By Vivienne Russell
22 October 2010
The radical reform of Council Tax Benefit set out in the Comprehensive Spending Review has ‘many downsides’ and would penalise poorer households, the Institute for Fiscal Studies has warned.
Under the plans, which take effect in April 2013, the benefit will be replaced with grants to local authorities, which will be able to set their own criteria for payments. This move will save £0.5bn a year by 2014/15, the chancellor said.
But the IFS’s post-CSR analysis points out that grant levels will be 10% lower than current spending on Council Tax Benefit and is likely to hit poorer households hard. Individual councils could also reduce the benefits to such an extent that it would encourage low-income people to move out of their area.
The think-tank points out that the changes would create a complex two-tier benefits system, with both local and central government setting policy. This runs counter to the idea of the streamlined Universal Credit to be introduced by Work and Pensions Secretary Iain Duncan Smith.
IFS acting director Carl Emmerson said: ‘Those in favour of greater localism may be pleased that greater powers are being transferred to local authorities.’
But he went on: ‘It will make the benefits system more complex and less transparent. It will also make it harder to make the benefit system fit together better as a whole. The incentive it provides to local authorities to encourage low-income people to move elsewhere is undesirable.’
The changes to Council Tax Benefit form part of a package of welfare cuts aimed at saving £7bn by 2014/15. Chancellor George Osborne claimed the changes would target resources on those who need them most. But the IFS said spending would be focused away from families with children and towards pensioners and from lower-income to higher-income households.
Mike Brewer, director of the institute’s direct tax and welfare research programme, said: ‘Low-income pensioners have lost some pension credit to fund high-income pensioners’ winter fuel payments and young people in education with low-income parents have lost their Education Maintenance Allowances to fund the continued child benefit of their wealthier peers.’
Overall, the IFS said that, with the exception of the richest 2% of households, the Spending Review hits poorer households more than richer ones.
‘The tax and benefit changes are regressive rather than progressive across most of the incomes distribution,’ Emmerson said.
‘When we add in the new measures announced [on October 20] this finding is, unsurprisingly, reinforced.’
The IFS also concluded that the cuts announced in the Spending Review were deeper than those planned by the Labour government, despite Osborne’s claim that he was under-cutting Labour’s plans.
‘Instead of cuts of 20%, there will be cuts of 19% over four years,’ the chancellor said on October 20.
But the IFS disputed this claim, saying Osborne had failed to factor in the £6bn of cuts already implemented by the coalition government.
Emmerson said: ‘The new government has already implemented cuts to spending in this year, thereby reducing the base for Mr Osborne’s comparison. So, by 2014/15 departmental spending is forecast to be below the level implied by the plans set out in Labour’s last Budget.’
Angela Eagle, shadow chief secretary to the Treasury, said: ‘George Osborne’s smoke and mirrors have well and truly unravelled. On any measure his plans hit the poorest hardest. And the IFS have all but called him a liar for his ridiculous claim that he is cutting less than Labour planned.’
