Transitional grant for local council tax support schemes: too little, too late?

Local Government Minister, Brandon Lewis, announced today that all councils that bid for transitional grant funding to assist in the first year of running council tax support will receive money. A total of 195 (60%) councils have been approved for the transitional grant funding. The councils approved for funding will share, between them, just over £26 million, with funding allocations varying from £987 (City of London) to £1,253,520 (Liverpool).

Although the transitional grant funding is arguably a well-intended attempt to incentivise councils to protect the most vulnerable from dramatic changes, the timing of its announcement has had attracted considerable criticism. As IFS director, Paul Johnson, and senior economic researchers, Stuart Adam and James Browne, commented following the announcement in October:  “the potential downsides that the government seems to be trying to ameliorate - losses for the poorest households and weakening of work incentives - have been obvious to many observers for a long time. Yet this announcement has come very late in the process.” Indeed, the availability of additional funding has undoubtedly served to prolong and increase the cost of an already time consuming and expensive process. 

To qualify for the grant, authorities must make sure that residents currently receiving full council tax benefit would pay no more than 8.5% of local council tax. Additionally, authorities were required to ensure taper rates would not increase above 25% or sharply affect people returning to work.

The announcement of the funding came at a point when many consultations had ended and councils had already drafted new schemes. As a result a large number of councils decided to reopen consultations or extend their consultation period; a time and resource intensive endeavor to say the least. While it is not possible to estimate exactly how many councils have changed their schemes in order to qualify for the funding, a useful indicator is the number of councils introducing a minimum payment of 8.5% or less. NPI’sanalysis of the components of all 326 new local council tax support schemes in England indicates that 112 councils (37%) are opting to introduce a minimum payment of 8.5%. 

The temporary nature of the funding makes the amendment more expensive still. In April 2014 many councils will have to change their schemes again to make up the funding shortfall incurred once the grant funding ceases. Some councils will simply revert back to the scheme originally consulted on prior to the announcement of the additional funding. For instance, Luton, Great Yarmouth and East Cambridgeshire, who have all reduced their minimum payment rate to 8.5% to avail of the additional funding, intend to increase this from April 2014, to 13%, 18.5% and 25% respectively. However, it seems at this point that mostcouncils intend to review their schemes for next year, potentially requiring them to go through the consultation process all over again.  

One cannot help but question the timing, effectiveness and value for money of this band-aid policy.