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Section 15: Council Tax Benefit
Improving the Operation of Council Tax Benefit
1. Although a reserved matter, a major source of comment and complaint from many respondents to the Committee was the complexity and difficulties of Council Tax Benefit. Some obvious improvements could be made, most of which are under discussion between Department of Work and Pensions ( DWP) and other interested parties.
2. Council Tax Benefit is paid to those eligible for payment and deducted from their council tax bills by local authorities who administer the scheme (which applies throughout GB) on behalf of DWP.
3. There are around 535,000 household recipients of Council Tax Benefit in Scotland, 221 accounting for around 25% of households. Of these, around 77% receive 100% benefit and therefore have no net council tax bill to pay (however they remain liable to pay water and sewerage charges which are collected by local authorities, a process which creates considerable confusion and difficulties - see section20). The local authorities with the largest proportion of households in receipt of Council Tax Benefit are Glasgow City (37%), West Dunbartonshire (34%), Inverclyde (31%) and Dundee City (30%). At the other end of the scale are Aberdeenshire, East Dunbartonshire and East Renfrewshire (all 14%). 222
4. Around half of Band A households, and slightly less than one-third of Band B households, receive Council Tax Benefit, as Figure 15.1 below shows : 223
Figure 15.1: Proportion of households in each council tax band that are in receipt of Council Tax Benefit
Council Tax Band | A | B | C | D | E | F |
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Share of Households in Band | 49% | 30% | 18% | 7% | 4% | 3% |
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5. Recipients of Council Tax Benefit by band are as follows: 224
Figure 15.2: Spread of Council Tax Benefit recipients by tax band
Council Tax Band | A | B | C | D | E | F+ | Total |
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Share of Total Recipients | 49% | 32% | 12% | 4% | 2% | 1% | 100% |
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6. We have considered what reforms to the benefit system might make council tax itself more acceptable than it is at present. There is strong support for reform from local authorities, local government organisations and, for example, Help the Aged. Calls for reform have covered several areas. One suggestion is that Council Tax Benefit should be extended to apply to water and sewerage charges that are collected in Scotland alongside council tax. This issue is examined in section20. The other suggestions - increasing savings limits, improving take-up rates by simplifying the application process and reducing the time required to process benefit claims - are considered below.
7. Sir Michael Lyons has made clear that he believes the most direct way to improve fairness within the council tax system is by reforming Council Tax Benefit. 225 He expressed particular concern about low take-up figures.
8. We consider a number of options for improving the operation of Council Tax Benefit, namely:
- Improving take-up rates;
- Increasing the savings limit;
- Rebranding Council Tax Benefit; and
- A supplementary benefit scheme for Scotland.
Improving take-up rates
9.DWP estimates take-up of Council Tax Benefit among those eligible to receive it throughout Great Britain. The most recent published figures relate to 2003-04. 226 They indicate overall take-up levels then as being in the ranges of 63-68% (in terms of caseload) and 65-71% (in terms of benefit expenditure). Take-up rates were highest among eligible lone parents (87 95% by caseload; 88-96% by expenditure). Take-up was lowest among eligible pensioners (53-59% by caseload; 56-63% by expenditure).
10. The DWP report reveals that eligible non-recipients (both non-pensioners and pensioners) were more likely to be eligible for partial Council Tax Benefit than eligible recipients (82% of recipients were entitled to full Council Tax Benefit, as opposed to 39% of eligible non-recipients). It also suggests that a relatively large proportion of eligible non-recipients (compared with recipients) lived in more expensive housing, as non-recipients were more likely to be eligible to more than £16 benefit per week (the average benefit paid weekly at the time was £12.34 for Great Britain and £11.69 for Scotland 227).
11. Figure 15.3 shows that about 70% of non-pensioners who were eligible to receive Council Tax Benefit in 2003-04 but who did not receive it lay in the lowest quintile of income distribution. For pensioners, eligible non-recipients appeared to be higher up the income distribution: the equivalent figures being 56% before housing costs and 38% after housing costs. The difference between the two figures for pensioners can be explained by the fact that most pensioners were owner-occupiers, many of whom had paid off their mortgages. This suggests that DWP may be more successful at obtaining take-up from those pensioners with greatest needs than from those non-pensioners with greatest needs.
Figure 15.3: Position of eligible non-recipients in the income distribution (2003-04)228
| Before Housing Costs | After Housing Costs |
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Quintile | 1 | 2 | 3-5 | 1 | 2 | 3-5 |
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Pensioners | 56 | 33 | 10 | 38 | 43 | 18 |
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Non-Pensioners | 70 | 18 | 12 | 69 | 18 | 13 |
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12.DWP figures indicate that take-up of Pension Credit ( PC) is higher than take-up amongst pensioners of Council Tax Benefit. In 2004-05, take-up of PC was estimated to be 70-81% by caseload and 74-83% by expenditure. 229
13.DWP has recently published qualitative research undertaken on its behalf by IFF Research Ltd into the barriers that exist to claiming PC. 230 The three primary barriers they identified were a belief among older people that they were not eligible to receive PC, a concern about how PC might interact with other benefits they were receiving and, to a lesser extent, a lack of awareness about PC. They also identified a number of secondary barriers, most of which surround the nature of the application process ( e.g. unwillingness to disclose financial information, fear of submitting documents, fear of making mistakes in an application and a complicated application process). The researchers found that these factors discouraged older people from making "speculative" applications but most participants in the research indicated they would be prepared to go through the application process if they knew they would be eligible or at least felt they had a very good chance of being eligible.
