Briefing on Local Support for Council Tax

David Magor OBE IRRV (Hons)Chief Executive

Institute of Revenues, Rating and Valuation

Background Spending Review 2010 Localise support for council tax and reduce the

subsidy by 10% from 2013 -14 Abolition of council tax benefit provision in the

Welfare Reform Act Part of wider policy giving councils increased

financial autonomy Enabling power for the new scheme to be contained

in a finance bill now before the current parliamentary session

Why localise support for council tax the CLG view

Give local authorities (LAs) a greater stake in the economic future of their area

Give LAs the opportunity to reform the system of support for working age claimants

Reinforce local control over council tax Give LAs a degree of control on the impact of the

10% reduction Give LAs a financial stake in the local support for

council tax (LSCT)

Overview Broad parameters of LSCT

Reduce subsidy by 10% Existing subsidy to be replaced by a new grant Create a local scheme Provision of a default scheme Protection for eligible pensioners and locally determined

vulnerable people Scheme should support incentives to work

LAs encouraged to collaborate to reduce costs LAs to consider how system can be simplified for working age

claimants LAs will seek to integrate arrangements for providing support within

council tax system Local mechanisms to manage financial pressures

Council Tax and Localism

The Localism Act 2011 More scrutiny on levy Just how far does the proposed power of

competence go? Referendum on levels of council tax above stated

thresholds Neighbourhoods, Community Councils and Parishes

– a new power base? How does all this impact on local support for council

tax?

The Reference Group

Challenge Risks and opportunities Identify interactions Consideration of specific policy issues

through the use of networks Act as a sounding board Membership

The Delivery Group

Timetable Model Schemes Data sharing LA Software Forecasting Finance Issues Membership

Establishing a local scheme (1)

Analysis of existing caseload Impact analysis Developing a scheme Factors to be covered by schemes Consultation Adoption of the scheme Revisions to schemes Default schemes

Establishing a local scheme (2)

Likely to be a minimum of central criteria. Information from the Universal Credit (UC)

system to be available to local authorities for use in the administration LSCT

The rules relative to changes of circumstance should be identical for both schemes any change in entitlement to UC should automatically trigger a recalculation of LSCT

Pensioners and Vulnerable Groups

Pensioners Passported Claimants Means Tested Claimants

Potential vulnerable groups Child Poverty Act 2010 Disabled persons (Services, Consultation and

Representation) Act 1986 Housing Act 1996 Equality Act 2010

Options on work incentives

Run on Disregards Non-dependant deductions Progressive manipulation Progressive taper Cash award Non cash facilities

These all have a cost

Constraints

System Funding Limitation and referendums Protecting vulnerable groups Setting aside a sum for extraordinary events Political dimension Timetable Adverse consultation Collection issues

Administering Local Schemes

Initial transition The application Calculation and award Notification Excess LSCT Appeals

To the local authority To another body

Arrangements for individuals subject to immigration control or are not habitually resident in the UK

Delivery Building on existing approaches The existing structure

Personal allowances Premiums Non-dependant deductions Resources Disregards Second adult rebate Taper Excess benefit

Forecasting Formulating the scheme Publicity Systems

Data Sharing

Data sharing to process claims within local schemes

Provision in the Welfare Reform Act Will be subject to a protocol between CLG

and DWP Establishing data sharing Link with UC

Fraud

What structure? SFIS? Enabling statute Specific powers or general powers? Developing local services High level business case for SFIS Risk based verification

The Overall Funding Mechanism The government’s consultation on localising support for council

tax introduced the proposal to transfer the funding of council tax support from demand-led AME (Annually Managed Expenditure) to DEL (Departmental Expenditure Limits)

The Government is proposing to pay grant to billing and major precepting authorities to bring down council tax requirement rather than allocate it to the Collection Fund

This will mean the tax base will have to take account of the local scheme in a similar manner to discounts

This issue could create problems for Local Precepting Authorities (parish councils and town councils) because if the tax base is reduced and they do not receive grant then parish band D council tax will go up

This could be a particular issue if referendums are extended to some parish councils.

