Tom MacInnes from the New Policy Institute explains a benefit cut that's been somewhat overlooked...
Significant cuts to working tax credits, an extension of the benefit cap to £23,000 in London (£20,000 everywhere else), and a four-year freeze on working age benefits are among some of the welfare reforms to command the headlines since the Chancellor’s emergency budget on 8 July. Many Londoners, both in and out of work, are likely to be worse off over the coming years.
In the midst of this, it’s easy to forget other reforms that have already been taking place and affecting the incomes of those at the bottom. One such change, introduced in April 2013, was to Council Tax Support (CTS), which used to be known as Council Tax Benefit (CTB). CTS is not additional income, but rather, a discount in the amount of council tax a household is required to pay. The change marked a historic move from a nationally run system to 326 local ones across England. Alongside this restructuring, the money provided by central government to fund CTS was cut by 10%. Each local authority is now responsible for designing their own scheme within these new constraints, with the requirement that changes only apply to working age claimants and not to pensioners.
London has seen a variety of schemes, with six London boroughs having retained the previous level of support. Of these, two are Conservative, two Labour and two have no overall control. All other London boroughs have altered their scheme from CTB and passed on some proportion of the cut to claimants. Commonly councils have made up the shortfall by reducing the maximum entitlement to CTS, with 24 boroughs introducing a ‘minimum payment’ of council tax that all families are required to pay. The highest minimum payment in London is in Harrow, at 30%.
In effect, this is experienced as an additional tax rather than a cut in benefits, involving payment of something that in most cases would not have to have been paid before. In fact, many former CTB claimants saw a considerably bigger rise in council tax than others, due to constraints preventing councils from increasing council tax to all residents by more than 2% without holding a referendum.
Unlike other parts of the country where there has been a slight increase in the average Band D council tax payment, in the London area Band D council tax fell by 1% between 2010/11 and 2014/15. Meanwhile, research by the New Policy Institute shows that over 436,000 households in London are now required to pay on average £163 per year (over £3 per week) more council tax than they would have done under CTB in 2012/13.
These changes have led to an increase in debts and arrears. In 2013/14, the first year of new scheme, council tax arrears rose in almost three quarters of councils (PDF) across the country. Total arrears in London’s boroughs rose by around one third. In areas where the new schemes had a higher minimum payment, arrears tended to be higher. Recent research from the IFS bears this out — low income families in areas with higher minimum payments are more likely to be behind with their bills.
Unpaid council tax leaves people liable to court summonses and bailiff action, which can result in further unpayable debt. It is the local authority, not central government, who has to bear any loss. Many councils have resisted using stringent enforcement mechanisms such as summonses or bailiffs with former CTS claimants, but the pressure to act is mounting with some households now owing two or more years of council tax. Citizens Advice says problems with council tax payment is one of the leading reasons for calls to its debt helplines.
Cuts to CTS are continuing across London, with seven boroughs further reducing support by changing components of their scheme in April 2015. The Welfare Reform and Work Bill is likely to command the attention of Londoners for some time, as its effects on low income families become visible over the coming years. In the meantime, the more ‘silent’ cut to council tax support will continue to put a further strain on the finances of both local authorities and those on low income in the capital.