Universal Credit: Proposed Integration of Council Tax Support
In a significant development regarding welfare reform, the Institute for Fiscal Studies (IFS) has proposed that council tax support for working-age households in England be integrated into universal credit. This recommendation aims to simplify the welfare system and strengthen work incentives for those in need.
Since its localization in 2013–14, council tax support has been designed and administered by English councils, resulting in a variety of schemes with differing levels of generosity and eligibility rules. The IFS highlights that the current system’s complexity can be burdensome for claimants and local authorities alike.
The overall value of working-age support in England has diminished by approximately £630 million since the introduction of localized schemes. This reduction has been partly attributed to cuts in central government funding, leading to a decrease in disposable incomes for the poorest households by an average of £106 per year, or about 1%.
Some councils have adopted ‘banded’ schemes, where entitlement sharply decreases when incomes surpass certain thresholds. This approach can create high marginal tax rates, disincentivizing work and complicating the financial landscape for claimants. The IFS argues that integrating council tax support into universal credit could alleviate these complexities and reduce administrative burdens.
Looking ahead, about 8.3 million people currently receiving universal credit are set to benefit from an uprating in April. However, due to the monthly payment structure, many claimants will not see the increase reflected in their payments until June. The standard allowance of universal credit is expected to rise, with some households potentially gaining up to £750 a year.
Additionally, the rates for Personal Independence Payment (PIP) and Adult Disability Payment (ADP) will also see an increase from April, providing enhanced support for individuals facing extra costs due to disabilities or long-term health conditions. However, the new claims for the Limited Capability for Work and Work-Related Activity (LCWRA) element will be reduced compared to previous support designs.
As the April uprating approaches, officials have noted that most recipients will not feel the impact of the increase until June due to the arrears and assessment period dates. For instance, if a claimant’s assessment period runs from April 15 to May 14, the uprating will apply to that specific period.
The IFS acknowledges that while the proposed integration of council tax support into universal credit could streamline processes, it also presents potential financial risks that need to be carefully considered. As discussions continue, the implications of these changes will be closely monitored by stakeholders across the welfare system.
