Cuts to council tax benefit by the government over the past five years have resulted in an explosion of unpaid tax, according to new research by the Institute for Fiscal Studies.
In 2013 centralised council tax benefit (CTB), which gave financial help for low-income households with their council tax, was abolished and replaced with a less well-funded council tax support (CTS) system run by local authorities.
Some 2.4 million working-age people in England receive support under CTS, with an average benefit of £770 per year.
But the IFS also estimates today that around a quarter of the extra council tax that low-income households have been billed for as a result of the reduction in the system’s generosity has not been collected.
This rate of non-collection is around 10 times higher than the 2.5 per cent of council tax liabilities not collected by councils on average under the old CTB system.
This suggests another element of the coalition government’s austerity programme, designed to slash the UK’s deficit, has delivered something of a false economy, along with cuts to housing association grants and personal independence payments.
“These [council tax] changes have clearly increased problems with council tax arrears,” said Thomas Pope of the IFS.
“From councils’ point of view, they are likely to receive significantly more council tax if they increase bills for those already paying some council tax than if they try to raise the same extra money from those who currently have no bill to pay.”
However, with council tax benefit only covering a relatively small share of revenues for this levy, the effect of the policy chance on overall council tax non-collection rates has been less dramatic, increasing it from 2.5 per cent to 2.7 per cent on average.
The IFS said the relatively low collection rate of the additional money was a result of the difficulty of collecting tax from those who previously did not pay it.
In total around 1.3 million more people working-age households received a bill thanks to the cuts.
The think tank added that lone parents, renters and claimants in councils that already had relatively low council tax collection rates were all more likely to fall into council tax arrears as a result of being required to pay a council tax bill that they would not have otherwise been faced with.
Council tax raised around £37bn in 2017-18. After deducting total council tax support this fell to £33bn.
Last month a report from the Office for Budget Responsibility that the introduction of the PIP had cost the exchequer around 20 per cent more than keeping the old system in place. The government had originally estimated it would reduce costs by 20 per cent.
And housing associations argue that cuts in their grants since 2010 have cut the supply of genuinely affordable housing and merely resulted in a higher central government housing benefit bill.
The 3.6 million working-age households in England who would have been entitled to some support under the old CTB system are now entitled to 24 per cent (£196 a year) less on average, amounting to a £706m cut.
Austerity cuts have also hit local authorities hard. Last year the National Audit Office reported that councils had seen their central government funding halved in the era of austerity and warned that many were on the verge of financial breaking point.
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