Designing local Council Tax Support schemes

Transcription

1 Designing local Council Tax Support schemes Contents: Introduction... 2 Principles for local schemes... 2 Designing local schemes... 3 Defining vulnerable groups... 4 Capping maximum Council Tax... 5 Other options... 6 Summary... 7 About the author... 7 Author: Dr Phil Agulnik Date: February 2012 For more information please phil@entitledto.co.uk or see Entitledto Ltd, 2012 Local Council Tax Support paper 2

2 Designing local Council Tax Support schemes Introduction In April 2013 Council Tax Benefit, the current means of helping people on low incomes meet their Council Tax obligations, will be replaced by new localised support schemes. This means that, at least for working age people, local councils will be free to design almost any scheme they wish to provide help with Council Tax. The government s proposals have faced considerable opposition; on the one hand, with calls for help with Council Tax to be integrated into Universal Credit and, on the other hand, with calls for the wider framework of Council Tax discounts to be included in the scheme. Both these ideas have been rejected and the government s original proposals 1 will go ahead essentially unchanged. As set out in the consultation response document 2, and as reflected in the new local government finance bill, the main points of the reform are: Help with Council Tax will become a local authority responsibility from April 2013 The amount provided to local authorities for the new system will be approximately 10% less than current spending on Council Tax Benefit Support for pensioners will not be affected and local scheme rules will only apply to working age people, meaning that the burden of any expenditure savings will fall entirely on working age claimants Wales and Scotland are not directly affected by the new legislation, though as the 10% spending reduction affects all parts of Great Britain separate proposals are likely to be made in these countries Principles for local schemes The consultation response document sets out three principles that all local Council Tax Support schemes should follow: 1. Pensioners should be fully protected. This principle in effect means there will no local discretion in relation to people over pension age, as entitlement rules for this group will be set nationally and remain as at present. The consultation response comments pensioner protection will be achieved by keeping in place national rules, with eligibility and rates defined in Regulations broadly similar to those that exist today. 2. Vulnerable groups should be protected as far as possible, as determined locally. There will not be any central definition of which groups should be counted as vulnerable. Instead each authority will have to make its own assessment of which kinds of claimant are defined as vulnerable. In making this choice local authorities will need to consider the risk of legal 1 See 2 See 2

3 challenge, and the consultation response warns that all new schemes will need to comply with the public sector equality duty in section 149 of the Equality Act Work incentives should be enhanced. Improving work incentives is partly a facet of the way schemes are administered, for instance minimising paperwork when claimants move in and out of work. More difficult, however, is designing a scheme that supports work incentives as expressed through marginal deduction rates. The consultation document recognises that interactions with Universal Credit will be complicated and states that the general principles of supporting work incentives will be set out in guidance which will help local authorities to design support. The Government will also consider what technical details around work incentives will help local authorities to consider interactions with Universal Credit and whether work incentives have been adequately supported. The government s first and second principles act as a constraint on scheme design, narrowing the target group for expenditure savings. Equivalently, they mean that savings from non-pensioner, nonvulnerable claimants will need to be far greater than the overall 10% reduction in expenditure the government have announced. The government s third principle, that potential schemes should enhance work incentives, will be looked at in a future paper. For the time being it is sufficient to note the importance of avoiding cliff edges. These can occur under banded schemes, which in effect create trigger points (such as moving into work or income crossing a threshold) that move a claimant from one band to another. Proposals to impose a minimum benefit level, below which no help is granted, have a similar effect. While the amounts of support involved may not be large, in both cases there are situations where a small change in earnings has a negative effect on overall income, creating a marginal deduction rate of over 100%. Arguably, such schemes are not compatible with Universal Credit and the government s message that it should always pay to work. More generally, the idea that Council Tax Benefit can be transformed into a discount scheme is either bad for work incentives, if the discount relates to unemployment, or expensive if the discount is categorical. The existing single person s discount amply illustrates why this type of scheme is poor at targeting poverty, and hence an ineffective use of resources. Some form of means-tested scheme therefore seems the only realistic prospect, certainly in the short term and very probably in the long term. Designing local schemes Local authorities face an unprecedented task in designing their own benefit schemes. While they have considerable expertise in administering benefits, the design of benefits in terms of the rules for calculation of awards has hitherto been a central government responsibility. Moreover, the context for designing new local schemes is a reduction in central government support. Clearly one option for local authorities would be to make up for the shortfall in central government funding from elsewhere in their budget and, in effect, to continue with the existing benefit scheme but under a new local badge. This may be an attractive option, as there is a distinct possibility that the additional administration and collection costs associated with cutting benefits may use up some or all of the hypothesised savings. Against this, there is little prospect of the expenditure cut being 3

