GUIDE TO THE NEW LOCALISED COUNCIL TAX BENEFIT SYSTEM
From 1st April 2013 Council Tax benefit for working age tenants has been localised and is now administered by local authorities who make their own schemes setting out entitlements. There will continue to be a national scheme for pensioners who will not be affected by these changes.
Up to now, the entire Council Tax Benefit Scheme has been a national scheme but administered by local authorities. Under the former system virtually the whole cost was reimbursed to the local authority. This has also changed. As from April 2013 there has been a 10 per cent reduction in the funding to local authorities from Central Government.
As Council Tax benefit for pensioners will still be fully funded from Central Government funds disproportionately the 10 per cent cut therefore falls on those of working age.
What does this mean?
Alongside these changes the Government has abolished various exemptions from Council Tax. Also, local authorities will be given much greater discretion over the discounts that they must currently give to Council Tax payers. Inevitably, local authorities will look to maximise Council Tax revenues and will give few, if any, discounts. The extra income is, in practice, going to be used to subsidise the local Council Tax benefit schemes.
Each local authority which collects the Council Tax has drawn up its own local Council Tax benefits scheme for those of working age. There is a default scheme if a local authority does not adopt its own individual scheme and many authorities have adopted various aspects of this national scheme. Local authorities have a wide measure of discretion. Many local authorities are now making every Council Tax payer of working age pay at least some of their Council Tax even though they are not working and qualify for full means tested benefits. Unless everybody has to pay something then the cuts in benefits are going to fall, potentially unfairly, on others.
Local authorities have been offered financial assistance for the first year of operation if they include certain provisions within their local schemes but not all local authorities have taken this up.
Council Tax Support Taper Arrangements
Taper arrangements are important under local schemes because they determine how much earnings can be retained by a Council Tax payer who is in receipt of assistance.
In effect, the recommended Government taper rate for Council Tax Support is 20% which matches the existing Council Tax Benefit Rate. In England out of 326 District and Unitary Authorities the taper rates set are as follows:-
15% - 3
20% - 303
21% - 1
25% - 14
30% - 4
35% - 1
Under the Government’s default Council Tax Support scheme the Council Tax Support taper should be applied after the gross taper for national insurance (12%) and income tax (20%) and the net income taper for Universal Credit which is set at 65%. This approach avoids a claimant from losing all or nearly all of any additional income they earn. The maximum national taper rate for in work benefits for Council Tax benefit was 96%. The Government recommendation is that local authorities should apply the Council Tax Support taper only after the national insurance, income tax and UC tapers.
Purely for illustrative purposes (and taking no account of various details of local Council Tax Support schemes) the Government’s suggested approach would mean that when a tax paying claimant earned an extra £1 they would have 32p of that £1 deducted for income tax and national insurance leaving then with 68p. From this amount of 68p 44.2p (65% of the remaining additional income of 68p for each £1) would be deducted from the UC taper leaving 23.8p. If you apply to that a 20% Council Tax Support taper tot he figure of 23.8% would allow 19.1p extra income. The highest Council Tax Support taper is currently 35% which would mean that the total deductions would be 84.5%; leaving 15.5p in additional income.
Local authorities are not required to adopt the Government’s approach. For instance, if the local authority applied the Council Tax Support taper in combination with the UC taper the position would be (applying a 20% Council Tax Support taper) that the claimant would have 85% of their additional income deducted as UC and Council Tax Support taper (85% combined) which would leave 10.2p of the 68p after deducting tax and national insurance. On the other hand if a local authority had a 35% Council Tax Support taper in these circumstances then deductions operate at £1 for £1 extra wages (i.e. 100%).
At the moment to qualify for one off assistance from the Government for the financial year 2013/14 certain criteria have to be met which includes setting the deduction rate at no more than 20%. Over time this could change.
How local benefit schemes operate
232 schemes require all working age people to pay at least a proportion of Council Tax (varying between 5% and 33%). Around half of those will require 5 to 10% to be paid and the other half 11 to 33%.
60 local authorities fix a lower level than Council Tax benefit for savings people are permitted to have before they become ineligible for benefit at all. The reduced amounts vary between £6,000 and £10,000 of savings (£16,000 was the Council Tax benefit level).
29 local authorities take other benefits as income when calculating how much Council Tax one should pay.
171 local authorities have removed the second adult Council Tax rebate where a low earning adult (not their partner) level with a claimant.
63 authorities limit Council Tax Support so that it is based on the property banding for Council Tax with those living in higher value houses receiving less support.
44 authorities remove Council Tax Support from those claimants entitled to payments of less than 50p - £5 per week.
23 local authorities increased the taper rate for Council Tax Support as a result of increased earnings (up to a maximum of 35%).
79 authorities specify a vulnerable group (other than pensioners) who are protected from the changes.
NB: Pensioners are protected in any event.
In total 58 of the 326 local authorities in England replicate the existing Council Tax system. All of the remainder local authority schemes include changes which will reduce the amounts paid out. It has been estimated that the average loss per benefit claimant in England is £130.
As always, if information is required this will have to be obtained from the local authority concerned.
What are the consequences of all of this for private landlords?
If, as is often likely, everyone has to pay something towards their Council Tax bill we are going back to the old days of the “poll tax”. It is going to be yet more pressure on limited household budgets at a time when food and energy prices are rising. It could well lead to an increase in rent arrears.
Local authorities are going to have to pursue tenants and others for small amounts of unpaid Council Tax. Ultimately, the sanction of a non-payment of Council Tax is imprisonment. It has to be shown that non-payment is culpable in some way. It is likely that the amount of Council Tax will be increased in practice to meet the increased arrears which cannot be recovered. For landlords who have to pay Council Tax, even if they have not done so in the past, for example because the discount for vacant properties is withdrawn, it means that higher overheads will inevitably end up being passed on to tenants through increased rents.
Landlords are concerned at the withdrawal of exemptions and the loss of discounts; this has happened because local authorities will say they will need extra funds to close the shortfall in the funding gap for Council Tax benefit for those of working age.
Briefing correct as May 2013.
© 2012 Residential Landlords' Association