Benefit recipients must not be pawns in policy games

The High Court’s decision that Sandwell’s residency test for entitlement to council tax support was “unlawful” was a moment of sanity in the contradictory world of tax. On the one hand, increases in the personal allowance mean that nobody starts paying income tax until they earn £10,000 a year. On the other, most local councils in England now require their residents to pay some council tax however low their income is.

The residency requirement went further: unless someone had lived in the area for at least two years, they had to pay council tax in full.

In itself, the High Court judgement is welcome. Yet the residency test had a logic to it, a symptom of the situation that English local authorities are now in.

The root of the problem is that with CTS now part of a fixed budget, every council has a direct interest in minimising the number of poor people entitled to support living in its area. Since April last year, the various benefit caps (which in practice bite through housing benefit) incentivise people in high rent areas to move elsewhere. The residency requirement can be seen as a counter-incentive, imposed by potentially “receiving” areas, to deter them.

The policy makers’ incentive “games” are amoral because they use the benefit recipients as pawns. If the games don’t work, they are the ones who bear the cost. Off the back of the High Court judgement there is an opportunity for the LGA to exercise leadership by declaring such residency requirements unacceptable. This in turn will open a debate about the principles at stake. This debate is now needed.

The switch to a fixed budget for CTS was a Treasury ploy. Under CTB, local authorities administered the benefit but the broad shoulders of the general taxpayer bore the financial risk. Under CTS, the risk is borne locally. All such items of needs-led, Annual Managed Expenditure were a force for economic stabilisation. Their dismantling is dangerous.

But why were local authorities not able better to resist this move? Part of the answer is the belief that problems are better solved locally. Even if this is usually right it won’t always be: without a proper sense of their limits, good ideas are a trap for the unwary. We suggest that local authorities should use the decision on the residency test to ask themselves three questions. First, when is it not right to shift the risk (which on the upside is an incentive) to local authorities? Second, when risks are borne at the centre as per CTB – what restrictions must be placed on councils’ autonomy? Third, when risks are borne locally, what restrictions should be placed to stop it being shuffled all the way down – as it was in this case – to the souls at the bottom?

This article first appeared in the Local Government Chronicle on 07/08/2014.