4 reversed and it may be more difficult to implement reforms after the scheme is first introduced. Unless local authorities envisage a permanent shift away from in-kind services toward benefit schemes then it is likely that some expenditure savings will be sought in 2013/14. One approach that can probably be ruled out is an equal pain rule. Applying an equal percentage reduction to all working age claimants irrespective of whether they are defined as vulnerable or not is attractive in that it minimises the required cut. However, as argued in an earlier paper 3, this is probably the least attractive of all possible options because: it would mean extracting small amounts of money from all claimants, rather than larger amounts from fewer people, which is likely to pose more issues in terms of collection rates; the potential for vulnerable people to increase their income through work is lower than for non-vulnerable people; vulnerable groups have a more valid moral claim to social protection than non-vulnerable groups and deserve greater protection. While the government s consultation document does not dictate how vulnerable claimants are treated, it is simplest to assume that they will be fully protected from cuts. For the vast majority this will mean that their Council Tax obligation will continue to be reduced to zero. Defining vulnerable groups The scale of benefit reductions experienced by non-vulnerable claimants will be determined by how local schemes define who is vulnerable, the demographic makeup of that area, and how much of the required expenditure saving the local authority seeks to meet from within its benefits budget. There is no agreed definition in government or elsewhere of what characteristics make an individual vulnerable, and no guidance is provided for designing local schemes. The government s consultation response document instead points to local authority statutory duties in relation to: Children, and duties under the 2010 Child Poverty Act to reduce and mitigate the effects of child poverty; Disabled people, and duties under the 1986 Disabled Persons Act; Homelessness prevention, and duties under the 1996 Housing Act to prevent homelessness, with special regard to vulnerable groups. One suggestion has been that local scheme rules could mimic DWP rules for when benefit payments are conditional and when not. This would mean something like the division between vulnerable and non-vulnerable shown in Table 1. 3 The impact of the government s proposals for replacing Council Tax Benefit, available at 4

5 Table 1 Conditionality in DWP benefits and vulnerability Vulnerable group (no benefit conditionality ) Income Support claimants disabled people Income Support claimants - lone parents with children under 5 or pregnant Employment and Support Allowance (support group) claimants Non-vulnerable group (benefits conditional on work activity) Jobseeker s Allowance claimants Employment and Support Allowance (work-related activity group) claimants Non-disabled people in work or not claiming DWP benefits Under the kind of division illustrated above it is possible that for some local authorities the majority of working age claimants would be defined as vulnerable 4. In these circumstances the size of the cut facing the remaining non-vulnerable group might be 50% or more. In authorities with a different demographic makeup the cut would be smaller. But whatever the demography of a local authority, if the benefits budget is expected to fully meet the loss of central government grant, and if vulnerable claimants are completely protected, it is inevitable that non-vulnerable claimants will face cuts of well over 20%. Capping maximum Council Tax While defining the size of the non-vulnerable group shows the scale of benefit reductions required, it does not follow that the most appropriate policy is then to impose an equal percentage cut on all awards to non-vulnerable claimants. Unless other measures were taken this would have the (presumably unintended) consequence of imposing most pain on out-of-work claimants, who currently receive full help with Council Tax. Moreover, it would not reduce the caseload through taking people beyond the reach of the means-test altogether. Rather than a percentage reduction in the amount of benefit awarded it might therefore be preferable to reduce the amount of Council Tax that can be claimed for. For example, depending on local demographics and the proportion of expenditure cuts passed on to claimants, a local authority might decide that non-vulnerable households could only claim for 60% of their Council Tax liability. For households with the same Council Tax liability this would mean an equal cut in cash terms, which is more progressive then an equal percentage reduction in awards. Moreover, it would lower the cut-off point for benefit entitlement, so some existing claimants would no longer be eligible at all. One effect of this kind of reform would be to sharpen incentives to move into work (because unemployed people will be even worse off than is currently the case). But perhaps less appreciated 4 By way of illustration, data from the Family Resources Survey (FRS) suggests that nationally 48% of Council Tax Benefit recipients aged under 65 have at least one adult or child who is disabled. Note though that the FRS uses the Equality Act definition of disability rather than receipt of a disability premium. 5

