom of Information (FOI) requests to both our councils to find out the total amount of money each are holding in reserve. The answers will be published on our site.
Both local authorities, if they haven’t already done so, should be voicing the concerns of their residents in the strongest terms possible with central government regarding this cut in funding.
Council Tax is based on property value alone, and like the old rates and Poll Tax, it is a regressive tax as it does not take into account a person’s current income and ability to pay. However, in the past this has been offset by people on low incomes being able to apply for council tax benefits. The 10% cut will be placing an unfair burden upon the poorest in our society. So, if we are to believe “we are all in this together” perhaps our councils should also be looking at adding additional Bands to the Council Tax structure. At the moment, the highest level is Band “H” which encompasses all properties over £320,000 (based on valuations in 1991). So a family living in a house worth £321,000 in 1991 will pay the same Council Tax as one living in a house worth £1M. Obviously, the same regressive nature would apply, so whatever is decided, a scheme should take into account an individual’s or family’s income and not simply impose random percentages upon those who are not in a position to pay.
How much will you be told to pay?
If we assume that all those who currently receive full benefit have to pay 20%, the following figures show how much each year for each council tax band:
- Band A – £193.33
- Band B – £225.55
- Band C – £257.77
- Band D – £289.99
- Band E – £354.44
- Band F – £418.88
- Band G – £483.33
- Band H – £579.99
- Band A – £199.82
- Band B – £233.12
- Band C – £266.43
- Band D – £299.73
- Band E – £366.34
- Band F – £432.95
- Band G – £499.56
- Band H – £599.47
Not only does the whole scheme reek of unfairness and inequality but it also yet another ill-thought out policy but this govt. It is yet another blatant attack upon the poorest in our society and enforcing the payment of the economic crisis upon the shoulders of those who did not create the mess while those who did receive tax breaks and bail-outs.
Another factor for areas such as ours is the fact that we have a high percentage of working age population compared to pensioners and ONS figures show this will rise by 5% over the next 5 years. This will create a problem for our local authorities to restrict the amount people have to pay to “around 20%” – see figures below. Where will it end? What happens if the govt decide to cut their funding even further in the next few years? Will pensioners and others in receipt of support but currently excluded also be asked to pay towards their Council Tax?
- Number of people aged 16-64 – 87,100
- Number of people aged over 65 – 29,500
- This equates to 33.9% of the population aged over 65 compared to those aged 16-64
- Number of people aged 16-64 – 110,000
- Number of people aged over 65 – 32,000
- This equates to 29.1% of the population aged over 65 compared to those aged 16-64
The Institute for Fiscal Studies (IFS) produced a damning assessment of these proposals saying that although the reform’s £480m-a-year savings equate to an average £19 per household, the working poor would be hit hardest and could result in the poor driven out by boroughs seeking to save money.
They also said the cut in funding will be larger in areas where council tax benefit spending is highest – the more deprived areas of Britain. It estimates the cut in funding will range from around £5 per dwelling in the wealthy City of London to £38 per household in Haringey, the fourth most deprived borough in the capital.
Those local authorities where pensioners account for an above-average share of council tax benefit spending would need to make larger percentage cuts to support for working-age recipients. For one in 10 English local authorities it would be more than 25%, with the highest value being 33% in East Dorset.
The IFS also says cuts to council tax support are bound to hit lower-income households, as 85% of the benefit goes to the lower-income half of households and almost half goes just to the lowest-income fifth.
The report’s authors warns that to limit their spending councils will have “an incentive to discourage low-income families from living in the area” and that raises the possibility that councils will – like the ill-fated poll tax of the early 1990s – be left to chase desperately poor people through the courts for small amounts of unpaid tax.
The proposed scheme also risks “severely undermining” the government’s flagship universal credit scheme, which will replace six of the seven main means-tested benefits and tax credits for those of working age with a single benefit. However, the seventh means-tested benefit will be “localised”.
The report points out that the changes would create a complex two-tier benefits system, with both local and central government setting policy. This runs counter to the idea of the streamlined Universal Credit to be introduced by Work and Pensions Secretary Iain Duncan Smith.
James Browne, a senior research economist at the IFS and one of the authors of the report, said: “Cutting support for council tax and localising it are two distinct policy choices: either could have been done without the other. Whether you think that cutting council tax support for low-income families is the best way to reduce government borrowing by £500m will depend on your views about how much redistribution the state ought to do.
“But the advantages of localisation seem to be outweighed by the disadvantages, particularly as it has the potential to undermine many of the positive impacts of universal credit.”
Council tax rebate reforms risk repeat of poll tax disaster, says IFS – Guardian
Poole’s population key trends – Borough of Poole
Population trends in Bournemouth – Bournemouth Borough Council