Most low income households have had less help to pay their council tax bill since 2013 as changes to the support schemes have been made and funding cuts have been passed on.

Policy in Practice’s research, commissioned by the Local Government Association, finds that the average low income household in Britain is £3.33 per week worse off as a result of replacing Council Tax Benefit with localised Council Tax Reduction schemes.

The roll out of Universal Credit full service, which ramps up significantly this Autumn, will change how much Council Tax Support households receive. This is because the method used to calculate how much support someone can get differs depending on whether that person is receiving legacy benefits or Universal Credit.

To best support all vulnerable households councils must understand the full impact moving on to Universal Credit full service will have in their area. In this blog, we explain the detail of how Universal Credit affects the Council Tax Support that households receive, offer some rules of thumb on typical winners or losers, and suggest who may need support.

The hidden impact of Universal Credit on Council Tax Support

Most analysis that looks at the impact of Universal Credit generally compares income from legacy benefits with income from Universal Credit. Yet, because Council Tax Support sits outside Universal Credit and is still given by local authorities under local schemes, it’s often omitted from this income comparison.

When a household moves to Universal Credit, changes in the level of Council Tax Support can have a small but significant effect on household income. This change in support is important because a large number of low-income households will be hit.

By analysing the combined impact of Universal Credit and Council Tax Support local authorities can understand the full impact that moving to Universal Credit will have on low income households and get important information to help create the best Council Tax Support scheme possible.

The ‘default’ scheme and Universal Credit

Analysing the impact Universal Credit has on Council Tax Support is complex because of the infinite number of schemes possible both for people who get Council Tax Support and for those moving to Universal Credit. Nevertheless, to understand the combined effect on household incomes, a good place to start is with the commonly used ‘default’ scheme.

Under the default scheme, Council Tax Support is different for households who get Universal Credit compared to those on legacy benefits. Although the assessment process is generally the same, the calculation of income and needs isn’t. However, this has little impact on Council Tax Support for non-working households because their income will usually be below their ‘needs’.

So, whether their income is higher or lower under Universal Credit, non-working households will continue to get maximum Council Tax Support set at the local scheme rate. The impact of Universal Credit has on levels of Council Tax Support will, for the most part, be on working households.

For working households, changes in income under Universal Credit will mean that a different level of income is taken into account for the assessment of Council Tax Support. Higher income under Universal Credit will generally result in lower Council Tax Support, and lower income under Universal Credit will generally result in higher Council Tax Support.

That said, there are exceptions because of changes in the rules around the assessment of need or income. Outcomes can broadly be divided into three categories:

  1. households with reduced income under Universal Credit and lower Council Tax Support – lose
  2. households with higher income under Universal Credit and higher Council Tax Support – win
  3. households where income changes under Universal Credit are partially offset by corresponding changes in Council Tax Support – no change

1. Why some households lose

Some working households that lose money under Universal Credit will not see this translate into higher Council Tax Support. This situation occurs if the needs side of the assessment is lower under Universal Credit or when income that was previously ignored for legacy benefits assessment is now taken into account for Universal Credit assessment.

The groups of households primarily affected by this are working households with a person with a disability, some households previously in receipt of ESA, and the self-employed.

By way of explaination, legacy benefits and Council Tax Support include premiums for those in receipt of DLA or PIP which increase the needs element against which income is compared. These do not exist under Universal Credit or the related default Council Tax Support scheme. For affected households who are also working, decreased income under Universal Credit will not result in increased Council Tax Support.

Many working single-person households in receipt of ESA also lose out. For these households, work allowances will be lower under Universal Credit than the equivalent earnings disregard (know as permitted work) under legacy benefits. This means income is taken into account under Universal Credit that is ignored for assessment of legacy benefits, resulting in both lower Universal Credit and lower Council Tax Support.

For working households in the ESA support group, this increased income sits alongside a reduction in the needs level, leading to an even more significant loss of income.

For self-employed households, assessment of income under Universal Credit uses a notional income based on the minimum wage. For many low-income households, this is higher than actual income. Because assessment is based on a higher income than that used for legacy benefits, the reduction in Universal Credit is accompanied by lower Council Tax Support.

2. Why some households win

A minority of households will see increased income under Universal Credit that doesn’t translated into loss of Council Tax Support. This will occur where the needs element is higher under Universal Credit, for example when lower non-dependant deductions apply. This may also happen where income is excluded from Universal Credit but included for assessment of legacy benefits, an example of this is income from boarders which is ignored for Universal Credit assessment purposes but partially taken into account for legacy benefit assessment.

3. Why some households see no change

For most working households, the amount of Universal Credit will affect how much Council Tax Support is awarded; higher Universal Credit will result in lower Council Tax Support and vice versa.

Many non-disabled employed households will have increased income under Universal Credit due to retention of a greater proportion of earnings. This increased income will be taken into account for Council Tax Support resulting in a lower award. This means that a significant proportion of the households that lose Council Tax Support under Universal Credit are being compensated for this loss through a higher Universal Credit award.

All of this is good news for local authorities as, effectively, a greater proportion of support for these households comes from central government funds rather than through locally funded Council Tax Support schemes.