14. Lengthy processing times can create hardship for claimants and their families in terms of cashflow difficulties. Eligible applicants receive support covering the period from the date of submitting their application, but nothing will be paid until the application process has been completed. Applicants may be pursued for council tax payment in the period until their application has been approved. Applications for both Council Tax Benefit and Housing Benefit are processed by local authorities. DWP has set target times for councils in processing claims, which are based on the top quarter of all performance figures reported to the Department by councils across the UK. These targets require new claims being processed within 36 days of receipt of the application, and notifications of changes of circumstances being processed within 9 days. The Accounts Commission report that in 2004-05, the average time taken to process new claims was 42 days. However, the Scotland-wide average hides wide variations across authorities, with times for processing initial claims ranged from 15 days in one council to 75 in another. 231
15. We understand from COSLA that applications are often submitted in an incomplete or incorrect state. Although the clock for the performance indicator starts ticking as soon as the initial application is received, it can take some time before the application is in a fit state to be processed. Around 90% of fully and correctly completed applications are processed within 14 days. This suggests that much of the scope for reducing time taken to process claims lies in applications being as easy as possible for applicants to complete.
16. Making Council Tax Benefit easier to claim was popular with participants in the deliberative focus groups held by GfKNOP. Evidence we have received from DWP and COSLA, on behalf of local authorities in Scotland, suggests that several public and voluntary agencies are actively engaged in refining the application process to make if as easy as possible for claimants.
17. Since December 2005, The Pensions Service has operated a process for expediting the application process for claiming Council Tax Benefit amongst applicants for PC, taking advantage of the fact that eligibility criteria for pensioners of Council Tax Benefit are broadly similar to those for PC. Relevant information relating to recipients' PC award can be used directly in the processing of Council Tax Benefit applications. This has enabled DWP to reduce drastically the amount of separate information it requires of applicants for PC who also apply for Council Tax Benefit. As a result, the size of the claim form for these applicants is now three pages (as opposed to the standard model form which is over 30 pages in length).
18. The Pensions Service now completes application forms for three benefits ( PC, Housing Benefit and Council Tax Benefit) over the telephone, saving applicants the burden of completing the forms themselves. A copy of the completed application form is sent to the applicant for review and signature. Where the Pension Service identifies a claimant who is unwilling or unable to use a telephone, they can arrange for home visits. A phone call might typically take 20 minutes, of which around 5 minutes would be devoted to completing the three-page application form for Council Tax Benefit.
19. We understand that COSLA and Help the Aged have recently been working on a revised Council Tax Benefit application form template for older people who are not eligible for PC. Furthermore, DWP and other agencies including Jobcentre Plus and HMRC have been developing measures to assist eligible non-recipients of working age to apply for Council Tax Benefit.
20.COSLA also inform us that local authorities will work with applicants to assist them in completing their application, insofar as budgets allow. This includes through telephone conversations and home visits, especially for those applicants who might find it difficult to complete the form.
21. These developments have been consistent with the objective of moving at least in the long term to an arrangement whereby those households entitled to receive Council Tax Benefit can be identified and receive the benefit automatically. In particular, the process of actively seeking out potentially eligible non-claimants can help to demonstrate that benefits are entitlements for those who are eligible, which they should claim. The measures have the potential to increase take-up levels among those non-recipients who have not been aware of the support available or who until now have been put off by the detailed application process. In relation to pensioners, it is possible that the process of combining the application process for Council Tax Benefit with that for PC, to which less stigma might be attached, may help to change the minds of many who until now have been reluctant to claim.
22. It is too early to know the effect of these initiatives. However, they do appear to focus directly on primary and secondary barriers to take-up of benefit (at least in the context of PC) which were identified in the recently published DWP research (see above) - improving awareness, simplifying the application process and, in particular, helping potentially eligible non-recipients to recognise that it is well worth their applying for the benefit. We support these initiatives, which can both reduce the time taken to process claims and improve overall take-up rates.
Increasing the savings limit
23. Entitlement to Council Tax Benefit is dependent upon both a household's income and any savings it may have. For this purpose, savings includes money in a bank, building society or post office account, money at home, National Savings Certificates, Premium Bonds, shares, bonds and investments. It also includes property and land, but not the household's main home. Any household with savings of £16,000 or more is not eligible for Council Tax Benefit, while a reduced award is payable for households that have more than £6,000 in savings.
24. The same savings thresholds apply to most of the personal benefit schemes - that is, Income Support, Job Seekers Allowance and Housing Benefit as well as Council Tax Benefit. A slightly modified version applies to recipients of PC, although again the annual reduction of entitlement amounts to around 10% of a household's savings over £6,000.
