Rother District Council Agenda Item: 6.1 Report to - Overview and Scrutiny Committee Date - 19 October 2015 Report of the - Executive Director of Resources Subject - Council Tax Reduction Scheme 2016-2017 Recommendation: It be RESOLVED: That the Overview and Scrutiny Committee recommends to Cabinet and then full Council the proposed changes to the Rother District Council Tax Reduction Scheme as follows: 1) The introduction of a minimum payment of 20% of the Council Tax for all households in the district. 2) The introduction of minimum income floor for all self employed claimants; 3) to establish a Hardship Fund and associated policy as detailed in the report at Appendix D; 4) to increase the resources deployed to adminster the Council Tax Reduction Scheme and hardship fund as detailed in the report, with up to 90% of the cost being met by the major Precepting Authorities; and 5) the Executive Director of Resources be authorised in consultation with the Cabinet Portfolio Holder for Finance to make minor textual amendments, uprate premiums and living allowances when they are issued by the Government and make any relevant changes required by amendments to Prescribed Regulations. Service Manager: Robin Vennard Introduction 1. At its meeting on the 1 June 2015 (Minute reference CB15/7), Cabinet agreed proposals for consultation on a revised Council Tax Reduction Scheme (CTRS) for introduction from the 1 April 2016. The Council is under a duty to widely consult before introducing a new scheme for Rother. 2. The consultation was open for nine weeks from 27 July 2015, through August and ended on Wednesday 23 September 2015. The original closing date was 18 September 2015 but was extended another five days due to a problem in accessing the online questionnaire on the closing date. The time extension ensured everyone who wanted to comment had the opportunity to do so. 3. This report details the outcome of the consultation and sets out the proposed changes to the CTRS. The final decision on any changes rests with full Council. OSC151019 CTRS 2016-2017 1
Background 4. Members will recall that prior to April 2013 Council Taxpayers who were on low incomes could apply for Council Tax Benefit (CTB) to help pay their Council Tax. Under this national scheme, Council Taxpayers could receive benefit of up to 100% of their Council Tax liability. The Council then received full funding from the Government for any correct CTB awards made. 5. Changes introduced by the Local Government Finance Act 2012 abolished CTB and set a requirement for local authorities to devise and administer their own CTRS within reduced funding of 90% of CTB expenditure. Council Tax support for older people was not changed by the reform. This is because the Government wanted to ensure that low income pensioners, who would struggle to pay Council Tax without additional support, would continue to receive assistance. Pensioner protection is achieved by keeping in place national rules. Key information on CTRS recipients is shown at Appendix F. 6. On 21 January 2013, full Council approved a CTRS for working age people in Rother to be introduced from 1 April 2013. The scheme included only minor changes to the previous CTB scheme and was the same across the county to ensure consistency. This scheme has continued following full Council approval for 2014/15 and 2015/16. 7. Each year, the Council is required to formally adopt a scheme by the 31 January to commence on the 1 April of that year. All authorities in East Sussex have continued to collaborate on the county-wide scheme since its introduction in 2013/14. However, in light of continued downward pressure on government funding and to strike an appropriate balance between protecting those on low incomes and being able to maintain essential services, all authorities agreed that changes to the scheme for 2016/17 should be considered. 8. Under the direction of the East Sussex Leaders and Chief Executives a project team was formed comprising representatives from each district and borough council together with a representative from East Sussex County Council. The project team were asked to consider options that would: a) incentivise work; b) reduce the cost to the public purse; and c) simplify the administration of the scheme by billing authorities. 9. This work then formed the basis of the consultation proposals that were agreed by Cabinet. Further background information is shown at Appendix A. Consultation Proposals 10. In designing a draft scheme, Officers have modelled the likely level of savings that could be achieved for the proposals detailed below together with an estimate of the number of households affected by the change. It should be noted that some other options were also considered but rejected due to their impact on vulnerable groups or the administrative impact on billing authorities. Further detail of the options that had been considered but rejected can be found at Appendix B. As indicated in the introduction, the proposals overleaf for consultation were agreed by Cabinet at its meeting on the 1 June 2015. OSC151019 CTRS 2016-2017 2
