First Published BY: JOSEPH ROWNTREE HOUSING TRUST
A new perspective on the debate about local taxation.
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This study discovers who
is struggling to pay Council Tax, and
provides first-hand evidence of their views and experiences. How many low income
households there are in each Council Tax
valuation band; how many households are struggling to pay Council Tax; whether people in all Council Tax valuation bands are
struggling to pay; interviewees’ own views of Council Tax benefits, issues and
solutions.
The researcher suggests the key policy implications are:
The need to address the
position of the far greater numbers of low-income households in low-value
properties who currently ‘lose’ in relative terms; Council Tax benefit needs to move beyond
take-up to give greater consideration to the negative impact of Council Tax on ‘making work pay’.
Council Tax is the subject of an
on-going review. Using statistical analyses and interviews with people who had
received a summons for non-payment of Council
Tax, Michael Orton from Warwick University explored how many households are
struggling to pay Council Tax, and
why. The study looked at whether households in all Council Tax valuation bands are
struggling to pay, and how many low-income households there are in each Council Tax valuation band. It also
examined how people who are struggling to pay experience Council Tax benefit, and what they see
as key issues.
The principal findings were as follows:
It is estimated that more
than two million households struggle to pay Council Tax each year in England; these
households predominantly have low incomes and are in low-value properties, not
high-value ones. In Britain, there are an
estimated 181,000 low-income households in bands F-H, but 5.7 million
low-income households in bands A-C. Interviewees cited low
income as the main reason as to why they had received a summons for non-payment
of Council Tax. The largest group of
interviewees were in employment, but on low wages.
Interviewees’ experience
of Council Tax benefit focused not on
take-up, but on the ‘meanness’ of the scheme, administrative problems and the
sheer complexity of Council Tax
benefit and its interaction with other benefits (including tax credits).
The researcher concludes
that the key policy implications are as follows:
Concern with low-income
households in high-value properties ought not to lead to a failure to address
the position of the far greater numbers of low-income households in low-value
properties who currently ‘lose’ in relative terms. This is because Council Tax is regressive (accounting
for a larger proportion of household income for those on low and middle incomes
than those on high incomes); discussion of Council
Tax benefit needs to move beyond take-up to give greater consideration to
the negative impact of Council Tax on
‘making work pay’.
Background
Council Tax has been the British system
of local taxation since 1993. Council Tax
involves properties being valued and then placed in one of eight valuation
bands, A to H (H being the highest band). A different amount of tax is payable
for each band, with the liability for a band H property being three times that
of a band A property. People on low incomes can apply for Council Tax benefit, a means-tested
benefit which reduces the amount of Council
Tax that has to be paid. In 2005-06, the average annual Council Tax bill in England was £1,009.
Council Tax is the subject of an
on-going review, and within the current debate four points were of particular
relevance to this study: Council Tax is regressive, meaning that
it accounts for a larger proportion of household income for those on low and
middle incomes than for those on high incomes. Local tax in the UK accounts for
4.9 per cent of gross income for households in the bottom income quintile, 3.7
per cent for households in the second bottom quintile, falling to 1.7 per cent
for the top quintile.
There has been no attempt
as yet to identify how many, and which, households are struggling to pay Council Tax. There is considerable
concern regarding the position of people, particularly pensioners, with low
incomes in high-value properties. There is an emphasis on
improving the take-up of Council Tax
benefit in order to make Council Tax
fairer.
To examine these issues
and explore how many people are struggling to pay Council Tax, and why, the study used
statistical analyses and interviews with 51 people who had received a
magistrates’ court summons for non-payment of Council Tax.
Struggling to pay: how
many, and which, households?
It is estimated that over
two million households struggle to pay Council
Tax each year in England. Those struggling to pay are predominantly
low-income households in low-value properties, not people in high-value
properties.
These conclusions are based on the
following findings:
It is estimated that
close to three million summonses for non-payment of Council Tax are issued in England each
year.
