Debt threat as council tax benefit changes

Less-generous system could hit poorer households, reports Neasa MacErlean.

The change could push families to breaking point (Alamy)

Debt advisers in England are braced for a spike in the number of clients who come to them with council tax debts. The surge in problems – caused by the replacement of council tax benefit with a less-generous system – is expected to push many more families to financial breaking point.

Officials at one London borough have described the change as "likely to have a disastrous impact on the levels of child poverty". Many poor households will be hit harder by this change than by the controversial move to limit benefit rises to 1 per cent.

Local authorities are currently putting the final touches to the new scheme - called Council Tax Support - which needs to be approved within the next 11 days. It will come into effect in England, Wales and Scotland in April - although regional government approaches will mean that the problem will be eased in Wales and Scotland.

Northern Ireland, which still has a system of rates, is behind other areas on social security benefits reform, and so may gain from observing the experience of the other parts of the UK.

Even before this year's welfare overhaul, the number of people with council tax arrears has soared significantly in recent years. National Debtline has seen a growth in the proportion of clients with these debts from 8 to 20 per cent in the last eight years. Council tax now ranks as the third most common debt problem at National Debtline, after credit cards and loans.

At CAP (Christians Against Poverty), half of all clients (50.2 per cent) had council tax arrears in 2012. Women were more likely to have the debts than men. The biggest such debts were in Northern Ireland (£1,169 per household, though these relate to rates rather than council tax). The lowest debts were in the south-west of England, averaging £700 per household. The debt charity StepChange (formerly the Consumer Credit Counselling Service) has seen "a sharp spike in council tax debts over the last year", according to a spokesman.

When the new system comes into place on 1 April, many people whose whole bill has been covered by council tax benefit will find they are required to contribute. This is because the Government is cutting its budget in this area by 10 per cent. The cut coincides with a devolution of responsibility from central government to local authorities which, for the first time, have to design their own individual council tax support systems. In some local authorities, unemployed adults of working age will be assessed to pay 20 per cent of the standard council tax rates.

"Some councils are going to charge 20 per cent and some might go over that," says Dr Phil Agulnik of Entitledto, an organisation which develops local authority software to calculate benefits.

Durham County Council and the London boroughs of Wandsworth and Tower Hamlets are in the minority in deciding to absorb the 10 per cent funding cut. It means a resident of those boroughs who would have qualified for full benefit will have all their bill paid under council tax support. But the majority of authorities will be expecting contributions from residents who were protected before.

Chelmsford, Colchester and Brent, for instance, have all already decided to introduce a 20 per cent charge, while Herefordshire is going for 8.5 per cent. However, unless there is the kind of public outcry which saw off the community charge 20 years ago, contributions could creep up.

Pensioners and vulnerable people are being protected from the changes in England and will not have to contribute to council tax, under central government rules, if they would be eligible under the present system for full council tax benefit. Taking this into account and looking to future years, Dr Agulnik calculates that "the size of the cut facing the remaining non-vulnerable group might be 50 per cent or more". A fear will be that some councils will introduce the principle with low contribution rates this year, and then gradually push them up. This has happened before – as with the introduction of charges for on-street parking.

Poor pensioners were set to face particular problems in Wales where the National Assembly had decided that they would also be hit by the cut in funding. But an eleventh hour decision this week saw the Welsh government follow the Scottish in deciding to plug the 10 per cent gap itself. This means that council tax benefit recipients in Scotland and Wales should see no change to their present entitlements. In Wales, however, the message is that the shortfall is being met for 2013/14 but there may not be funds available next year. So a Damocles' sword continues to hang over people with low incomes in Wales.

Pensioners have a history of leading attacks on unfair council tax charges, with some being prepared to go to prison for refusing to pay on principle.

If a fightback campaigns starts, one person who could become a focal point is a retired cleric, the RevPaul Nicolson, who describes himself as "the original Vicar of Dibley" as the TV series was filmed in his former church in the Chiltern Hills.Now living in Tottenham, he has established a group called Taxpayers Against Poverty.

In discussion with his local authority, Haringey, he has said that "debt, destitution and forced migration" will result from plans to charge council tax to the poor, particularly when those charges are combined with other changes such as the housing benefit cap. On Wednesday, he is involved with the cross-bencher Baroness Meacher in hosting a House of Lords reception on the link between debt and mental health problems.

Mr Nicolson is clearly not a lone voice. A report authorised by Stuart Young, assistant chief executive at Haringey, described council tax benefit as "one of the most appalling policies of the Government" and, when combined with the other benefit changes, "likely to have a disastrous impact on child poverty". The Child Poverty Action Group is also "concerned" and plans to lobby on the issue. National Debtline is focusing on rising council tax debts as a major campaigning theme for 2013.

Gillian Guy, chief executive of Citizens Advice, says: "The average shortfall in council tax relief for the poorest working-age council taxpayers is expected to be around 20 per cent of their bill. Citizens Advice Bureaux are bracing themselves for an influx of people on low incomes who are being chased by the local council for arrears that they can't pay. Cash-limiting could also make councils reluctant to publicise council tax relief."

Laura Wale, money adviser at National Debtline, says she would expect "a lot more people to have liability orders" if local authorities stick to their current procedure of enforcing outstanding bills through bailiffs within their usual timescales of one to three months. She says councils will have much more discretion than previously to slow down their enforcement procedures to enable people to find work or search for some other solution.

In general, councils now send a reminder to a resident within a fortnight of a council tax instalment being unpaid. A second reminder follows if a second payment is missed. Depending on waiting times at magistrates' courts, a liability order can be made shortly after, permitting bailiffs to take over pursuit of the debt. Residents who are proactive tend to do best (see case study). Someone who acts on the first reminder could buy time by getting their council tax instalments recalculated and reallocated to later in the financial year. People on very low incomes can often successfully negotiate to repay council tax debts at £3.55 per week. This is the lowest level councils will usually accept, although people whose only income comes from benefits can get deals of £5 a month.

If councils act unfairly, individuals also have recourse to the Local Government Ombudsman.

Case study: Sound advice puts CAP on the case for a family in arrears

It was this time two years ago that Tina and her partner, Liam, found a letter on the mat saying the bailiffs had called and would soon return.

The couple had run up arrears of about £8,000 in council tax, and Cambridge City Council wanted the money.

"I didn't know what to do," says Tina, a housewife who was looking after their two younger children. "I got myself in a right state. We hadn't got anything that the bailiffs could have taken which was worth that amount."

Tina went to the local authority and explained the situation to a man in the council tax team there.

He told her that he would hold off the bailiffs if she set up an appointment for debt advice and followed through with the scheme they suggested. He gave her the number for CAP (Christians Against Poverty).

With total debts approaching £15,000 and a low income, Tina had little chance of paying off her debts. CAP helped her set up a debt relief order, an alternative to bankruptcy for people who owe under £15,000.

Her debts were written off, although her credit ranking will take a big dip for six years, the period for which the debt relief order stays on file.

CAP advised that only Tina, in whose name the bills were, would need to seek an order. Liam, who works in the automative industry, did not need to get one.

Looking back, Tina says the visit to Cambridge City Council was "the best thing I've ever done". She says: "I can't praise CAP enough."

The family is just about living within its means now, using a budget they created with CAP and drawing on the tiny savings scheme which they set up with CAP which holds on their behalf.