Council tax support 'to fall by £1bn' after government cuts

Published on Thursday, 09 January 2014 09:38
Written by Daniel Mason

Funding for council tax support would fall by £1bn over the next two years if government cuts were passed on to residents, according to emerging data published yesterday.

Local authorities are warning that they will increasingly have to ask those on lower incomes to pay more council tax – or make bigger cuts to local services to meet the shortfall.

The findings are laid out in a report published by the Local Government Association on the consequences of government scrapping national council tax benefit in favour of local council tax support schemes.

Responsibility for council tax support was transferred from the national council tax benefit scheme to local council tax support schemes in April 2013. The shift was accompanied by 10 per cent – equivalent to £410m – reduction in government funding for council tax support.

From April this year, councils will pay to provide council tax support through their general resources with government no longer providing a separate dedicated stream of funding.

Analysis shows that if council tax support funding is reduced in line with cuts to overall funding, then the total cut to council tax support funding between 2013/14 and 2015/16 would amount to 28 per cent – or £1bn.

The additional reduction has left councils with an unpalatable choice between charging council tax to the working-age poor, who in many cases may not have paid council tax before, or finding additional savings to spending on local service on top of the cuts of 40 per cent being made to council budgets by government.

Some councils have been able to make up for the reduction in government support through measures like ending automatic council tax discount on second homes. But there are many areas in which this has not provided enough income to fill the gap.

One in three councils is likely to have to reduce levels of council tax support for 2014/15, according to a survey carried out by the Society of District Council Treasurers. Local authorities are now calling on government to consider fully funding council tax support and for the council tax system to be fully localised.

Councils expect council tax collection rates will suffer as a result of asking people on low incomes to pay more. This is expected to cost £140m a year in uncollected bills, according to emerging data.

Cllr Sharon Taylor, chair of the LGA's finance panel, said: "Councils are now facing an impossible dilemma between making bigger reductions to local services like repairing the roads, collecting the bins and looking after the elderly or asking those on the lowest incomes to pay more council tax.

"When government handed the responsibility for administering council tax support, it cut hundreds of millions in funding for it. The shortfall between the money councils receive to fund council tax support and the money we would need to protect those on low incomes is going to get bigger and is likely to reach £1bn by 2016. At the same time, councils are tackling the biggest cuts in living memory and cannot afford to meet the shortfall.

"Councils have been forced to choose between asking working-aged claimants to pay more tax or taking much-needed money away from other services. Protecting the most vulnerable and needy members of society is a priority for councils, but we cannot protect those on the lowest incomes when government is cutting funding and taking some of the decisions about who receives this benefit out of our hands.

"Government should consider giving councils the full amount of funding needed to provide council tax support and ensure that decisions over council tax and discounts are fully localised."

Source: LGA

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