Table 15.4: Households by amount of savings and total weekly household income 232
Percentage of Households |
|---|
Savings | Total weekly household income |
|---|
Less than £100 | £100 but less than £200 | £200 but less than £300 | £300 but less than £400 | £400 but less than £500 | £500 but less than £600 | £600 but less than £700 | £700 but less than £800 | £800 but less than £900 | £900 but less than £1000 | £1000 and above | All households |
|---|
No savings | 44 | 44 | 39 | 32 | 29 | 23 | 20 | 15 | 13 | 16 | 9 | 27 |
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Less than £16,000 | 46 | 47 | 49 | 53 | 55 | 60 | 60 | 65 | 64 | 62 | 56 | 56 |
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£16,000 but less than £20,000 | 2 | 2 | 2 | 3 | 2 | 3 | 3 | 3 | 4 | 4 | 5 | 3 |
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£20,000 or more | 8 | 6 | 9 | 13 | 13 | 15 | 18 | 16 | 18 | 18 | 31 | 15 |
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25. The lower savings limit was increased from £3,000 to £6,000 for people aged under 60 in April 2006 (the limit was already £6,000 for people aged 60 and over 234). The higher threshold of £16,000 has remained unchanged since council tax was introduced in 1993. The UK Government recently stated that it has no plans to amend these limits further. 235
26. Even with the tapering effect, the consequent marginal tax rate on low-income households in receipt of benefit is extremely high.
27. A number of local authorities, and professional bodies including the CIPFA Directors of Finance Section and the Institute of Revenues, Rating and Valuation ( IRRV) argued in their submissions to us that the savings limits should be increased, removed altogether or at least reviewed. The fact that the upper savings threshold has not increased since 1993 adds weight to the argument that the savings limits should be increased.
28. However, it is important that this issue is kept in its proper perspective. As Figure 15.4 shows, the great majority of households in lower income bands (85-90%) have savings of less than £16,000 and so already lie below the upper threshold. To increase this threshold to £20,000 would only capture a further 2-3 percentage points of households. We accept there is a balance to be struck between taking account of savings and not penalising those who have the taken sound financial decision to put money away in savings.
29. The New Policy Institute in a report produced for Help the Aged ( UK) argued that savings should be viewed in terms of the income that a household might expect to receive through interest, and that it was unfair for a household to be liable for full council tax by virtue of savings of, say, £16,000 which would be unlikely to earn more than £600 a year in interest. 236
30. Savings should not necessarily be viewed purely in terms of the income they are capable of providing for the saver. We do not believe that taxpayers should be required to subsidise those households with substantial savings.
Rebranding Council Tax Benefit
31. A measure that should be considered to improve take-up rates would be to rebrand Council Tax Benefit as a Council Tax Rebate. The Layfield Committee referred to high take-up levels of assistance with domestic rates in the 1970s. About 85% of eligible households, and around 90% of pensioner households, received "rates rebates" then. 237 These are considerably higher than recent take-up rates for Council Tax Benefit. Being seen as a rebate rather than "assistance" might increase take-up of Council Tax Benefit.
32. We recommend that the Scottish Executive should pursue with DWP the possible effect that a rebranding of Council Tax Benefit from a benefit to a tax rebate could make in encouraging increased take-up.
A supplementary benefit scheme for Scotland
33. The Northern Ireland Office plans to introduce a rate relief scheme as part of its reformed domestic rates system, to offer supplementary assistance for low-income households over what is available through Housing Benefit (Council Tax Benefit is not payable in Northern Ireland). This scheme will be self-funded from domestic rate income.
34. We sought legal advice about whether a scheme of local taxation rebates would be regarded as a social security scheme, which is a reserved matter. The advice we received makes a clear distinction between (i) a local tax which from the outset and inherently takes account of ability to pay and (ii) a local tax which initially does not take account of ability to pay, but which then uses a rebate scheme to adjust liability. The advice suggests that the Scottish Parliament probably have legislative powers to impose the former but not the latter.
Impact of reforms to council tax on the operation of the benefit system and its budget
35. From discussions we have had with DWP officials, we are confident the reforms to domestic taxation we have considered are of a nature and extent that would not call into question eligibility to Council Tax Benefit under present regulations. The essential features of council tax - as a tax that is levied upon properties at rates that vary to a greater or lesser extent in line with their value - would remain unchanged.
36. Any reforms that make domestic taxation more progressive than it is at present by definition will reduce the amount of Council Tax Benefit that is paid because a more progressive system will reduce levels of payment required from households in the lower valued properties, who are most likely to receive Benefit. The regressivity of the present system results in Scotland receiving more Council Tax Benefit than it would under a more progressive system. Local authorities' total yield from local domestic taxation would remain unchanged with greater payments coming from households in higher valued properties.
Recommendation 8: We recommend that measures - including possibly rebranding the benefit as a tax rebate - to increase the take-up of Council Tax Benefit and its equivalent under LPT should be agreed and implemented as quickly as possible by DWP, the Scottish Executive and local authorities.
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