Council Tax arrears see hundreds of thousands in court – and it’s going to get much, much worse with Universal Credit

There’s been a lot of publicity over the past week about the numbers of people who have fallen into arrears with their Council Tax and who are being taken to court by local authorities.   I’m very afraid that it will get much worse in the future.

Up to 450,000 face court over council tax arrears

156,500 people in England have received summonses in response to the changes to benefits six months ago

The Independent. October 11th 2013

From April this year, the responsibility for helping people with their Council Tax bills has been removed from Westminster and become the responsibility of local councils in England and the Welsh and Scottish governments. At the same time over 10% was removed from the budget for help overall.  As older people were given some protection that meant that much less was available to support working age people.  Many local authorities in England have introduced schemes that limit the maximum amount of help with Council Tax or have introduced rules that mean that everybody has to pay something towards their Council Tax.

This has meant that people who previously had all their council tax supported are now meant to pay something – and many aren’t.

It can be difficult to find the extra needed when other benefits are being cut in real terms and inflation is outstripping rises in income,  but at least some support is still available for most people who were getting help under the previous Council Tax Benefit scheme (CTB).

In the new system, most councils are using, or basing their scheme on, the default rules from the Department for Communities and Local Government (DCLG).  Those rules are pretty similar, in many ways, to the previous CTB scheme in the way in which they calculate how much people need and how much they already have.  Those figures are then used to work out how much help people qualify for,

… but Universal Credit credit is coming.

… and the DCLG rules for assessing Council Tax Support for people getting Universal Credit are very different.

Very different; they use the income figures that Universal Credit uses – and then they add on the Universal Credit entitlement on top. They use the needs figure that Universal Credit uses.  Then they reduce  the maximum help with Council Tax by 20% of the difference where the income figure is higher than the needs … and that produces some very different results.

Here are a couple of worked examples:

Example 1 – with Jobseekers Allowance being received.

Single Parent, 1 child, working 10 hours a week for £4,000 per annum (£76.92 per week), paying a social rent of £90 a week. Council Tax of £1,250 per annum.

A)     Current benefits system entitlement:

Income Based JSA                                                                                           £14.78

Passported to maximum Housing Benefit and CTS.

CTS entitlement                                                                                               £24.04.

B)      Universal Credit based entitlement

Maximum Universal Credit (converted to weekly equivalent):

Adult                                                                                     £71.70

Child                                                                                      £62.62

Rent                                                                                       £90.00

 

Maximum Credit                                                                £224.31

 

Income (converted to Weekly equivalent)

Income assessed for Universal Credit (under chapters 2 to 4 of part 6 of the Universal Credit regulations 2013)                                                £66.92

Universal Credit Award                                                 £213.80

 

CTS Income                                                                      £290.72

 

Excess income £76.41, tapered by 20% to reduce maximum Council Tax Support by £13.28

Council Tax Support                                                        £10.76

CTS under Universal Credit is £13.28 less a week.

 

Example 2 – without Jobseekers Allowance being received.

Single Parent, 1 child, working 10 hours a week for £5,000 per annum (£96.15 per week), paying a social rent of £90 a week. Council Tax of £1,250 per annum.

A)     Current benefits system entitlement:

Income Based JSA – no entitlement as income too high                         £0.00

CTS Means-tested.

Applicable amount for CTS                                                                           £154.72

Net Income for CTS (earnings after disregard plus child tax credit)

£133.94

No excess income – so no taper reduction

CTS entitlement                                                                                               £24.04.

 

B)      Universal Credit based entitlement

Maximum Universal Credit (converted to weekly equivalent):

Adult                                                                                     £71.70

Child                                                                                     £62.62

Rent                                                                                      £90.00

 

Maximum Credit                                                              £224.31

 

Income (converted to Weekly equivalent)

Income assessed for Universal Credit (under chapters 2 to 4 of part 6 of the Universal Credit regulations 2013)                                                £96.15

Universal Credit Award                                                 £201.30

 

Income                                                                               £297.46

 

Excess income £73.14, tapered by 20% to reduce maximum Council Tax Support by £14.63

 Council Tax Support                                                       £9.41

CTS under Universal Credit is £14.63 less a week.

It should be noted that even though the two calculations under the current scheme produce a full Council Tax rebate, many local authorities will have a minimum amount of Council Tax that must be paid or a maximum amount of rebate that can be received.  Those minimum amounts are already seen as frequent contributors to arrears.

