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IFS: Scrapping council tax support drives rise in arrears

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Nine out of ten councils have been forced to cut council tax support for working-age claimants, pushing up council tax arrears as many of those households are unable to pay, new research has found.

An additional 1.3 million low income households have been sent a council tax bill since the council tax support scheme was localised six years ago, and a further 1.2 million have been billed for more than they previously were, according to the Institute for Fiscal Studies.

However, many have fallen behind with their bills as a result, meaning councils have failed to collect a quarter of the extra tax they were pursuing. This rate of non-collection was ten times the 2.5% for the tax as a whole prior to localisation, the IFS said.

Since the abolition of council tax benefit in 2013, councils in England have been responsible for designing their own support schemes. However, because the overall funding for council tax support has been cut, and councils are obliged to protect the level of support available for pensioners, the new schemes have been increasingly harsh on working age claimants.

The most widespread change has been the introduction of minimum payments, requiring all households, unless deemed vulnerable, to pay at least a proportion of their gross council tax bill.

Although four fifths of councils now require minimum payments, the research reveals wide geographical variation in the rates, with almost a quarter of councils charging a minimum of 20 per cent, while one, North Lincolnshire, charges households at least 50 per cent.

Researcher Thomas Pope, one of the authors of the report, said the changes to council tax support had clearly increased problems with arrears.

“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,” he said.

But the Local Government Association said that almost £2bn – around half the original funding for the scheme – had been removed since localisation.

Richard Watts, chair of the association’s resources board, said the cut to funding, combined with growing pressure on local authority services, meant councils had little choice but to reduce discounts.

“No one wants to ask those on the lowest incomes to pay more but this has put councils in an impossible position,” he said.

He called for the spending review to allow councils sufficient funding to provide council tax support for those who needed it. “Otherwise, it is almost inevitable that bills will continue to be forced up for those who can least afford to pay,” he said.

Mark Franks, director of welfare at the Nuffield Foundation, which funded the research, said the findings underlined the weaknesses of the current council tax support system and should be used redesign the scheme in future.

“The fact that local authorities are unable to collect around one quarter of the additional council tax they have asked for indicates that support schemes are not working as effectively as they could,” he said.

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