Deprivation is a key
factor in explaining the number of summonses issued by councils.
One in four households in
band A receives a summons; one in seven in band B; but fewer than one in ten in
bands E-H (based on a sample of 22 councils).
Low-income households in
high-value properties are exceptional; households with low incomes in bands F,
G and H combined represent 0.7 per cent of all households in Britain.
It is estimated that
181,450 households in Britain have a low income and live in bands F-H
(including 101,008 pensioner households). It is estimated that
5,740,833 households in Britain have a low income and live in bands A-C
(including 2,898,888 pensioner households).
Interviewees cited low
income as the main reason as to why they had received a summons for non-payment
of Council Tax. The largest group of
interviewees were in employment, but on low wages. The struggle to pay Council Tax formed part of the
day-to-day difficulty of making ends meet, despite having a job. “The problem is my wages
[£170 per week]. I just don’t earn enough.” (Gardener, male, 20s)
Struggling to pay Council Tax could also be part of a
broader debt problem brought about by a dramatic fall in income. Examples of summonses
being received because of administrative issues and the person’s own actions
were found in all Council Tax bands
and at all income levels. But low income created vulnerability to missing
payments, and meant problems in repaying arrears.
Low income, benefits and
pensions
For those in receipt of
benefits, the administration of Council
Tax benefit was a problem, as was repaying arrears that were accrued when
in employment and before being in receipt of benefits. Questions arise as to
the efficiency and fairness of collecting very small amounts of Council Tax from people in receipt of
benefits, particularly Incapacity Benefit. In one case, the summons costs were
higher than the interviewee’s annual Council Tax liability.
An interview with a
pensioner with a low income in a high-value property identified problems with a
diminishing private pension, and suspicion about equity release schemes.
Problems experienced by other interviewees with apparently low incomes in
high-value properties were more to do with fluctuating income.
Council Tax benefit
key issues
Interviewees’ experience
of Council Tax benefit focused not on
take-up, but on the ‘meanness’ of the scheme, administrative problems and the
sheer complexity of Council Tax
benefit and its interaction with other benefits (including tax credits). The key point that
interviewees raised was again low income and, despite some of them being in paid
employment, the struggle to make ends meet. The administration of Council Tax at local level, in
particular relating to payment methods, was also a significant issue for some
interviewees.
Conclusion
The research has provided
a new perspective on the debate about local taxation. In particular, it
highlights that: Consideration needs to be
given to the position of the estimated more than two million predominantly
low-income households in low-value properties who struggle to pay Council Tax each year; Attention needs to be
given to making Council Tax fairer by
revising the ratio between valuation bands; Low-income households in
high-value properties are exceptional; there are far greater numbers of
low-income households in low-value properties who, because Council Tax is regressive, currently
‘lose’ in relative terms; discussion of Council
Tax benefit needs to move beyond take-up – greater consideration needs to
be given to the negative impact of Council
Tax on making work pay.
About the project
The project was
undertaken by Michael Orton at the Institute for Employment Research (IER),
University of Warwick. The statistical analyses were undertaken by Duncan Adam,
University of Warwick, and Rhys Davies, formerly of IER and now at the Office
for National Statistics. Additional support was provided by Paul Jones at IER.
The research included building
a statistical model (a multiple regression model). This drew on an annual
survey undertaken by the Chartered Institute of Public Finance and Accountancy
(CIPFA), published by CIPFA as Revenue Collection Statistics Actuals.
Additional data were obtained from a sample of 22 diverse councils. The
indicator of deprivation used was the average ward score from the 2000 Indices
of Deprivation.
The analysis of Council Tax band and household income
used the Family Resources Survey. Income bands were defined as: low income –
less than 60 per cent of median income; modest income – between 60 per cent of
median income and median; above average – between median and twice median
income; high income – more than twice median income. In addition, 51 in-depth
interviews were conducted with people who had received a Council Tax summons
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I support Council Tax Rebates in assisting home owners and tenants in getting a rebate on their over-paid Council Tax.