The summary figures below are best estimates based on current caseloads. Claimant numbers have been falling and some of the information required to accurately calculate the financial impact is not currently available. However, the figures do give an understanding of the financial impacts and the number of claimants affected. It is also important to remember that Rother will only retain 10% of any saving achieved as per its share of Council Tax receipts. Proposal 1 % Restriction minimum payment 11. This proposal would mean applicants would be required to pay a minimum amount of their Council Tax each year. This is the main proposal that would achieve a reduction in the cost of the current scheme. Three options were proposed for consultation, 10%, 15% and 20%, The financial effects and claimant numbers affected by each option are shown below: 10% payment required from all working age applicants 15% payment required from all working age applicants 20% payment required from all working age applicants Estimated saving Rother area only Number of Rother claimants impacted Estimated saving to Rother District Council 399,651 3,447 39,965 592,065 3,447 59,206 784,216 3,447 78,421 Proposal 2 Minimum Income Floor 12. This proposal affects those claimants who are currently self-employed. There would be support given for a start-up period of one year after which it would be assumed that the claimant is achieving a minimum level of income when assessing CTRS. This would be based on 35 hours multiplied by the National Minimum Wage and this is in-line with the approach taken under Universal Credit. 13. The total estimated savings are 355,470 in Rother affecting 411 claimants Rother s share of this saving would be 35,547. It should be noted that if Proposal 1 is implemented as well there will be some overlap with this proposal and the two estimated savings should not be added together. Outcome of the Consultation 14. The consultation documentation was based on the above options and took the form of a questionnaire together with extensive background information. The consultation was accessible on the Council s website. Invitations to take part in the consultation were also sent to more than 20,000 Rother district residents through My Alerts emails, the Rother Citizens Panel membership plus direct contact was made with voluntary advice organisations such as the Citizen Advice Bureau (CAB) and Hastings Advice and Representation Centre (HARC). Although East Sussex County Council has been involved throughout in the discussions with the East Sussex Council Tax Reduction project team they have also made a written response to the consultation which is included at Appendix C. East Sussex Fire Authority and the Sussex Police and Crime Commissioner have also been consulted on the proposals. OSC151019 CTRS 2016-2017 3
15. Full details of the consultation results, including all comments made by those responding is detailed at Appendix C. The responses to the consultation are summarised in the tables below: Question Yes No Don t Know Should the Council protect the current CTRS? 41% 50% 9% Do you agree with the principle of every working age person having to make a minimum payment towards their Council Tax? 92% 6% 2% 16. The above indicates mixed views: 41% of those responding thought the scheme should continue to provide the same level of financial support as now. However, the consultation responses also suggest broad agreement to the changes proposed with 92% of responders agreeing that every working age person should have to make a minimum payment towards their Council Tax. In terms of how much people should pay the consultation showed the following: 10% minimum payment 15% minimum payment 20% minimum payment Don t Know 27% 23% 46% 4% 17. The consultation showed that 46% of responders stated that the minimum amount payable should be set at 20% of the Council Tax. However 50% indicated it should be lower than this level. 18. The consultation went on to ask for views on the alternatives to changing the scheme. The alternatives were: a) increase the Council Tax; b) find savings in other services; and c) use Council reserves. 19. The responses to this question were as follows: Option Yes No Don t Preference know Ranking Increase Council Tax 40% 50% 6% 1 Savings in Other Services 35% 60% 5% 2 Use Council Reserves 26% 67% 7% 3 20. The consultation respondents indicate that the Council should not look to alternatives to making the changes to the CTRS. The consultation also asked that if an alternative solution were used, how should these be ranked. The order shown in the above table suggests that increasing Council Tax is preferable over the other options. OSC151019 CTRS 2016-2017 4
Hardship Fund and Scheme Administration Costs 21. Requiring people on low incomes to make payments towards their Council Tax is likely to have an adverse impact on collection rates. Therefore to ensure such changes are effective and to minimise the impact on the most vulnerable they should be accompanied by additional resources for collection activities and provision to support those who would otherwise face exceptional hardship. 