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Taxing Decision

Taxing DecisionThere's trouble brewing for Fylde, and potentially it could be serious trouble.

Early next year, very significant changes will be made to the system of paying Council Tax benefit.

A lot of people are going to be unhappy, and Fylde (for which read local taxpayers) will be at risk (especially in the longer term), of having to subsidise what - until recently - has traditionally been a Government responsibility met by national taxation.

Council Tax was introduced in 1993 to replace Margaret Thatcher's highly unpopular and short-lived Community Charge (colloquially known as the “poll tax”). That envisaged a tax based on each person in a household, rather than the previous system of Rates which had taxed only the property.

The 'Council Tax' (Ctax) that replaced it was, in effect, a hybrid of the two, with 50% is based on the property value, and 50% on the number of adults living in it. It assumes a 'default' household of two adults, so if there is a household with only one adult, the cost is 75% (50% +25%) of the full Ctax. In some multi-tenant rented property the landlord pays the tax and collects it from individual tenants. and if there are say, four adults resident, the cost is 150% of the full Ctax (50% +25% +25% +25% +25%) Paragraph changed / corrected 11 Sept 2012*

Ctax Benefit is a subsidy or payment made by Local Councils but (to date) funded directly by Government. It is paid directly into the Council's coffers on behalf of eligible people, and the benefit thus either pays, or offsets, some of what they would otherwise have to pay in Council Tax.

You can apply for this benefit whether you rent or own your home, or live rent-free. You could qualify if you are out of work, or in work and earning a wage. It's not the same as 'Housing Benefit' (although the two are often associated), this is about not having to pay the Council Tax.

Eligibility, and the scale of the benefit payable, depend on a number of factors.

It is a means-tested benefit, and those under 60 years old will not usually be able to receive it if they have savings of more than £16,000, nor will most asylum seekers and people sponsored to be in the UK.

However you might be entitled if you are on a low income (including self-employed people).

Furthermore, most students don't have to pay Ctax, and, if you already receive a 'turnkey benefit' such as Income Support, or income-related Employment and Support Allowance, or income-based Jobseeker’s Allowance, then you will probably be eligible for Council Tax Benefit as well.

At present the payments are nationally determined, and demand led. That means there is no limit on the number of claimants, so there can be no fixed budget. - it costs what it costs once you have set the rules for eligibility. And, of course, it is ultimately paid by Government from national taxation.

Within Fylde Borough there are currently 5,993 Council Tax benefit claims which cost £5.262m each year

Of these, 2,779 (46.37%) are from people of working age. These claims cost about £2.35m a year.

This is big money as far as Fylde is concerned. Its whole budget is about £12m so changes that might affect just under half of it are potentially a big issue

The present system of Council tax Benefit is to be abolished by Government, and a 'Localised Council Tax Scheme' will be introduced.

And we understand this new scheme is to be described as a Council Tax 'discount' rather than a 'benefit'

From next April, Government will provide councils with a cash-limited grant that will start at 10% less than Government is currently spending on Council Tax Benefit.

Councils like Fylde will have to devise a local Council Tax reduction scheme that takes this cut into account.

As if a 10% cut were not bad enough to manage, the grant from Government will no longer be increased if there is increased demand (i.e. if more people become eligible to receive it)

Making things even worse, Government has also said that people of pension age must not have any reduction in benefit compared with the current scheme, so that means the whole cut will fall on people of working age.

We understand that disabled people and families with children may also enjoy protection of existing benefits, so that will shrink the number still further.

We also understand that Government has also signalled its intention to reduce the funding to councils still further in the medium term, which would make things worse still.

Based on this year's benefit expectations, (£5.26m), the 10% cut means that Government will reduce Fylde's Council Tax funding support by around £526,000.

It's not quite as bad as that for FBC because Government has said that even though FBC *collects* council tax, each of the other main 'precepting authorities' (Lancashire County Council, Lancashire Police Force, and Lancashire Fire and Rescue Service) who all claim their share of the money Fylde collects, will have to share the cost of the reduction.

We can't exactly see the underpinning policy logic for this at present. Quite why the police budget should have a cut in respect of Council Tax Benefit changes we can't see.

So FBC's part of the £526,000 will be about 12% at £64,000. The rest will be divided up between the other precepting authorities.

As we said above, Fylde has around 6,000 Council tax Benefit claimants and about 54% are of pensionable age (and exempted), so if you do the sums, the reduction in Council Tax Benefit for working age customers will need to be between 20% and 25%

So those people in Fylde, of working age, who are currently receiving (and have adjusted their circumstances to managing on) the money they receive taking account of the Ctax benefit, will find it is cut by 20% or 25% next April. We're also told that will probably amount to something like £190 to £211 a year.

We suspect such folk are not going to be best pleased.

Implementation of the scheme had some choices for Fylde.

First, there was a hope that a single Lancashire-wide scheme could be introduced, with all Lancashire's councils co-operating together. But that isn't going to happen.

Fylde has decided to throw it's lot in with Blackpool in terms of design and administration of the scheme. Given the very great differences between Fylde and Blackpool, we're not exactly ecstatic about that idea, but we can see it would share the costs of computers and programmes and training and so on.

Fylde's options in terms of design of the local scheme seem to have been limited mostly by its partnership with Blackpool and the availability of computer software to run the programmes. The choices it considered are:

Do Nothing
There is the 'Default scheme' designed by the Department of Communities and Local Government. It means FBC would have to find the £64,000 a year from local taxpayers, and those receiving the benefit would see no reduction.

Fund or Part fund the scheme locally
Broadly the same as above, except it would be a local scheme and if part funded, the pain could be split between claimants and local taxpayers.

