Rising arrears, shrinking support: Five years of CTR trends

Council Tax arrears have reached an all time high, with outstanding debts now exceeding £6 billion in England. At the same time, the level of Council Tax Reduction (CTR) support available to low income households has continued to shrink, forcing many into financial hardship. This report examines how CTR schemes have evolved over the past five years, assessing their impact on households, local authorities, and Council Tax collection rates.

This report comes at a time of major change, both for local government and in social security. Local government reorganisation – the scrapping of two tier local government structures – will see the end of more than 160 district councils and with them more than 160 CTR schemes in England. They will be replaced with new schemes for new larger, unitary authorities.

While these changes will deliver fewer schemes and therefore less fragmentation across regional geographies, harmonising schemes across new footprints with larger populations will be a key challenge for policymakers in the next two to three years.

Equally important to CTR schemes are changes being made to disability benefits. The reduction in the number of people claiming Personal Independence Payments and the disability element of Universal Credit is likely to bring with it higher Council Tax bills as the number of people eligible for CTR support falls.

Together, Policy in Practice believes these changes, alongside completing the migration to Universal Credit from legacy benefits this year, promise the biggest shake up to Council Tax Reduction since 2013. We have modelled 150 Council Tax Reduction schemes for 35 councils over the past five years and are well placed to help councils to face these challenges head on.

Our new report, A path to better Council Tax Support schemes, launched today, examines national trends, scheme benefits and pitfalls, and the considerations all district authorities in England must now make.

For those councils not subject to local government reorganisation, increased arrears, reduced budgets and the upcoming changes to disability support mean now is the time to consider local welfare in all its forms, starting with CTR.

1. Support has declined: The average maximum award for working age households has fallen below 90% in all English regions, with some councils offering as little as 40% support. Over 570,000 households have lost access to CTR since 2016
2. A postcode lottery remains in place: Localised CTR schemes vary widely, with maximum awards differing by as much as 60 percentage points across England. Some councils have reinstated or maintained 100% support, while others have continued to cut back
3. Council Tax arrears are soaring: Before the Covid-19 pandemic, arrears had reached £3.5 billion in England alone. Today, this has increased to £6 billion, reflecting both the rising cost of Council Tax, wider cost of living challenges and the erosion of support
4. Affordability is a key driver of arrears: Local authorities in wealthier areas have higher collection rates, while those in areas of high deprivation struggle. Councils requiring a higher minimum contribution tend to see lower collection rates, reinforcing the link between unaffordable bills and non-payment
5. Administrative complexity hurts take up: The interaction between CTR and Universal Credit creates volatility in household support, leading to unnecessary reassessments and missed entitlements. Simplified banded schemes and aligning with Universal Credit start dates could improve accessibility and administration
6. Some councils are reversing cuts: Despite financial pressures, 47% of councils now offer 100% support to some working age households, up from 41% in 2020-21. However, many continue to scale back, leading to growing disparities in provision

To address the rising levels of Council Tax arrears and to ensure CTR schemes provide effective support to low income households, local authorities must now:

1. Adopt a banded scheme: Councils that have introduced banded CTR schemes have reduced administrative costs, minimised fluctuations in support caused by income volatility, and made it easier for residents to understand their entitlement
2. Implement flat-rate non-dependant deductions: Standardised deductions remove the need for councils to gather additional income data on non-dependants, reducing administrative burdens and providing greater certainty for households
3. Consider changes to exemption criteria for non-dependants and vulnerable groups: Some councils have adjusted their exemption criteria to align with Universal Credit data, replacing Personal Independence Payment (PIP) and Disability Living Allowance (DLA) exemptions with Limited Capability for Work (LCW) or Limited Capability for Work-Related Activity (LCWRA) exemptions to reduce administrative complexity
4. Start planning now for Local Government Reorganisation: for district councils moving from two tier to single tier areas, CTR schemes will need to be unified. Each district scheme will be different today and unification may need to take place over two or three financial years to prevent confusion, help residents who will lose out on support, and ensure your new one tier area is ready for CTR from day one
5. Model now to understand future impact: Once councils have set clear objectives with elected members, modelling the changes will deliver a greater understanding of the economic and social impact. The welfare landscape is changing fast. It’s important to build schemes that are stress tested to account for the migration to Universal Credit, benefit uprating and changes to the disability benefits that will come into effect in 2026-27
6. Better data sharing between DWP and local authorities: Under the current data sharing arrangements local authorities lose visibility over households with fluctuating earnings. If the household loses employment, the CTR claim doesn’t automatically resume and households often don’t know they need to reapply for CTR. This manual process prevents households from accessing support and may create barriers for people to return to the workforce

The government’s plans for Local Government Reorganisation will see more than 160 district authorities restructured into upper tier Unitary Councils. This restructure means that more than 160 current CTR schemes must be redrafted to consider new populations. 

As we outline in the report, the current fragmentation of CTR across England presents a unique policy challenge. Councils must plan for this change now by working with neighbouring authorities to harmonise their CTR schemes. But Local Government Reorganisation isn’t the only driver for change today.

The cost of living crisis, rising Council Tax bills, and declining welfare support are putting low income households under unprecedented financial pressure. Councils are caught between balancing their budgets and protecting vulnerable residents. Without major change, Council Tax arrears will continue to rise, creating further financial instability for both local authorities and the communities they serve.

As councils navigate ongoing financial constraints and begin to plan for Local Government Reorganisation, the design of local support schemes will be critical in determining whether Council Tax remains an affordable and sustainable system or an unpayable burden for those already struggling.

1. Download report: ‘A path to better Council Tax Support schemes’ here
2. Listen to our fireside chat: Hear our CTR policy experts discuss trends from the last five years and what the Local Government Reorganisation means for scheme design here
3. Book a chat with our team: Our policy experts will work with you to design CTS schemes that meet your budget and social impact objectives here