22. Precepting authorities have agreed that as part of the scheme itself, there will be an ability to reduce an individual s liability for Council Tax on grounds of exceptional hardship and that this will be funded through each billing authority s collection fund. Such exemptions would only be granted in exceptional circumstances and was supported by 79% of respondents to the consultation. The detailed policy is set out at Appendix D. The total estimated fund would be approximately 38,000 of which the Council would meet approximately 10%. In addition, there would be an additional cost of 15,000 per annum to administer the fund representing approximately half a full time equivalent post. Again, the Council would need to fund 10% of this cost. 23. Similarly, preceptors have agreed to contribute towards the costs of additional resources to support collection activities. Such activities could include: early publicity about the proposed changes; promotion of sources of help and assistance to manage household budgets; proactive engagement with tax payers to discuss payment plans; and early intervention in cases of missed or late payments. 24. If such supportive steps are not taken there would be a significant risk of noncollection and a corresponding increase in debts, and write-off of debts, owing to the Council. 25. Evidence from other authorities who have introduced such changes suggests that up to two Full-time Equivalent (FTE) employees per authority would be required to implement such additional activities at a cost of approximately 60,000 per annum. Preceptors have agreed to part fund these new posts inline with their share of the Council Tax which as indicated above means that 10% of the cost will fall to the Council. 26. To have the most effect the new posts would need to be filled early in 2016 to take the necessary proactive action to engage with those who will be newly required to pay towards their Council Tax liability. Financial Summary of Options being proposed and associated costs 27. The following table summarises the options being proposed by Officers and the associated costs in administering the new scheme including the hardship fund: OSC151019 CTRS 2016-2017 5
Expected Savings Proposal Total Estimated Saving RDC Share Minimum Payment @ 20% 784,200 78,400 Minimum Income floor 355,470 35,540 Expected Costs Total Cost RDC Share Hardship Fund 38,000 3,800 Hardship Fund Administration 15,000 1,500 Collection Administration 60,000 6,000 Total Costs 113,000 11,300 Equalities Impact Assessment 28. A full Equalities Impact Assessment has been completed and is shown at Appendix E. Conclusion 29. The most significant change proposed is to require applicants to make at least a minimum payment towards their Council Tax. This would be a new requirement for many people, would increase the payments due for others, and would impact on household incomes. The level of payment would vary according to an individual s circumstances but for an average Band D property a 20% minimum payment would equate to 6.13 a week. Currently some 2,500 applicants receive the maximum reduction and therefore are not required to make any payments towards their Council Tax. Of these the vast majority (88.31%) live in properties banded at C or below. For this group of people a 20% minimum payment would equate to an average weekly payment of around 4.78. People currently in receipt of Council Tax support are also likely to face changes to their household income from April 2016 as a result of the changes announced in the Summer Budget. 30. Taking into account the responses to the consultation it is proposed that the scheme for 2016/17 is a variant of the existing 2015/16 scheme with the following changes: all working age applicants for Local Council Tax Reduction will be required to pay at least 20% towards their Council Tax liability. any applicant who has been self-employed for at least 12 months will be assumed to be achieving a minimum level of income when assessing their entitlement to support. This will be based on the equivalent of the weekly (35 hours) National Minimum Wage; and the introduction of a Hardship Fund to help people experiencing exceptional hardship. 31. In considering these proposals it is clear that all authorities across East Sussex will continue to face reductions in their income over the next four OSC151019 CTRS 2016-2017 6
years and will need to make savings. Changes to the local CTRS outlined in this report would help deliver some of these savings. The current scheme has remained unchanged since 2013 and largely replicated the previous CTB scheme. Whilst this has become increasingly out of step with national trends, Members need to consider the impact on low income households in Rother of changes to the CTRS particularly when combined with the effects of the Government s welfare reform programme. Malcolm Johnston Executive Director of Resources Risk Assessment Statement Failure to properly consult on any proposed changes to the CTRS is legally challengeable. Officers consider the action taken in consulting widely mitigates this risk to a minimal level OSC151019 CTRS 2016-2017 7
