Poorer households face postcode lottery as council tax benefit cuts bite

http://www.guardian.co.uk/money/2013/jan/14/poorer-households-postcode-lottery-council-tax

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Low-income households face a "postcode lottery" of council tax bills for the first time since the system was introduced, which will involve some low-income people paying nothing and others facing a potential bill of thousands of pounds a year, the first detailed analysis of local authority plans reveals.

Ministers have cut the support for means-tested council tax benefit by £500m, and told local authorities to decide where the axe should fall. The result is that 325 councils must put forward schemes how to implement "local" council tax schemes by the end of this month.

The New Policy Institute has examined the first 130 "final" schemes proposed by local authorities and says that only 38 councils have opted to absorb the reduction in council tax benefits. More than 90 will pass on the cut to poorer residents.

Calculations by the thinktank show that of the schemes put forward, 670,000 working-age claimants – including 162,000 low-income workers – will face an average bill of £156 a year from April, a charge from which they are currently exempt.

The institute points out: "If we look past the national level, a much more complex and distressing picture emerges … where some low-income groups will lose out a lot more than others as a result of a system of highly variegated and sometimes extremely harsh local schemes."

This is illustrated in Lancashire, where the 9,000 low-income households in Ribble Valley, Wyre and Chorley – controlled by Tory and Labour administrations – will face annual council tax bills of about £80 a year. However, in neighbouring Pendle, where no party is in overall control, 6,000 low-income voters will have to pay £176.

In London it is even more stark. Tower Hamlets has decided not to charge its 26,000 low-income households. Across the capital in Brent, a similar number of people face an annual bill of £240 a year. Both are Labour-run councils.

The highest average charges are in Tory-controlled Castle Point in Essex, where the unemployed face a council tax bill of £322.40 a year.

However, this amount pales in comparison with the potential bill for larger, low-income families in Brentwood, the backyard of the cabinet minister in charge of local government, Eric Pickles.

Here the Conservative council has decided that families living in bigger houses – those in Bands F to H – will have to pay the full council tax of almost £3,000 a year irrespective of income. It advises families to "move to a smaller property" or get a lodger. The institute says this will be "particularly harsh on poor, large families".

Elsewhere, the long-term unemployed face a tougher regime of payments. Ealing council, controlled by Labour, has decided on a minimum payment of about £210 a year, but this jumps to £330 for residents unemployed for more than 12 months, which the institute says is "an exceptionally punitive measure that will hit this group very hard".

Peter Kenway, director at the New Policy Institute, said: "This policy will surely result in a postcode lottery. National averages hide big local variations in how much more council tax low-income households will have to pay, even between neighbouring areas. This includes both working and non-working households."

Last year, Lord Jenkin, the Tory peer who designed the poll tax in the 1980s warned that council tax benefit cuts risked creating a "poll tax mark II".

Hilary Benn, Labour's shadow communities and local government secretary, said: "The disaster that is David Cameron's poll tax mark II is now becoming clearer. Hundreds of thousands of people on the lowest incomes, including working families, are going to be asked to pay substantially more council tax from April, at the same time as very high earners get a massive tax break.

"In fact, just last month, Eric Pickles, the frontman for this swingeing tax increase, told the House of Commons that he had acted to 'protect people and ensure that nobody has to pay more than 8.5%'. But now we see that his own Tory-run authority, Brentwood, will be charging people who are out of work 20% of their council tax bill."

Local councils said it would be "be extremely difficult to avoid this cut hitting the working poor". Sharon Taylor, chair of the Local Government Association's finance panel and leader of Stevenage council, warned: "Many councils will be forced to ask a lot of people on low incomes who are struggling with their rent, food and fuel bills to pay more council tax, which is likely to lead to higher rates of non-payment and less money for other local services."

The Department for Communities and Local Government said: "The localisation of council tax benefit will give councils stronger incentives to cut fraud, promote local enterprise and get people back into work. An estimated £200m in fraud and error was paid out unnecessarily in 2011-12.

"Ministers announced an additional £100m of new funding to help develop good local schemes and promote best practice. In addition, including funding for local council tax support in the business rates retention scheme means greater rewards for councils who boost their local economies."