Exclusive: Benefit cuts “very unlikely” to have saved money – official report

By Chaminda Jayanetti

A bombshell official review of Council Tax Benefit cuts has said they are “very unlikely” to have saved the state any money, despite having landed hundreds of thousands of the poorest people in the country with mounting debts and court orders over the last three years.

The report (available in pdf here), commissioned by the government and compiled by former Tory MP Eric Ollerenshaw, said that while cuts to Council Tax Benefit have saved money for central government, they have simply transferred those costs to councils instead.

Ollerenshaw’s report also said that exempting the poorest pensioners from having to pay any council tax was causing significant problems in the system, and recommended that councils be allowed to force them to contribute towards their council tax bills.

While the report’s findings are not official government proposals, they could open the door to the first major cut to pensioners’ benefits since the Conservatives took power in 2010.

The report looked at the replacement of the national Council Tax Benefit scheme with the Local Council Tax Support scheme (LCTS, or CTS) in 2013 – a measure Ollerenshaw voted in favour of during his five-year stint as MP for Lancaster and Fleetwood.

Under the old national scheme, the poorest residents of all ages didn’t have to pay any council tax, whereas under the new localised scheme each council must decide how much (if any) council tax poorer working age residents must pay, whilst pensioners are still protected by law.

The change of scheme was accompanied by annual cuts in the money given to councils by the government to fund the benefit, leading most councils to impose cuts on working age claimants.

As a result, hundreds of thousands of the poorest people in England have faced mounting debts and court action as they juggle council tax bills on the breadline.

The falsest of economies

But the report dismantles one of the key reasons for the cuts, which was to save money and help reduce the public spending deficit.

Even though the government promised “significant savings for the taxpayer” when announcing the plans five years ago, it seems the hardship created has achieved little for the country.

“Did the change from Council Tax Benefit to LCTS save public money across the public sector? … it is very unlikely that it has.”

Buried deep on page 83 of his report, Ollerenshaw said that central government had achieved its expected savings of £490m, but continued: “Did the change from Council Tax Benefit to LCTS save public money across the public sector? Based on anecdotal evidence from numerous councils, as well as some of the national and local statistics, it is very unlikely that it has.”

The report said that the costs incurred by councils in running the local schemes were significant. “While collection costs cannot be accurately estimated, most councils I heard from said that it is costly both in terms of staff time, and in terms of costs associated with sending out more reminder letters and making more reminder phone calls.

“Despite extra funding from Government to help cover administrative costs and ‘new burdens’ costs, councils often said that running and administering their LCTS schemes left them out of pocket,” the report added. “Overall, the sense I got from some councils was that, rather than saving public money, LCTS has just shifted some of the cost from central to local government.”

Running up a tab

Even though the worst-case scenarios over council tax payment rates have not come to pass, the report found many councils worried about the cost of collecting the tax: “Revenues teams in councils are having to collect and chase very small sums – sometimes just a few pounds per week – from many people who are on low incomes. This means a lot of resource is spent for little gain.

“The central message was that collecting council tax from LCTS recipients means more staff time, more stationery, and more postage fees”

The report found that some councils’ administrative costs for CTS had risen compared to the old national scheme, and that barely any councils’ costs had fallen. Among the hidden costs logged by Ollerenshaw were:

  • carrying out public consultations on the local schemes
  • sending out payment reminder letters
  • increased customer contact
  • hiring extra staff to collect council tax from CTS claimants
  • taking a “gentler” approach to council tax debtors, requiring greater time and staffing costs, so as to avoid court action
  • intensive, case-by-case manual assessment of hardship fund applications by those unable to meet their bills
  • software costs – the report says that IT providers have been charging “exorbitant” costs for minor changes, with some councils quoted £30,000 for one small change

“There was a sense of frustration from councils that Government did not fully grasp what administering LCTS consists of,” noted the report. Administration costs could also rise once Housing Benefit is absorbed into Universal Credit – government funding for administrative staff will be cut, but those staff will still be needed to administer CTS.

“Taken as a whole,” the report said, “the overall impact of LCTS on council finances can be significant.”

Too much helping the aged

The report’s most controversial recommendation is likely to be that councils be allowed to force poorer pensioners to contribute towards their council tax bill, ending the current nationwide exemption they enjoy.

Ollerenshaw’s report stated: “It is clear from the evidence I have seen that the national scheme for pensioners has led to an additional cost burden on low-income working-age residents.  Councils have less money to provide support to working-age residents, and less money to design work incentives into the scheme.

“Government should consider localising at least part of the LCTS scheme for pensioners, allowing councils to decide how much support they wish to provide for all low-income residents.”