Background Information Appendix A Government Policy Context 1. The Local Government Finance Act 2012 (the Act) requires local authorities to make a CTRS, to localise council tax support, annually by 31 January. The Act gave authorities: a) a significant degree of control over how to achieve a 10% reduction in expenditure for 2013/14, based on the 2012/13 CTB bill, allowing councils to balance local priorities and their own financial circumstances; b) a financial stake in the provision of support for Council Tax and so a greater stake in the economic future of their local area, so supporting the Government's wider agenda to enable stronger, balanced economic growth across the country. The reform created stronger incentives for councils to get people back into work and so support the positive work incentives introduced through Universal Credit; c) the opportunity to reform the system of support for working age applicants. In particular, it enabled local authorities to align the system of support for working age households much more closely with the previous system of Council Tax discounts and exemptions, simplifying the complex system of criteria and allowances; and d) the ability to reinforce local control over Council Tax. Financial Context 2. The estimated cost of the Rother CTRS is approximately 7.6m. Rother s share of this cost is around 10% in-line with the split of Council Tax with East Sussex County Council, the Police and Fire Service. As indicated above one of the drivers for the review of the scheme is the expected continued downward pressure on government funding for all local authorities. Rother s revenue budget forecast suggests a funding shortfall from 2016/17 to 2019/20 of up to 4.8m depending on the continuance of New Homes Bonus Grant. Therefore, Members need to decide whether the CTRS should help towards bridging the expected funding gap. Impact on the Tax Base 3. CTRS is a discount on Council Tax rather than a payment of benefit as was the case with CTB. As such, the Local Authorities (Calculation of Council Tax Base)(England) Regulations 2012 ensure that discounts applied as a result of entitlement to local Council Tax Reduction are fully reflected in the Council Tax Base for all authorities including Parish and Town Councils. The Council calculates its Tax Base net of all discounts. Its Council Tax requirement is then divided by the Tax Base to produce the amount of Council Tax. OSC151019 CTRS 2016-2017 8
National Trends 4. The Rowntree Foundation funded a report, published in June 2015, into the operation and impact of CTRSs across the country. Data about schemes are also compiled and published by the New Policy Institute. These two sources show that most schemes (76%) now require people to make at least a minimum payment towards their Council Tax with the most common required level of payment being 20%. The trend towards requiring a minimum payment has increased over time since the introduction of localised support in 2013. Only 12% of all authorities still provide the same level of support as was available under the previous Council Tax Benefit scheme. 5. Introducing a minimum level of payment has been shown to have an adverse impact on collection rates and the level of arrears. The impact varies according to the level of minimum payment required but where collection rates fell it was by between 0.5 and 1%. Similarly, the level of arrears has risen with 78% of councils that introduced changes seeing levels increase. The likelihood of falls in collection rates and increases in arrears has been reduced where authorities take proactive action to engage with taxpayers and bolster collection activities. OSC151019 CTRS 2016-2017 9
Appendix B Rejected Options for changes to the Council Tax Reduction Scheme 2016/17 The following changes to the current CTRS were considered by the Cabinet but were not proposed for the 2016/17 scheme due to the impact they may have on vulnerable groups or because they would simply be too complex to administer. Council Tax Band Cap Council Tax Reduction (CTR) would only be awarded up to an agreed level of Council Tax. Example: An applicant living in a Band G property will have their entitlement calculated as if they lived in a Band D property. This means they would have to pay the difference in council tax between a Band D property and a Band G property as a minimum. This option has been discounted because it could create potential disparity of treatment between areas with town or parish and areas where there is variation in property values across the district. It would also add a great deal of complexity and a large administrative burden. Limitation to Dependants Allowances This option would limit the amount included for dependants within the assessment when working out someone s entitlement. Example: An applicant with four children would have their entitlement for CTR assessed as if there were only two children within the household. The change would have no effect on the average sized family or applicants with no dependants but would limit the level of awards to larger families. Inclusion of some benefits as Income Within the current scheme, certain incomes are disregarded in full for example, Child Benefit, Child Maintenance, Disability Living Allowance and Personal Independence Payments. If these were to be included as income in working out entitlement to support it would reduce the cost of the scheme. However, it would also mean that people receiving these benefits would receive less support and because these groups may be potentially vulnerable, this option has been discounted. Limit to the amount of Capital (Savings) to 6,000 This change would mean any applicant with over 6,000 capital (savings) would not qualify for support. Currently the capital limit is 16,000. This option has been discounted by Councillors as it could be seen as a disincentive to saving. OSC151019 CTRS 2016-2017 10