By Lucy Phillips
12 January 2011
The ‘least damaging’ way to implement radical reforms to Council Tax Benefit would be to minimise the role of local authorities, the Institute for Fiscal Studies said today.
The think-tank reiterated its criticism of government plans to transfer the administration of the benefit from Whitehall to councils, which they claim would undercut the new Universal Credit system and penalise many poorer households.
But today IFS deputy director Mike Brewer went on to say: ‘We have spoken about the undesirability of this reform in the past and it would certainly undermine the principles behind the Universal Credit if every local authority in England set its own rules for how to implement council tax benefit.
‘We think the least damaging way forward here is for Council Tax Benefit to be part of the Universal Credit so you add it on to Housing Benefit and other allowances and withdraw it in the same way as with income.
‘The only thing local authorities would be left to do is decide what fraction of your council tax you would get a rebate on. They could basically set that the way they like.’
Brewer said he expected the government to be able to achieve its target to save £500m of the Council Tax Benefit bill within those parameters.
His comments came as the IFS published a new analysis of the Universal Credit, the government’s flagship tax credit and benefits reform that will result in families receiving a single welfare payment from 2013.
The think-tank found there would be clear winners and losers in the new system, with 2.5 million families receiving more money, the same number experiencing no change and 1.4 million receiving less.
Lone parents and families with savings of more than £16,000 will be among the biggest losers while couples, particularly those with children, will benefit the most.
The poorest six-tenths of families across the income distribution will be better off and the richest ones will lose out slightly, making the reform ‘progressive’.
The analysts also examined the government’s objective to ‘make work pay’. They found that the Universal Credit would create stronger incentives for single adults and the main earner in a couple to work but it would weaken the incentives for both partners in a couple to find jobs.
Brewer said: ‘The Universal Credit has the potential to simplify the current complicated overlap between benefits and tax credits, making life easier for claimants and saving money currently wasted on administration and lost to fraud and error. But our analysis illustrates the constraints all governments face when contemplating radical welfare reform.’
On publishing the welfare white paper in November, Work and Pensions Secretary Iain Duncan Smith said those moving to the new system would be financially protected and there would be no losers.
But the IFS said the government’s transitional arrangements would become ‘irrelevant’ over time as the individual circumstances of those in the current system changed.
The think-tank estimates the changes will cost £1.7bn but that could change depending on take-up under a more transparent system and numbers who go back to work.