Calculating the Council Tax under the new rules

Benefit cost funding The authorities that will receive grant

Billing Authorities Major Precepting Authorities

The position on parishes Powers to pay grant Methodology for distributing grant Frequency of grant allocation Grant allocation in future Spending Review periods Limits on spending Maximising the tax base Managing pressures through the collection fund

Administration Costs

Administrative cost Implementation costs (£80k to billing

authorities and £27 to major precepting authorities already paid)

On going costs Link to existing subsidy arrangements New Burdens Assessment

Grant allocation

The DCLG has indicated that a separate technical consultation will be held on the specific factors and indicators which should determine the level of grant allocated to a particular authority. Issues to be considered in this consultation will include:

The basis for allocation (what factors are taken into account in distributing grant)

The frequency of allocation (how frequently grant is adjusted – annually or less annually).

Grant allocation

The relevant factors for the basis of allocation could include:

The relative size of eligible claimant groups Previous expenditure Other indicators – unemployment levels etc Council tax costs

Grant allocation

The issues that will need to be considered are: What are the advantages – and disadvantages of

using previous expenditure to determine shares of funding?

Is there a case for using previous expenditure initially?

What other factors could be taken into account as well or instead?

How should Government balance the need to reflect costs with the importance of incentivising local authorities to manage down demand/ensure there is accountability over council tax levels?

Grant allocation

Consideration will need to be given to the frequency of allocation.

There are two broad options:

Reflecting as closely as possible levels of take-up or demand, by adjusting as frequently as is practicable. This would achieve a better match between needs and grant across all authorities and would tend to reduce the financial risks to authorities

Leaving the grant allocation unchanged for several years. This would provide local authorities with greater certainty about their allocation in future years and help with financial planning; it would also enable a local authority to gain if liabilities under its scheme were to fall during that period.

Local precepting authorities

Option one - pass no money on Disregard the parish share entirely in distributing the total grant

between billing and precepting authorities Pass the parish share to billing authorities – but with no

obligation to pass it on to parishes

Implications Does not require additional legal powers Administratively simple for billing authorities – more complex for

central government if parish share has to be identified Could lead to big leap in Band D for some parishes – may mean

that some get caught by any referendums principles

Local precepting authorities

Option two - pass money on Pay grant directly to parishesImplications Requires additional legal powers Highly administratively complex for central

government Minimises impact on Band D Unclear how this could operate under

retained business rates

Local precepting authorities

Option three - pass money on Pay grant to billing authorities with a requirement to pass the

grant on to parishes Paying grant to billing authority, with requirement to pass on

through council tax systemImplications Requires additional legal powers Degree of complexity for both central and local government –

integrating within the council tax system could make less administratively onerous

Minimise impact on parish Band D Unclear how this could operate under retained business rates

Legislative progress

The Local Government Finance Bill The need for subordinate legislation Draft regulations where needed Statements of intent Legislative timetable

Pension Age Regulations

Commitment to protect pensionersDefinition in relation to ageMixed age couples – DWP approachTreatment of war pensionersUprating for pension aged claimants

Transitional Regulations

A claim under CTB on or before 31st March 2013

A claim under CTB on or after the 1st April 2013

A change of circumstance declaration for CTB

A change of circumstances for UC

Collection Fund Regulations

Possible amendment to the Local Authorities (Funds) (England) Regulations 1992

Precepts The proposal to vary the payment schedule Views being sort from the two groups The potential for an alternative proposal The impact of the in-year financial pressure

on Major Precepting Authorities

Council Tax Base Regulations

Amendment to existing regulations rather than new ones

Calculation of the impact of LSCT on the council tax base

The council tax base for baseline purposes likely to remain gross of LSCT

Timeline

The Timetable

Spring 2012 Primary legislation in passage through Parliament. Government preparing and consulting on draft

secondary legislation. Initial thoughts on local scheme Discussions between billing authorities and major

preceptors Political direction Technical consultation on grant distribution

The Timetable

Summer 2012 Primary legislation passed. Secondary legislation prepared Develop operational project plan Billing authorities designing local schemes Scoping IT changes Consultation with Major Precepting Authorities Modelling proposed scheme Public consultation

The Timetable

Autumn / Winter 2012 Secondary legislation passed (early Autumn) Prepare risk assessment Grant allocations published Establishing local schemes – final consultation with

major precepting authorities and public, revisions to schemes.

