More households to pay council tax as benefits cease under coalition rules

Councils weigh up how to implement new support system that will mean bills for many, now exempted, low-income families

Two-thirds of local authorities in England are from April planning to demand council tax payments from working-age households which are currently exempt, according to new research.

The finding comes in a survey of local authorities undertaken jointly by the New Policy Institute and Resolution Foundation, into how councils are responding to the abolition of council tax benefit.

Just over 320 councils in England must decide by the end of the month how they will implement the successor, known as council tax support, which comes with a 10% cut in central funding, and rules ensuring full protection for pensioners. The 10% cut will allow national government to save up to £500m a year.

Council tax benefit is a means-tested benefit that has been paid to more than three million working-age families in England, nearly 700,000 of whom have at least one person in work.

As a means-tested benefit it is only paid to the poorest, those who are unable to pay their council tax.

The government has required councils to decide by the end of this month to choose between three options: to ask for a minimum payment from families who currently receive a full or partial rebate and so pay little or no council tax; to spread the burden across all households; or to keep the current system and find the savings in other parts of their budgets.

Figures examined by the New Policy Institute and the Resolution Foundation for a report to be published next month show that, of the 86 councils which have already published their plans, 57 intend to introduce a minimum council tax payment – ranging from 6% to as high as 30% of a full council tax bill.

A number of councils are still consulting on their plans.

A minimum payment system means that families who now receive a full rebate (primarily, workless households) and so pay no council tax, will be asked to start to pay small amounts each month.

This raises the prospect of some councils needing to pursue non-payers through the courts to recover bills that may be as little as £2 a week.

But in many local authorities this change will not be isolated to those who get the full council tax rebate. It will mean a reduction in benefit for everyone – so low-income working families now getting a partial rebate would also have to pay more.

Only 23 of these 86 councils with firm plans are introducing a minimum payment of 8.5%, which will makes them eligible for a share of £100m made available by the Department for Communities and Local Government to help cushion the transition to the new scheme.

This funding, announced late in the process, is only available for one year, and is much smaller than the reduction to the budget that councils are facing. Thirty-two of the 86 authorities are introducing a higher sum.

Critics claim the localised council tax benefit poses a big threat to the underlying principles of universal credit, which will be phased in from 2013, and is designed to incentivise work by wrapping means-tested benefits into one payment.

The exclusion of council tax benefit from universal credit means that families in identical circumstances but living in different areas will face varying work incentives, with some facing little incentive to take work.

Matthew Pennycook, senior researcher at the Resolution Foundation, said: “With so much attention focused on the introduction of universal credit, many have not yet grasped the major implications of the upheaval in council tax.

“It’s already clear that many local authorities are feeling pushed into a corner and are preparing to raise more money from some of the poorest households in the land. This is going to be on one of the big policy and political issues of 2013.”

Peter Kenway, director of the New Policy Institute, said: “Come April, we will have the grotesque spectacle of councils without a penny to spare pursuing citizens without a penny to spare through the courts for a tax that until now they have been deemed too poor to pay.”

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