A localised Council Tax Benefit

The Government is planning to localise Council Tax Benefit. Local authorities, which currently administer a national scheme, will be asked to invent their own schemes. At the same time, the amount of money available will be reduced, and local authorities’ ability to decide how to distribute the benefit between different demographic groups will be constrained.

It is certainly the case that some functions belong with local government and some with central government, and that a variety of factors will be involved in deciding in each case whether regulations should be local, national, or a mixture of the two. For instance, defence of the realm has to be a central government function, and it is surely sensible for litter collection to be undertaken by local authorities. In the middle ground will be such functions as health and education which for good reasons are managed by a partnership between local and central government.

The question to ask in relation to the Council Tax Benefit plan is this: Does the proposed localisation make it easier or more difficult for the Government to manage its remaining central government functions?

We have already expressed our view that Universal Credit is a step in the right direction because it rationalises means-tested benefits to some extent, and it reduces the total marginal deduction rate experienced by people in employment or entering employment, thus providing slightly greater employment incentives than under the current system.

A localised Council Tax Benefit will make the administration of Universal Credit far more difficult than it would have been otherwise, because claims in each local authority area will need to be calculated differently. Universal Credit administration already faces one major new challenge: synchronisation of computer systems at Her Majesty’s Revenue and Customs and the Department for Work and Pensions. To add another major challenge might cause administrative gridlock.

Additionally, each local authority will determine its own withdrawal rates for Council Tax Benefits, and will withdraw Council Tax Benefit at that rate at the same time as Universal Credit is withdrawn by the DWP. This will destroy Iain Duncan Smith’s plan for a maximum national withdrawal rate in order to increase incentives to seek employment and to increase earned income once in employment.

As a recent report from the Institute for Fiscal Studies puts it: ‘Achieving coherence between council tax rebates and Universal Credit is complex. The need to make the new rebates fit with Universal Credit makes local authorities’ task of designing schemes, already a difficult challenge given the tight timescale, into a truly formidable one.’ [note]Stuart Adam and James Browne, Reforming Council Tax Benefit (Institute for Fiscal Studies, 2012), p.10. [/note] This is a report that every Minister and MP should read.

It is rare for us to suggest that the Government should think again. In this case we have no hesitancy in doing so; and no hesitancy in suggesting that if it does not do so then Parliament should ensure that it does.