Technical changes to systems begin Setting budgets. Adopt local scheme

The Timetable

Winter/Spring 2012/13 Finalise system changes Prepare tax base Set council tax and formally adopt scheme Publicise scheme Agree monitoring arrangements Billing

Operating the scheme in a small shire district

Under the new scheme the amount provided to support Council Tax benefit will be reduced by 10% amounting to £695K

Annual Council Tax benefits £6,954 Less: 10% reduction as proposed £ 695 Less: Protection for pension age groups (50%) £3,477 Balance to be used for working age £2,782

This means that the assistance with Council tax for working age claimants will be reduced by around 18% which means that in future working age claimants will be entitled to around 80% of the their current entitlement.

The caseload

6,800 caseload Working age 3,830

ISA/JSA etc Earners Non earners Second adult

Elderly 3,000

Operating the scheme in a large unitary council

Under the new scheme the amount provided to support Council Tax benefit will be reduced by 10% amounting to £6.3m

Annual Council Tax benefits £63.0m Less: 10% reduction as proposed £ 6.3m Less: Protection for pension age groups £30.9m Balance to be used for working age £25.8m

This means that the assistance with Council tax for working age claimants will be reduced by around 19% which means that in future working age claimants will be entitled to around 80% of the their current entitlement.

The caseload

63,257 total caseload Working age 32,115

ISA/JSA etc Earners Non earners Second adult

Elderly 31,142

What are the realistic options for Billing Authorities?

Maximise the tax base and utilise the discount changes Adjust the tax base provision Fund the 10% locally from own resources either partially or fully

The Billing Authority proportion The Precepting Authority’s proportion

Continue with existing scheme less up to 10% cost and protecting vulnerable groups, achieved by either/or A straight cut of the appropriate percentage for all non protected

claimants – the “equal pain” approach A flexible approach to minimum benefit or a cap A regressive taper A modified existing scheme protecting vulnerable groups and

reducing cost

Risk sharing

Sharing risk through the collection fund Deficit or surplus in the collection fund Shared the following year? Should major precepting authorities be able to

influence scheme design? Varying precepts in year

To reflect collection rates A new power

The risks of localisation

If the current financial crises continues, benefit costs will continue to rise.

Collection performance could suffer significantly with the 10% reduction which will fall largely on working age claimants.

The impact of the reduction in housing costs as a result of housing benefit changes and the cap will have a cumulative affect on the ability to meet council tax and other domestic bills

CTB is currently based on actual as opposed to estimated eligibility. Therefore an increase in the number of claimants will automatically lead to an increase in CTB costs This will expose councils to increased expenditure.

Any cap on expenditure needs to protect local authorities from the burden of increased caseloads.

Managing the risk of fraud and error The consultation document suggests that it is for local authorities to

administer support for council tax in as fair and efficient a way as is possible whilst minimising errors and the risk of fraud.

The Department for Work and Pensions will be launching the new Single Fraud Investigation Service (SFIS) in April 2013.

Local authority administration of fraud and error in LSCT should continue, whilst working in partnership with SFIS where the need arises.

In the long term LAs will have to make their own arrangements The risk of fraud and error should be minimised by effective data

sharing across all areas of the public sector. The Government have yet to realise the potential savings of

comprehensive public sector data sharing coupled with effective partnerships with the private sector.

Managing the financial risk

Billing authorities should be able to share the risk of any scheme across the tiers of administration and with Precepting Bodies

Strict budgetary control is necessary to manage the financial risk

Managing the Collection Fund and regular reporting will be critical

There is however a need for more discussion on how risk is managed across the tiers of local authorities and between central and local government.

And finally, collection issues April 2013 and beyond

Collecting residue debt identical to the reduction in LSCT

Collecting small balances from those in receipt of LSCT

Do you apply for a liability order? If so which remedy do you use? If the debt remains unpaid how will you prove

culpable neglect and/or wilful refusal?

What is the IRRV doing?

Membership of the Reference Board and the Delivery Group

Partnership with “Destin” on a modelling tool Partnership with “Coactiva” on a Risk Based

Verification tool Partnership with “Entitled to” on a UC/LSCT

calculator Delivering a “Resource Centre” for LSCT Developing a Mutual model for residue fraud teams

and a social enterprise for UC/LSCT/Benefit advice