Council Tax Support is a bad reform not just because it hits the poor

This week, in a series of blogs, we are looking at the five main changes to social security benefits being introduced this ‘Black April’. All impact mainly or wholly on low income households. But, as we argued in the first posting, this is not enough of a reason to oppose them. Taking each in turn, we are looking at three things: the money argument; the likely consequences; and if indeed there is a real problem, is the reform a good way to address it? 
Today we look at council tax support (CTS); the locally designed replacement for the national system of council tax benefit, CTB. Impacting only working-age households – government having said that pensioners should be protected as now – the reform in reality is limited to England after the Welsh and Scottish government decided that CTB rules should still apply. Our study of the impacts of CTS, published last week by the Joseph Rowntree Foundation, can be found here.
Starting with the money, this reform had an explicit saving built into its design with the total amount of money for CTS schemes being 10% less than had previously been spent on CTB. After allowing for the transitional grant, the saving adds up to £400m in the first year.
But this is a saving for the Treasury in London. For the 58 English local authorities – and the Welsh and Scottish governments – who have decided to stick in effect with the CTB rules, at least for a year, the Treasury’s saving is their cost. For the public sector as a whole, which is what matters from an economic point of view, the net saving here is zero.
Across the 232 local areas where the CTS scheme means a minimum payment for all, there may be a net saving. But these have often been costly schemes to design, are likely to be costly to administer and it is uncertain how much will actually end up getting collected. All this can make for a ‘business case’ for the local authority simply to take the hit. Here is Wandsworth's:
Any reduction in maximum benefit levels will, due to Wandsworth’s distinctively low Council Tax, see the need to collect very small levels of Council Tax from households that are by definition on low incomes and in many cases could be receiving reductions in other welfare payments. The size of these amounts in respect of Council tax would in many cases be uneconomic to recover, with the costs of collection, including legal recovery costs which fall to the Council being higher than the bill, and would in all likelihood have to be written off when the debt is uncollectable which would mitigate against the savings made on reducing the level of support.


But is there perhaps a deeper problem that is being tackled here? One part of the case for CTS is that local authorities can use the flexibility to tailor support in their area for those who need it most and to better encourage people to take up work.
Yet where is the evidence to explain why disabled people in one area, say Huntingdonshire, should be treated differently under CTS from similar people in next door Peterborough? Or why those in work and getting CTS in Brentwood merit a slightly better financial incentive to work extra whereas those in Trafford merit a slightly worse one? Lacking such evidence, or any reason to believe that local authorities can alter individual behaviour in this way, the supposed ‘problem’ being addressed here is a fantasy that actually ushers in the worst form of tinkering, arbitrary, state micro-management. 
What about the likely consequences? We have frequently been told this past week that spending on CTB has grown sharply. With an extra 0.75 million working-age households getting CTB since 2008, indeed it has. But in times like this, that is exactly what is supposed to happen. CTB is a shock-absorber, to help people who have lost their jobs or suffered a reduction in paid hours cope with council tax.
For the individual, CTS is still a shock-absorber, albeit a less effective one. But here is the point: with CTB, the shock was absorbed at the centre, the Treasury picking up the tab. Under CTS it is absorbed locally, first by the council and eventually either by local tax payers or by service users. In this way, local areas are given a financial reason to want to keep down the number of poor people living there.
In itself, CTS is small beer. But it is the first step on a road and there is at least one local authority which, following this logic, has introduced a residency requirement on CTS entitlement. If, say, in five years’ time, other bigger benefits are changed so that their risks and rewards are borne locally too, then the social cohesion of England – and it is only England that is taking this road – will start to be called into question.
If this reform is so bad – and try as we might we can find no merit in it – what would be better? The reform of council tax itself has much greater potential for improvement; for example, introducing extra bands at the top and the bottom or looking again at the single person discount. If the thrust of reform is towards greater localisation, there is ample scope within such changes for allowing local discretion. If one wanted to keep the details of the council tax national, such changes should at least be on the table.