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Controlling benefit spending

Tony Travers
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The government’s recent announcement of a further £100m grant to support the localisation of council tax benefit suggests ministers fear a bad public reaction when the policy goes live in April next year.

In particular, the new measures imply concern about the impact on working households with low incomes.

The proximity of the impact of the reform has concentrated minds.

The government has required that pensioners should not lose out as a result of the reform. Cutting £470m from the social security bill by reducing council tax benefit will inevitably have a direct impact on many lower income households. But, as with reform to council tax itself, the very visibility of changes makes them potentially toxic. 

Although some authorities have chosen to absorb the cost of sustaining current levels of benefit, others intend to feed through the funding cut to benefit recipients.

As DCLG’s press notice stated: “some councils…..are asking for very large additional contributions from those on benefits”, though it did not point out that such ‘contributions’ will result from the fact the government has cut the  grant paid to meet the costs of paying benefit. 

The burden of paying additional tax will fall on low-income residents, many of them in employment. There is a risk the reform will have a major political impact. It has distributional consequences similar to those brought about by the community charge and Gordon Brown’s 10p income tax rate disaster. 

Public expenditure on benefits in the UK has continued to rise steeply since the coalition took office. In 2011-12, spending was up over £8bn and it is on track for an equivalent increase in 2012-13.

The government has not been able to stop the £180bn per annum cost of social security ballooning by about 5% a year. The £470m council tax benefit cut imposed on local government next year will have a tiny impact on this buoyant total. 

The new Universal Credit starts to be introduced in 2013. Having significantly exceeded the spending plans set for social security in the past two years, it will be interesting to see if the government is any more successful in controlling the total in the years ahead.       

Tony Travers, Director, Greater London Group, London School of Economics

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