Percentage reduction
Keep the current council tax benefit rules to complete a means tested assessment and then apply a percentage reduction at either the beginning or end of the process. This would pass all of the reduction on to claimants.

Design a local means test
Maintain the current council tax benefit rules but introduce additional means testing. Fylde doesn't think this is feasible because it would have to be completed and operational for 1 April 2013 and Fylde says there is a large number of claimants that additional data would have to be obtained from.

Design a new scheme
Say, one based on the status of the claimant. For example, a standard benefit for an unemployed claimant and so on. Again, this idea is again not considered feasible for 2013 because it would require additional data and it is not currently planned as an option by any software supplier.

Restrict eligibility
Limit the eligibility to specific council tax bands. This option would pass the cut on to benefit recipients and would have no financial impact on the Council, but it is thought it would be an unfair implementation method.

Various other ways
Adjustments to income and capital rules, claim dates, and various other elements of the current CTB Regulations, none of which was thought appropriate for one reason or another.

Fylde also say that any proposed scheme would have to be subject to what they call "a robust Equalities Impact Analysis" because "inevitably those who ‘lose out’ may seek to challenge the design of a scheme".


The one favoured by FBC is

  • Complete a means tested assessment and then apply the same percentage reduction to every claimant in the range 20% - 30%. Deductions would still be made for any non dependents in the household.

Fylde believe this option ensures the required saving is made via an equal distribution of any increased payments amongst claimants (i.e. the £190 - £211p.a. extra Council Tax that will be payable by the 2,800 working age claimants).

For some this would be the total amount that they would be required to pay (i.e. those who are currently required to pay nothing because their benefit is 100%) whilst for others it would increase what they are already paying.

  • No-one will be able to have their Council Tax Support backdated.
    This move will not affect current claimants, but will make savings on new claims.
  • There will be no second adult rebate scheme. All Council Tax Support calculations will be based on the circumstances of the Council Tax payer(s).
  • Someone in benefit who has been unemployed for 6 months or more will retain existing levels of benefit for 4 weeks when commencing work (presumably as an encouragement to get back into work)
  • Disregarded 100% of income from working age War Disablement Pension and War Widow’s/Widower’s Pension. because Fylde Borough Council has always exercised the discretion to disregarded 100% of this income in the current Council Tax Benefit Scheme.

One interesting side effect is that Fylde thinks there could be more claims from pensioners if, as is planned, the scheme becomes a discount scheme rather than a benefit one. (This assumes a stigma is attached to something called a "benefit" but a "discount" does not have the same problem), And this could increase both the sums paid out and the collection costs.

Fylde seems to be doing its best to publicise the change that is coming.

With the 'Customer care' skills of the present Chief Executive we have no doubt that will be done as a proper job, just as has been done with the recent and ongoing bins changeover. This week's Express carried an advertisement for roadshows and so on, Readers can follow this link to their information and consultation page

The results of that will be fed into the process and are expected to be reported to Fylde's Cabinet in November.

The report to Councillors also suggested that Fylde might look at increasing its council tax income from empty properties and second homes to help cover any increased costs.

That's an interesting situation. The Local Strategic Partnership is funded by the Second Homes income, so they must now be at risk of reductions.

We've always regarded the LSP as something of a waste of time. That money could (and should) have gone straight to the precepting authorities to be spent directly by them.

But instead, some of the things FBC don't want to be seen funding directly have appeared in officer reports as 'this won't cost us anything because it will be 100% funded by the LSP'

The con that has been worked here is that the LSP is 100% funded by what would otherwise be standard council tax income.

So we shed no tears at all if this benefit change means "Goodnight Vienna" for the Local Strategic Partnership, and as far as we can see it will.

The interim decision of the Committee was to

1. To note the challenging timetable for developing a local Council Tax Support Scheme

2. To note and support the recommended options which currently form the basis of the draft scheme, subject to the outcome of the consultation and final regulations.

3. To ask that the consultation results, collated within a 2nd Interim Report, be forwarded to members to allow them to provide comments to the Chairman and Vice-Chairman of the committee, allowing those comments to be presented to Cabinet for consideration as an adjunct to the final report.

This is a difficult issue. No one ever wants to pay more for something when they can see no reason that it should change. So those that will be asked to pay more are likely to be very unhappy.

Those at greatest risk seem to have been protected, so the burden of that protection will fall more even more heavily on others.

Given that Government makes the rules, Fylde will have no option but to implement a new scheme, and they seem to be heading in what many would think is an acceptable direction.

At present, national polling shows widespread support in the UK for moving away from the idea of benefit as a lifestyle choice and for those who are able to do so to contribute to their existence through work.

Our own take is that we have long believed in localising the payment of benefits such as Council tax (and housing) benefit.

We do not believe they should be capped overall (because you cannot predict the number of people who will fall into need), but we do think it should be part of a council's general expenditure and that both the decision to grant, and the level of benefit to be paid (with appropriate provisions for independent appeals in case of possible bias) should be determined by panels of councillors and even parish councillors.

They are the ones closest to the people in need, and Councillors living in their community are far more likely to know their true needs and circumstances than any computer programme. They are the ones best placed to know who is in need, and who might be stretching a point. And they would be best able to determine the level of support needed. In our view they should be able to go both above and below what has traditionally been a 'set figure'.

We doubt that any of what *we* would prefer to see is going to happen, but the changes that Fylde itself envisages are on the way.

This topic is gong to be quite a big issue, so we'll keep an eye on its progress.

Dated:  08 September 2012

Update 12 September: The history papragraph about multiple adults was incorrect and changed on 12 September. Thanks to reader T for spotting the error, and apologies to readers for incorrect data.


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