The wrong reform - at the worst possible time

 

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Britain’s poorest households - already struggling to cope with falling wages, rising living costs, and a series of cuts to tax credits and benefits - are about to receive another blow. And very few of them know it’s coming.

Within weeks they will receive an unexpected council tax bill in the post. Many will assume it is a mistake.  Not surprisingly those providing debt advice, as well local MPs, are bracing themselves for a surge of concern and complaint.

The reason for this is an impending change to council tax benefit. The Government is cutting the amount spent on helping those on the lowest incomes by 10 per cent at the same time as it is transferring responsibility for administering support to local councils.

Centrally-set rules mean that councils will protect all pensioners leaving them with a stark choice: either substantially increase the bills of the working-age poor who currently receive council tax benefit or find the savings elsewhere from already shrinking budgets. In political terms it amounts to the decentralisation of blame and pain.

Today’s Resolution Foundation report reveals that faced with this invidious choice three-quarters of English councils are set to introduce less generous systems of council tax support. Over a third of these are planning to introduce schemes that charge affected households an extra 20 per cent of the total bill. Harsher still, many councils will for the first time include child benefit in their calculations of a family’s income, meaning that those with children will face the biggest hikes. Only around a quarter of English councils feel able to absorb the funding shortfall within other budgets as the Scottish and Welsh administrations are doing. 

It is a policy with few redeeming features. It is punitive on the poor. It will be fiendishly complex, hard to administer and end up in hard-pressed councils chasing non-payment from some of the poorest households in the land. It’s also likely to result in significantly larger bills in 2014 than this year. And, perhaps most surprisingly, it undermines the goal of universal credit – the Government’s own flagship welfare reform – by increasing the effective tax rates of those on low pay.

If recent history has taught Whitehall anything, it is to tread very carefully when it comes to introducing local property taxes on the poor.  There are other ways for the Government to find the savings it is seeking:  our regressive system of council tax is ripe for a new top band raising revenue from the most expensive properties. This is the wrong reform made at the worst of times.

Gavin Kelly is chief executive of the Resolution Foundation think tank

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