The British government’s proposal to localise council tax benefit (CTB) while cutting funding by 10 per cent is likely to hit hardest those who are "already in or close to poverty", according to a new report from the Institute for Fiscal Studies (IFS), written by the economists Stuart Adam and James Browne.
The Conservative-led coalition plans to abolish the national CTB from 2013-2014 and instead provide local councils grants to create their own systems. This will leave them struggling to design replacement schemes for low-income families.
The think tank argues that the cash funding cut will be greatest in more deprived areas, where spending on CTB is currently highest. Due to protections provided for pensioners, working-age adults are likely to be most affected, losing up to a third of their current support.
Councils face a difficult task to design replacement schemes that protect the vulnerable while maintaining work incentives in the context of reduced funding. They have little experience or expertise in designing means-tested support schemes and very little time to do it. The fact that they also need to make these schemes work alongside Universal Credit, which is being introduced from October 2013, makes an already difficult challenge truly formidable.
Cutting support for council tax and localising it are two distinct policy choices: either could have been done without the other. Whether you think that cutting council tax support for low-income families is the best way to reduce government borrowing by £500m will depend on your views about how much redistribution the state ought to do. But the advantages of localisation seem to be outweighed by the disadvantages, particularly as it has the potential to undermine many of the positive impacts of Universal Credit.