Wednesday, 1 August 2012

Council Tax Benefit Changes to cost £38 per household in Haringey

Plans to give local authorities control over council tax rebate at the same time as cutting funding by a tenth could result in the poor driven out by boroughs seeking to save money – and raises the prospect of a replay of the poll tax debacle, a report claims.

A damning assessment by the Institute for Fiscal Studies of the proposed council tax benefit changes, which start next April, says that although the reform's £480m-a-year savings equate to an average £19 per household, the working poor would be hit hardest.

The government proposes to allow councils to design a local benefit system but in return says it will cut funding for it by 10%. With 5.9 million recipients, it is more widely claimed than any other means-tested benefit or tax credit.

The cut in funding will be larger, says the think tank, 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.

The report also notes that the requirement to protect pensioners in England means that the cut in funding of a tenth translates into a 19% cut in support for working-age claimants.

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 and in Craven, North Yorkshire.

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 poll tax led to riots and played a part in the downfall of Margaret Thatcher. Recalling these events, the IFS says in 1990 "the perceived unfairness of the tax was associated with non-compliance on a scale rarely seen in the UK".

However, the new scheme replicates some of the worst aspects of the poll tax. "These policies mean that all households, even those on the lowest incomes, would have to pay some council tax. The poll tax experience showed how difficult it can be to collect small amounts of tax from low-income households that are not used to paying it," they say, noting that the poll tax was "quickly replaced".

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".

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."

A version of this report was first published at The Guardian

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