Localising the scheme for low-income pensioners would enable councils to impose council tax on them for the first time, whilst in theory allowing them to increase (or at least not cut further) the benefits paid to working age claimants.

Ollerenshaw noted that more than 45 percent of spending on CTS in England in 2014/15 had gone to the 1.92m pensioners claiming the benefit. “As Revenue Support Grant, of which LCTS funding is now a part, is decreasing, and the pensioner population is increasing, this … raises the question of the sustainability of LCTS in its current form.”

He repeatedly pinpointed the pensioners’ exemption as a sticking point in the scheme, often quoting evidence submitted by councils. Benefits officers in Devon warned that CTS schemes could not be made simpler and cheaper to run while pensioners were protected nationally.

“there was consensus that Government stipulating that pensioners must be fully protected was unfair to both councils and to residents”

“Chelmsford City Council called the prescribed scheme for pensioners ‘the biggest barrier to localism’, succinctly describing the frustrations that almost every council and representative organisation I heard from raised,” said Ollerenshaw’s report. “Across different types of councils, different regions, and different politics, there was consensus that Government stipulating that pensioners must be fully protected was unfair to both councils and to residents.”

The report continued: “Indeed, some councils see the decision from Government to protect pensioners as the root of many of the current problems with LCTS… It was the one aspect of LCTS that councils repeatedly said they wished they could change, not just to make schemes fully local, but also to make them fairer and more efficient.”

The plan isn’t working

Ollerenshaw’s report bluntly said that the reforms had failed in one of their key stated aims – to encourage unemployed claimants to find work: “Work incentives in LCTS schemes do not, by themselves, appear to have an impact on local employment levels, and there is no evidence that LCTS schemes function as a work incentive.”

Further on in his report, he added: “Most councils said that LCTS in itself has done little or nothing to help residents into work.”

The report found that council tax payment rates among CTS claimants were not as bad as initially predicted, but were still considerably lower than for other council tax payers. Payment rates have improved slightly since the first year of the scheme, with 65-75 percent of council tax charged to CTS claimants paid within the financial year.

But even when CTS claimants are able to pay council tax bills, councils are finding the process far more time-consuming and costly than normal, despite the amounts of tax due being relatively small. Ollerenshaw noted that “the staff time and administrative costs sometimes required seemed disproportionate to the amount being chased”.

And as many recipients already have council tax arrears from previous years, debts accumulate each year with little prospect of ever being repaid.

Ollerenshaw suggested that council tax arrears could be deducted at source from Jobseekers Allowance payments, or other benefits – a process known as “attachment” that currently requires a costly and time-consuming liability order from a magistrates’ court. These costs are often imposed by the council onto the CTS claimant, adding yet more onto the debt. The report recommended this process be streamlined, with safeguards to prevent claimants being pressurised into accepting such a measure.

Even if such attachments were approved, they might not be sufficient to clear the debt in one year – meaning that the debts and the attachments “stack” up year on year, with one attachment having to clear its debt before another attachment for another year’s debt can be implemented. Liverpool City Council has 18,500 pending attachment orders, “equalling £9.8 million in revenue that the council cannot get until this year’s attachments have finished.”

The devolved parliaments of Wales, Scotland and Northern Ireland all spent money to avoid cutting Council Tax Benefit. Councils in England, meanwhile, have found themselves amid a postcode lottery – not only of the minimum payments CTS claimants must make towards their council tax bills, but in the defined groups protected from the cuts under local schemes, the accessibility and promotion of hardship funds, and methods of collecting council tax debts.

Wealthier councils have more resources to subsidise their CTS schemes and less demand from poorer residents for it, compared to poorer councils with more poor residents; similarly, councils with lots of second homes or holiday properties can tax these to help balance the books. But councils with large pensioner populations were left focusing the burden of the cuts on smaller groups of working age claimants.

Robbing the fridge to pay the council

While collection rates may have been better than feared, council tax debt has risen sharply, and is now the most common debt problem facing clients of Citizens Advice. Even where council tax payments are being met, this may just be creating budget shortfalls elsewhere.

Ollerenshaw gave the example of a survey of 50 CTS claimants by Advice York, a partnership of advice agencies in York, which found that “one third were paying their council tax by taking out loans, nearly half were reducing spending on essentials like food and fuel, and two thirds were struggling to pay for other bills so that they could pay their council tax.”

The report recommends further research be conducted into how claimants are meeting their council tax bills, and backed calls for a comprehensive study of the collective impact of benefits changes on low-income residents.

“Financial risk is also a concern,” said Ollerenshaw. ” If … the national or local economy declines, councils face increased LCTS costs. As Government funding for LCTS is not demand-led, but is part of a decreasing Revenue Support Grant, councils are justifiably worried that they could face much higher costs in future.”

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