6 is the effect of such schemes on incentives for claimants to reduce their Council Tax liability, either through moving house or through sharing liability with others (be they joint tenants, sub-tenants, friends or relatives). It might be possible to enhance these incentives through sub-dividing the nonvulnerable group and imposing caps that vary according to a claimant s ability to alter their Council Tax liability. Table 2 provides an illustration of how such a scheme might look. Table 2 An illustrative example of potential caps on maximum Council Tax Claimant characteristics Cap on CT band Cap on CT claim ( per week) Single under 35 8 Single over Couple B Family Premium (non-vulnerable) C Vulnerable None As illustrated by the Table, there is a case for placing a cap on single under 35 year olds that assumes their Council Tax liability is shared. This mirrors the government s policy on under 35s renting in the private sector, which effectively says they should live in shared accommodation. For older single people the Table suggests a higher cap, though again in cash terms to encourage individuals to share the liability for a property. For couples and households with children the Table suggests a cap related to Council Tax band, so that in effect people in more expensive accommodation are treated less favourably than people in more modest homes. In all cases the level of the cap illustrated is arbitrary and would be set locally in response to local conditions and caseload. The point the Table illustrates is that explicitly setting policy to encourage affected groups to reduce their Council Tax liability could help minimise the effect of the cut itself. Moreover, segmenting the non-vulnerable group, and focusing help on more modest homes, is likely to be seen as fairer. Other options There are a number of other ways of reducing expenditure. The main options are: Tightening the means test Changing income or capital definitions Reducing or removing entitlement from particular categories Tightening the means test might involve altering the parameters of the scheme, such as the rate at which non-dependent deductions are applied. Similarly, disregards such as those commonly granted to people receiving war pensions could be reduced or abolished. Increasing taper rates would also be possible, though the effect on work incentives is a strong argument against this. However, while such changes would probably be administratively achievable, it is not clear whether they would generate much by way of savings, and they are probably best seen as an addition to other policies. 6

7 A more radical way of generating savings would be to change the way income or capital is defined in the means test. Options include: Switching from a means test based on weekly income to annual income, saving money by reducing payments to people who are temporarily on a low income Reinstating income from child maintenance payments as part of the means test Reducing the lower capital limit to its previous level of 3,000 The problem with such changes is that, setting to one side their desirability, divorcing the means test from that used by DWP is unlikely to be administratively feasible. In the longer run there may be a case for aligning income definitions with the tax system rather than with benefits, particularly for those who favour a local income tax as national policy, but such reforms are not achievable in time for April A final possibility is reducing or removing entitlement from particular categories of claimants. A list of potential candidates might include non-vulnerable claimants who are: Owner-occupiers, on the basis that, even though the means test excludes the value of the property a claimant lives in, this group is relatively asset rich Jobseekers who fail to meet conditionality rules such as attending return to work schemes Newly unemployed people who might have to serve a waiting period before a claim starts However, singling out people because of their tenancy type, or dividing unemployed people into those who do and do not qualify, is likely to be highly controversial. In addition, the possibility of legal challenge may be greater under this kind of reform. At least at the moment it seems likely that relatively few local authorities will take this approach. Summary This paper has examined various options for local Council Tax Support schemes in the context of the reduction in central government grant being implemented at the same time. It has set out a range of options, concentrating in particular on the potential role for caps on the maximum Council Tax that can be claimed for. While it is proposed that such caps should only apply to non-vulnerable groups, and within this be varied according to a claimant s characteristics, the impact on affected people will undoubtedly be severe. Perhaps the foremost question for local policy makers is whether they should grasp this nettle in time for April 2013, when local schemes will be one of a number of benefit changes, or whether waiting until the economy improves and Universal Credit has been introduced is both kinder to claimants and more practical politically. About the author Dr Phil Agulnik is a Director of Entitledto. He is responsible for the entitlement rule-base that underlies Entitledto's benefit calculation products. He has worked as an economist in the Department for Work and Pensions, HM Treasury, the Financial Services Authority and in academia. He has a PhD from the London School of Economics on the application of 7 micro-simulation techniques to social security policy.

8 Dfsfsff E2Support Online Benefit Calculators that show the effect of local Council Tax Support schemes Designing local Council Tax Support schemes is an urgent task facing local authorities. Officers and members need to understand what different options mean for claimants. And members of the public need to understand what proposed schemes mean for them personally. E2Support offers the following benefits to policy makers: Allows policy makers to set local parameters for their Council Tax Support scheme and see the impact of each option on people in different situations Every calculation performed is stored in a database, so that you can create a variety of cases and show how different schemes affect particular kinds of claimant The calculator incorporates Universal Credit, so that you can see the interaction between the scheme you have designed and the future benefits system. Changes to legislation are incorporated into the model at no additional charge From Spring 2012 you will be able to add on a public version of E2Support that: Allows individuals with little knowledge of the benefits system to make comparisons between your proposed scheme and the current benefits scheme Can be used as part of your public consultation website, or to help you consult with members, precepting authorities and other interested parties And by doing it online you keep costs down while meeting your statutory obligation to consult! Entitledto is the leading provider of benefit entitlement calculation software to councils, social landlords and direct to individuals, with over 2 million customers using its services every year. Entitledto is partnering with the IRRV to ensure that local authorities are ready and able to meet the challenge of designing and implementing local Council Tax Support schemes. This is part of a strategic plan that will ultimately encompass tools to assist local authorities in any role they may have in relation to Universal Credit and the wider delivery of the new benefits structure in the UK. David Magor OBE Web: Denise Marsdon denise@entitledto.co.uk