Universal Credit: Potential Integration of Council Tax Support
The Institute for Fiscal Studies (IFS) has recently proposed a significant development regarding universal credit, suggesting that council tax support for working-age households in England could be integrated into the system. This proposal aims to simplify the welfare framework and strengthen work incentives for millions of claimants.
Currently, council tax support has been locally designed and administered by English councils since 2013–14, resulting in a diverse array of schemes with varying levels of generosity and eligibility rules. The IFS argues that integrating this support into universal credit could reduce complexity for claimants and administrative burdens for councils, though it also notes that such reforms could introduce some financial risks.
Since the localisation of council tax support, the overall value of working-age support in England has fallen by approximately £630 million. This decline is partly attributed to reductions in central government funding, which has adversely impacted the disposable incomes of the poorest households. On average, these households have seen a reduction of £106 a year, or about 1% of their income.
Moreover, some councils have implemented ‘banded’ schemes where entitlement sharply decreases when incomes surpass certain thresholds. This structure can lead to high marginal tax rates, potentially discouraging individuals from increasing their earnings. The proposed integration into universal credit could address these issues by providing a more streamlined and equitable system.
As of now, about 8.3 million people on universal credit are due for an uprating in April. However, it is important to note that universal credit payments are made monthly in arrears, meaning that many claimants will not see the increase until June. The standard allowance of universal credit is set to rise in April, with some households potentially benefiting by up to £750 a year.
In addition to the changes in universal credit, the rates for Personal Independence Payment (PIP) and Adult Disability Payment (ADP) will also increase from April, providing improved support for individuals facing extra costs due to disabilities or long-term health conditions. Despite these positive developments, the reduction of the Limited Capability for Work and Work-Related Activity (LCWRA) element for new claims raises concerns about the adequacy of support for vulnerable populations.
Most people will see the uprated universal credit in June, but the timing of this increase is contingent upon individual assessment periods. For instance, if a claimant’s assessment period runs from 15 April to 14 May, the uprating will apply to that specific period. The April uprating is viewed positively for millions; however, many universal credit recipients will not feel the financial impact until June due to the delays caused by arrears and assessment period dates from 13 April.
As discussions around the integration of council tax support into universal credit continue, stakeholders await further details on how these proposed changes will be implemented and their potential effects on the welfare system. The implications of these reforms could be significant for millions of households navigating the complexities of financial support in England.