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Localisation of benefits sees council tax arrears soar

It is difficult to argue that deficit reduction measures were needed when the coalition government came to power. Having inherited a record deficit, it was inconceivable that government spending at previous levels could continue. Nevertheless, the widespread reforms and cuts that followed have been contentious to say the least, with some arguing that the reduction in the budget deficit has come at the cost of deterioration in the standard of living for many families across the UK. Indeed, the opposition are adamant that many are worse off and a look at the recent figures detailing the number of people seeking help with debt suggests they have a valid point.

Such claims will be further strengthened by LGC’s revelation that council tax arrears rose by a fifth last year to their highest level for a decade. The startling increase is seen as a direct result of another fundamental component of a government plan, in this case the controversial welfare reform programme. In-year arrears reached £836m in 2013-14, up from £691m the previous year. The figures give us the first opportunity to assess the impact of Westminster’s decision to slash the budget for council tax benefit by 10% from April 2013, when responsibility for providing this support was shifted to local authorities. The policy caused 80% of English councils to reduce entitlements to council tax support, a move that resulted in many homeowners having to pay council tax for the first time, according to the Institute for Fiscal Studies.

This comes as no surprise to the Citizens Advice charity, who already reported a 17% rise in the number of people in council tax debt in the first three months of 2014 compared with the same period the previous year. Their figure was released before the benefit localisation policy was implemented and so does not take into account the effect of the 10% cut, which shows to highlight how hard people were finding the payment of council tax in the first place.

Gillian Guy, chief executive of Citizens Advice, is in no doubt as to the impact the reform has had, saying: “Since the localisation of council tax benefit last year we’ve seen a huge increase in the number of people coming to us for help with council tax arrears as they struggle in the face of low incomes, rising prices and reduced financial support.”

The 20% rise in arrears occurred alongside an overall drop in council tax collection rates of just 0.4 percentage points in 2013-14, from 97.4%in 2012-13 to 97%. This can be explained by the fact that the arrears are still relatively small when compared with the £23.4bn collected in council tax in 2013-14.

Interestingly, the rise in council tax debt seems to have had a disproportionate impact on councils in deprived areas. Analysis by the Special Interest Group of Municipal Authorities found that councils scoring higher on the 2010 Index of Multiple Deprivation posted lower tax collection success rates in 2013-14. It follows therefore that those areas with the highest average council tax bills were found to be better at collecting council tax. This pattern adds credence to the argument that councils, particularly in metropolitan areas, are underperforming when it comes to collecting council tax, which runs the risk of a further increase in bills for everyone else.

Unsurprisingly, the ability of councils to keep council tax support levels unchanged in spite of the 10% cut in central government funding that accompanied its transition was restricted to a quarter of councils in the wealthiest areas. Conversely, 90% of the most deprived councils had to make adjustments to the benefit in the form of a reduction of support entitlements for working-age households. The IFS thinks the likely explanation for this is that there are fewer council tax benefit recipients to support in affluent areas, making it easier for councils there to sustain funding for the provision as it used to be known.

Central and local government are adamant that welfare reform is an essential part of the strategy to reduce the inherited deficit, but these figures suggest it is doing little to help those who are already struggling to pay their council tax.

If you are in council tax arrears or are worried about the effect that cuts in council tax support is going to have on your ability to keep up with your repayments, contact CTAS for free and independent advice.

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