Such large differences between the current scheme and the amounts demanded from those who will get Universal Credit in future can only increase the arrears problem substantially.

My colleague David Palmer, a mathematician by background, has carried out a detailed analysis of the DCLG’s rules for CTS under Universal Credit.

The analysis of the Universal Credit assessment for Council Tax Support shows that it reduces to just two factors and that the tapered amount for Council Tax reduction purposes is simply:

(7% of the earnings for UC purposes) + (13% of the UC earnings disregard)

or in situations where UC earnings are less than the UC earnings disregard figure, just:

20% of the earnings for UC purposes

This is independent of the housing costs element and of anything else, as all other factors (that appear to be present in the rules) cancel out.

For any household, as earnings increase from zero, 20% of those earnings (after tax/NI and pension contributions) will reduce CTS payable from the maximum amount, until earnings reach the UC disregard figure at which point the taper becomes 7% (assuming the rebate has not already been tapered away entirely).

Because of a peculiarity in Universal Credit, where people paying rent have a lower disregard of their earnings than working owner-occupiers in otherwise identical circumstances, owner occupiers may see an even worse situation than in the above examples.

I have a suspicion that this result is not what the DCLG intended and they may have thought that this was a simple way of getting DWP to do all the difficult sums. They are not, to be fair, experienced with running complex benefit schemes and may well have preferred the earlier proposal to include Council Tax support within Universal Credit.  The localisation argument won over the simplification argument however and they’ve got the responsibility.  Now they’ll need to find a way to change their rules to make this fairer,

… or local authorities, and their Council Tax payers, will face the consequences.

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3 Responses to Council Tax arrears see hundreds of thousands in court – and it’s going to get much, much worse with Universal Credit

  1. We have been working with local authorities since the introduction of LCTRS on this problem. It is very difficult to prevent UC and LCTRS from rubbing against each other. The JRT report which suggested that people would not be better off in work also highlights that the LCTRS contributes to making sure that while under UC you will be better off in work you will not be better off in more work. If that makes sense.

    Some work done by Team Netsol shows that UC looks far less attractive than Ministers might imagine. It was nigh on impossible to produce a calculation that involved LCTRS that showed that UC was a better alternative to the current benefit schemes.

    Perhaps the NAO report on LTRS will highlight the difficulties.

  2. Gareth Morgan says:

    Actually Malcolm it’s very easy to produce examples where the overall Universal Credit + CTS is better than today’s schemes total.

    The issues then are:

    1) Is Universal Credit supposed to be used to pay Council Tax? If so why didn’t they just leave it in Universal Credit as originally designed?

    2) All the governments better-off on Universal Credit impact assessments ignore CTB and CTS so they make Universal Credit look much more attractive.

    3) Is it likely that the difficulties of budgeting under Universal Credit will mean that Council Tax is going to be the priority bill to be paid first or will it make arrears worse?

  3. Yamor says:

    Hi there,

    Very interesting article. After considering it, I can see three sources for the difference between CTS in the existing system and under UC:

    1. The applicable amount in the existing system is more generous.
    In your second example, that accounts for about half the difference.
    This comprises:
    a) the income disregards (up to £25),
    b) the family element (£17.40), and
    c) higher amounts for children (approx. £3 for the first child, and approx. £13 for subsequent children).

    2. Different levels of benefit under the existing system and UC.
    This accounts for the other half of the difference in your second example.
    This part is actually to the advantage of the claimant, since his overall benefit levels are going up.

    3. Housing benefit not being considered under the existing system.
    This does not affect your examples, where housing benefit is not being tapered.

    Considering what changes can be made:
    Part 1 above can be easily rectified by increasing the applicable amount under UC to a higher amount then the maximum amount of UC.
    Part 2 is just a by-product of other benefit levels, and a lower amount of CTS actually means a higher amount of total benefits received, so no changes should be made.
    Part 3 is an advantage for the claimant under UC, so again, no changes should be made.

    To expand slightly on the effect of part 3:
    Under the existing system, when HB is being tapered, your entire income (after disregards, of course) is still considered against your applicable amount, even though some is spent on housing costs.
    Under UC, your applicable amount lets you offset your entire rent, even though your benefit has been tapered.

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