Local councils have now have a financial incentive to encourage their residents to be off benefits and in work. That is because previously the Council Tax bill for those on welfare was payed by central government. Now, apart than for pensioners, the system has been localised.
Last year councils we given control over Council Tax Benefit (which was renamed Council Tax Support) – they were given discretion over how to allocate the money – although the funding was reduced by 10 per cent.
This morning a report from the House of Commons Public Accounts Committee suggested that work incentives have not been improved as 19 councils had decided to try and recoup money by increasing the “taper” – the rate at which benefits are lost as earnings come in. Previously it was 20 per cent. However for 14 councils it has gone up to 25 per cent and for another four the taper is now 30 per cent. This covers some 225,000 claimants.
Most of them are in Labour councils – Brent, Chesterfield, Doncaster, Lambeth, Rochdale, Salford, Sandwell and Southampton. There are the Lib Dem councils Sutton and Portsmouth. There is Harrow which is no longer Labour led and which I hope will reconsider. Usually the Conservative councils involved have a rather smaller number of people affected – Blaby, Bracknell Forest, Crawley, North Kesteven, Trafford, Windsor and Maidenhead and Wokingham.
I think these 19 councils are wrong. The three councils – all Conservative – to have reduced the taper to 15 per cent to reward work have got a more enlightened approach. Those councils are Brentwood, Mid Sussex and Wiltshire.
Some might look at those figures and concur with the PAC that localism is a failure. 19 do the wrong thing and discourage work. Only three do the right things. However there are some other factors to consider. First of all those 19 are not doing themselves any financial favours if the result of their high taper keeps people on benefits and the councils missing out on Council Tax revenue. Secondly, many of 19 have also introduced some element of Council Tax charge – often 20 per cent – even for those who are completely reliant on benefits. That is a harsh policy and has the challenge of increasing collection costs. But in terms of work incentives it is a plus – indeed it’s impact neutralises an increase in the taper from 20 per cent to 25 per cent.
Then we should also consider the 94 per cent of councils that have not increased the taper. In many of these councils the work incentive will have increased. Partly as many of them are asking those on benefits to pay some contribution. But also because many have increased the “earnings disregard” – that is the amount of money that can be earned each week before any Council Tax Support is lost.
Previously the “Earnings Disregard” with Council Tax Benefit was £5 a week for single claimants. Newcastle increased it £7.50 a week. As did North Hertfordshire. Taunton Deane increase earnings it to £10. As did Middlesbrough and Mendip. West Norfolk increased it to £15. So did Eastleigh. So did Central Bedfordshire. In Colchester and New Forest it was increased it £25.
Far more councils have boosted incentives by increasing the “earnings disregard” as have eroded them by increasing the taper.
Councils also have a motive to reduce fraud and provide practical help to get people into work – for example through encouraging apprenticeships and keeping down Business Rates.
If you allow local decision making then you must expect a variety of outcomes. There will be trail and error. The PAC hostility to local democracy is scarcely disguised with its call on the Government to:
Develop a coherent set of guidelines which set out the extent of local authorities’ discretions and obligations, and how the Department will respond when it considers that local authorities’ actions jeopardise the achievement of its objectives.
In the vast majority of the country the Council Tax changes have increased the incentive to work. As greater innovation takes place this trend will tend to increase. For the PAC to attack the reform – on the basis of the 6 per cent of councils that have made a misjudgment rather than the 94 per cent that are improving the situation – is perverse.