Tax increases on the poor – Why?

Written by Gareth Young on . Posted in Our blog

This is our first post in April and with the general obsession in the public sector to implement EVERYTHING on the 1st April, despite the fact that this is the busiest time of the year for many, there is a lot to talk about.

However, despite wanting to write a lengthy piece about the transition of public health to local government (you could listen to our podcast for that if you wanted… Hint hint!) this piece is about a far less wholesome topic; best summed up by this Joseph Rowntree Foundation headline:

Two Million Poor Families Facing Tax Hike

For those not familiar with this issue the introduction of Council Tax Support (instead of Council Tax Benefit) is the latest in the ‘localism with strings attached’ policy toolkit from the DCLG. As the New Policy Institute explain:

From April 2013 Council Tax Benefit (CTB) will be abolished and replaced by Council Tax Support (CTS). As part of the reform English local authorities have to devise their own schemes of CTS. This means a move from one national system to 326 local schemes in England alone.

All councils will have 10% less funding for CTS than they did under CTB. They are required by central government to provide the same level of support to pensioners as under CTB so any cut in support falls entirely on working-age recipients.

I am interested in this question because politicians don’t tend to, as a rule, increase taxes on the poor (see this year’s budget and the debate and statements that followed for evidence).So this decision would appear, on the face of it to be a policy aberration and I think it is worth spending a little time understanding why that might be the case. Of course it is possible that this is not an aberration at all but that would make the following article less interesting so stick with me here.

From the above explanation it would seem on the face of it then that we can blame Central Government for this; pitching Eric Pickles as the bad guy increasing taxes on the poor and absolving local government of any blame. After all the Secretary of State ‘made us do it.’

If we follow this logic through then the question becomes one of national politics. When Gordon Brown abolished the 10p tax rate in 2007 there was political uproar. The Conservatives attacked the then Chancellor for increasing tax on poor people and the national newspapers joined in the criticism. From memory it was the number one news story for a number of weeks post budget (sort of a more serious pasty tax if we use 2012 as a comparison). However, when the Government announced that they were effectively increasing taxes on poor people through the reduction of council tax benefit this never even made it to the front page of most papers (the Guardian being an exception here).

Why is this? I think there are two reasons; firstly council tax benefit is viewed as a ‘benefit’ and at the moment we are in the middle of a severe anti-benefit moment. Although in a different era (pre-crash) if Gordon Brown had, for example, cut tax credits (seen as a benefit) rather than cut the 10p tax rate he might have got away with it even though the two actions would have had broadly the same impact.

The same applies here I think. If local councils had been increasing the actual council tax bills, especially if the Government had mandated that they had to, there would be much more severe opposition; especially if the increases had been targeted at the poorest (see 10p tax rate above).

The second reason is that this is a local issue. If it hadn’t been for the work of the JRF and the NPI we might not have any real understanding of the impact of these tax increases (or benefit cuts) and the vast amount of authorities who are implementing them. Does this matter? Wouldn’t a true localist welcome these decisions being made at a local level and subject to local scrutiny only? Perhaps they would. However, whilst local authorities have little control over their revenue and central government are still able to bring huge cuts to local budgets without local oversight, making the subsequent decisions at local level simply means they don’t get the meta-scrutiny they deserve.

All of the above provides a lament about central government actions. However, it assumes that we can unquestionably follow the ‘Secretary of State made me do it’ logic and I’m not convinced this tells the whole story.

Whilst the switch to a reduced Council Tax Support scheme came from the DCLG the decision to implement the tax increases in the way they were implemented was purely a decision for the local authorities. A decision was there to be made and many local authorities chose to increase taxes on poor people. As the JRF point out:

Fifty-eight councils have decided on schemes that will retain current levels of support for families, but the majority (232) will demand council tax from everyone regardless of income. In-work families will pay £132 more on average compared to £140 for those not working.

150,000 families will pay on average £300 more a year; one million will pay less than £100 on average. 1.9 million claimants who currently do not pay any council tax will have to start paying on average £140 per year.

Two-thirds of families receiving CTB are already in poverty, so the change risks worsening their circumstances into deeper poverty. The research finds 300,000 just above the breadline are at risk of falling into hardship.

Fifty-eight councils chose not to increase taxes on the poorest. There was a choice; not an easy one but each and every local authority had a choice. So why did they make the choice they did? I think there are three reasons.

Firstly, and let’s be fair to local government on this one, local councils are under the largest financial pressure they have ever faced. Finding money to offset this new funding imposition would have required even deeper cuts to other council services and for many councils taking even more money out of social care, education support, street cleaning and a whole range of other statutory, and an increasingly few non-statutory, services was simply not an option. The option to increase council tax (perhaps on the more wealthy rather than the poorest) was not even available to them. In that circumstance what can we expect them to do?

Secondly, I think there is still a problem in the way councils make budget decisions. Because the Government gives us money in a series of grants we tend to think in that way. Let’s be honest, despite the Government’s move to reduce ring fences on grants this is how they want it. The transfer of council tax benefit to local authorities in the first place was an attempt to reduce the bill by 10%. The Government didn’t mind if local councils did something different but their priority was to reduce council tax benefit.

However, councils fall into this trap too easily. I find it hard to believe that had the all councils been discussing their in a vacuum (not related to a transfer of funds or an announcement about the need to find a 10% cut) and the Director of Finance had come to the lead members and said ‘Mr Leader, we believe we can balance the budget by increasing council tax on the poorest people in the County’ 232 would have said yes. In fact I struggle to believe that more than a handful would have agreed to it.

Yet, because this was mandated by central Government local authorities all felt obliged to make this change.

Finally, I think there is some politics involved here. Some, perhaps only a small handful, councils will doubtless have nodded this through in part because they want to demonstrate the dramatic impact Eric Pickles is having on local government and local people.

So, where does this leave us? With poor people paying more tax and the reasons for that being as diverse as they are questionable.

It may or may not be the right decision (I am nowhere near expert enough to judge) but I can’t help but feel that the decision making has been less than perfect; a bit of a reoccurring theme when local / central relationships are at play.

Posted: 5 years 6 months ago by Glen #14
Glen's Avatar
One other thing to note was the speed at which all of these decisions had to be made. Local government generally had very little time to firstly comprehend all that was need before needing to put into place proposals and consultations on these if they were to be agreed in time.

Add to this the changing landscape over that entire period, with additional schemes (such as the one-off grant available if certain scheme conditions were met) and I'm surprised there weren't even more problems implementing these plans locally.

Time will tell on whether the rushed nature of many decisions will exacerbate the situation here.

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