Magazine article Public Finance

Council Tax Drags Poorest into Debt

Magazine article Public Finance

Council Tax Drags Poorest into Debt

Article excerpt

Council tax drags poorest into debt It used to be credit cards, or unsecured personal loans, but not any more. This year, according to Citizens Advice, the number one cause of personal debt is council tax - and the reason is staring everyone in the face.

Since April 2013, people on low incomes have no longer been able to claim council tax benefit (CTB) and so possibly avoid paying any council tax.

Instead, English local authorities have come up with a range of support schemes that often require households which previously paid no council tax to contribute.

The result? Arrears have risen, along with the cost of chasing them. Figures from the Department for Communities and Local Government show total arrears rose by 21% in 2013/14, from £691m to £836m.

Analysis by the New Policy Institute for the Joseph Rowntree Foundation shows that 235 of the 326 English authorities that collect council tax saw arrears increase last year, with the largest increases coming in areas where councils charge higher minimum sums.

The cost of chasing non-payers is also increasing, with councils spending £233m on court and administration costs last year - up from £209m. The NPI report, published in September, reveals how nearly three-quarters of councils where households are required to pay more than 20% of their council tax saw increased court and administration costs.

Wirral, which demands a minimum payment of 22%, saw its costs increase from £234,000 to £896,000 while, in Newham, where the minimum is 20%, costs rose from £1.6m to £3.4m.

The problem is that, in many cases, councils are chasing relatively small sums owed by low-income families who are not used to paying the tax. During the first half of 2014, more than 70,000 people sought help from Citizens Advice over council tax arrears - up about 20% compared with the first six months of 2013.

Gillian Guy, chief executive of Citizens Advice, acknowledges that local authority budgets are stretched, but says: 'They must ensure that the resources available for their local council tax support schemes are focused on those who are most in need.'

Councils chose in early 2013 whether to continue giving poorer households the same level of relief as under CTB. If they did, they had to find ways to cover a 10% cut in government funding.

Some that did not impose minimum payments tried other solutions, such as scrapping rebates for second adults who live with people on low incomes or cutting the level of savings people can hold and still qualify for assistance.

NPI describes the situation as a 'postcode lottery' with, in some cases, neighbouring councils adopting vastly different approaches towards poorer families. 'It's grossly unfair that people in the same circumstances are receiving very different levels of support depending on where they live,' says NPI research officer Sabrina Bushe.

According to another study by NPI, 1.5 million of the 2.3 million families involved live below the poverty line and 1.8 million rely on means-tested benefits because no family member is in work.

This year, 244 councils require all working-age households to pay a minimum sum, compared with 229 during the first year after CTB was abolished. Only pensioners who qualified for CTB and paid no council tax are automatically protected under local support schemes. …

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