Is localising Council Tax Benefit Good or Bad?

Polly Toynbee recently wrote a piece in the Guardian attacking the devolution of Council Tax Benefit (CTB) to local authorities. She argued it’s ‘Cameron’s poll tax’:

“… 300 councils must each devise their own criteria. Each becomes a mini DWP, establishing its own means test without having access to people’s earnings … Each decides who is ‘vulnerable’ or whether to include disability living allowance, child benefit or personal savings in declaring who is eligible for how much. Then councils must collect smallish sums from millions of families who have never paid before, with new billing and recovery processes.”

On Thursday, ConservativeHome ran a blog arguing she was wrong to oppose the policy:

“… councils now have an incentive to do two things. First of all, each recipient they can get into work will save them money … Each person that switches to being in work rather than being on the dole will be paying Council Tax to the council – rather than the council effectively getting nothing from them. Secondly, it gives a council an incentive to keep Council Tax down. If Council Tax goes up then the amount of money it has to find for Council Tax Benefit goes up.”

Who’s right?

Well, apologies for the cop-out, but both have a point. It is going to be extremely complex for councils, but they do have a reason to keep the claimant count low. Assessing how councils will behave requires unpicking potential incentives and options for reform. That’s quite difficult, so treat all sweeping predictions with caution, and if in doubt refer to theIFS.

One thing is clear, though. The onus is on councils to develop good approaches – and they are going to have a tough time working out how to make CTB work alongsideUniversal Credit. Here’s an extract from a blog I wrote for the Spectator CoffeeHouse the other week, showing why:

“Under the new system, councils will have to decide whether to treat [Universal Credit] as income, for assessing who gets CTB.”

“If they count it as income, it’s a bureaucratic nightmare. They will have to check with the DWP what every family is receiving in Credit. And thanks to the way that childcare support is calculated, some people would also have more expensive childcare, with a potential knock-on effect on how much they work.”

“If they don’t count it as income, then CTB will sit alongside the credit. This is the easy option. It’s also one that means people might lose both credit and CTB when they earn more. This increases their withdrawal rate: if councils keep CTB rebates the same, then a basic-rate taxpayer will lose 89.8% of any extra earnings. In other words, the simplest path for councils to take leaves us back with the original problem: poor incentives to work.”

Originally the design of Universal Credit included CTB, which would have got around all these problems. Indeed, the whole point of the credit is that by drawing different benefits into a single system, it irons out oddities and poor work incentives. As it is, we’ll have a much messier reality. The end result is that localising CTB makes the system more complex and could reduce incentives to work. Welfare reform is based on the principles of simplifying the system and making work pay – so it is hardly difficult to spot the problem with this.

So while we might expect longstanding opponents of the Government to denounce the localisation of CTB, I’d offer a different reason to worry about it. It’s not that the Government has the wrong vision of welfare reform. The real problem is that the sound principles of welfare reform might be fatally undermined.

Gordon Hector is Public Affairs Manager at the Joseph Rowntree Foundation

This post originally appeared on the JRF Blog on 27th July