Can Local Authorities merge Council Tax with Universal Credit?

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Will some Local Authorities be able to merge Council Tax with Universal Credit?

There is a risk that the original intention of welfare reforms will be undermined by the localisation of council tax. Worryingly few local authorities are in favour of reforms they must implement within the next year. This post talks about whether the integration of council tax support with Universal Credit would be feasible with DWP support and the costs and challenges for local authorities.

One-third of respondents to the DCLG consultation on the localisation of council tax support said that it should be rolled into Universal Credit, or otherwise align with it.  While local authorities struggle to design their own schemes, one option may be to merge Council Tax Support into Universal Credit, on a local authority by local authority basis.

This should be technically feasible, but it isn’t clear whether this has been considered by local authorities, the DWP or DCLG.  This would deliver on the goal of a simple benefit system, reduce administration costs for the local authority and lead to consistent work incentives, better than incentives under the current Council Tax Benefit. Local authorities that manage the face to face element of delivering Universal Credit can maintain their relationship with their most vulnerable constituents and use the Universal Credit application point as a route for other forms of local government support.

Below are  some thoughts on how the integration of council tax support into Universal Credit might work:

  • Local authorities that want to merge Council Tax Support into the Universal Credit claim process ask the DWP if this is feasible.
  • Technically, this should be feasible.  The DWP would use the UC claim form, which would include all of the details required for means test, and the postcode of the property being taxed to calculate a Council Tax Support element.
  • The Council Tax Element would be added to the households Universal Credit award, and paid for by the local authority.
  • Households eligible for support would have to accept a lower earning disregard.  The DWP could allow claimants to opt out of support and keep their disregards, but in reality no one would choose that option.
  • If council tax support was worth £50 per month, the claimants earnings disregard would fall by as much, up to a minimum floor set by DWP (£0, £10?).
  • Councils would have to recover the money.  This could either be at the beginning of the taper (DWP picks up the bill), at the end of the taper (Local authorities pick up the bill) or split, with local authorities recovering an initial amount based on the extent the reduced disregard (i.e. a £50 reduction in the disregard would recover 65%*£50=£32.50 (or less if it reached the floor) and local authorities would recover the rest when if earnings rose to not need Universal Credit support at all.
  • Other alternatives are possible – one way to incentivise local authorities to support people into employment (as opposed to develop within it) would be to allow local authorities to recover their council tax support once the claimant moved into work.

Councils would still have some work to do:

  • They would need to decide who was eligible, and for how much support – a political hot potato.
  • They would be subject to changes in DWP regulations – if DWP were to change the taper rate, local authorities may claw back less money.
  • Local authorities will also need to collect the Council Tax payable, including the support element – this could prove tricky if the support is made as a direct payment to the claimant.

If you are a local authority struggling with this challenge, contact me to learn more.

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