What this means for support agencies and residents

Keeping a Council Tax Support scheme that’s based on the default scheme won’t maintain the status quo. Changes to the assessment of Council Tax for those in receipt of Universal Credit will mean a change in Council Tax Support for most working households. Therefore, any assessment of household income under Universal Credit also needs to reassess Council Tax Support.

What this means for local authorities

A complete picture of how Universal Credit affects Council Tax Support can only be achieved by household level analysis that takes account of the specifics of a localised support scheme. Only this detailed level of analysis can give the necessary demographics to fully understand which households will gain or lose Council Tax Support under Universal Credit.

How Policy in Practice can help

Policy in Practice has assessed the impact of welfare reforms, combined with modelling of proposed Council Tax Support schemes, for different local authorities. In general, retention of the default scheme, as residents move to Universal Credit, results in a small cost saving in Council Tax Support to the authority.

The income for some non-disabled working households who lose Council Tax Support remains much the same because the lost income is offset by retention of earnings under Universal Credit. It’s therefore tempting for local authorities to retain a scheme that resembles the default scheme. However, there are still vulnerable households that councils should worry about.

Through our work with local authorities we have identified certain types of households that will lose, or be doubly hit, and these include households with someone with a disability. Local authorities may want greater visibility of these households and consider a Council Tax Support scheme that protects them.

In practice, many local authorities know that retention of the default scheme will come with high, and unfunded, administration costs, and they want to introduce schemes that are both socially fair and easy to administer. Local authorities who are planning to change their Council Tax Support schemes as full service Universal Credit comes in have a real opportunity to give the best possible holistic support to their residents in most need.

Further information

Listen to our recent Future proof your Council Tax Reduction Scheme for Universal Credit webinar to hear Paul Howarth, Welfare Reform Club and Ian Jones, LB Hackney talk about Council Tax Reduction Schemes and Universal Credit. View here.

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14 Comments. Leave new

  • nicola mccarron
    March 13, 2020 14:07

    The same has happened to my friend when she used to be on income support she got full council tax support but when she moved to universal credit she gets about 60% off council tax support When she rang the council tax office to question this they told her that because she is on universal credit she got more money but that is not correct and still gets the same ammount she would as normal can any one tell me if this is correct as I dont understand it

    • Louise Murphy
      March 24, 2020 12:09

      Hi Nicola

      Council Tax Support is calculated differently depending on whether somebody is claiming Universal Credit or receiving old-style benefits (‘legacy’ benefits). It is possible to receive the same amount of benefit under Universal Credit as under previous legacy benefits and see a reduction in Council Tax Support.

      When your friend moved to Universal Credit, this triggered a different way in which their Council Tax Support was worked out. In many cases this results in a high award for Universal Credit (which is what we wrote about in this article) but this isn’t always the case. It is therefore likely that the reduction to your friend’s Council Tax Support is due to these differences in how it is worked out.

      All the best,

  • Louise Williams-St Louis
    March 2, 2020 13:07

    I am a single mother with 3 children. One of which I care for as disabled.
    Yet I am required to pay almost most of the council tax benefit.
    I’m now on universal credit and only entitled to a 40% deduction. Yet if I was still on income support it would be up to 75% deduction. I am only getting £8 a week council tax benefit and my council tax is over £1400 for the year. The local council advised me it’s because I getting dla for my son. This cant be right

    • Claudia Varney
      March 5, 2020 12:53

      Hello Louise. It is difficult to answer your query without knowing further information. Unfortunately, council tax support schemes can differ greatly between councils, so we can’t check whether this is correct without knowing which council you are in. You can use the Benefits and Budgeting Calculator to predict the amount of council tax support you may be eligible for. I hope you can get the support you need!

  • Hanife Statovci
    October 26, 2019 16:10

    HI My name is Hanife i live with my husband and 3 children i am on universal credit i dont understand why do i have to pay so much council tax 128.00 per month i think is too much for 3 bed flat i dont understand

    • Duncan Hatfield
      December 20, 2019 15:26

      Hi Hanife,

      Thanks for your query. The level of council tax you pay is determined based on the value of your property as it would have been in 1991 (if you live in England or Scotland – Wales and Northern Ireland have slightly different rules). Every property is divided into different council tax bands based on that valuation, with the most valuable houses paying more council tax, and least valuable paying least. The actual level of council tax at each band will be decided by your local council. If you think the property is incorrectly valued, you might be able to challenge the valuation, so that you might get put into a lower band and pay less::

      As you’re on Universal Credit you may be eligible for council tax reduction from your local council. If you put in your postcode here you can follow it through to see if that may be an option for you in your area:

      Best wishes,

  • I have applied for universal credit, my housing benefit has, stopped, if my universlal credit application is not successful, can I reclaim housing benefit

    • Claudia Varney
      December 20, 2019 14:58

      Hello Shannaz,

      Now that Universal Credit has been introduced, in most cases you cannot make a new claim for Housing Benefit. There are a few exceptions: 1. If you were in receipt of a Severe Disability Premium (SDP) before you applied for Universal Credit, you should move back to Housing Benefit. If this is the case, we’d recommend you contact an advisor at Citizens Advice to help you with this. You can find your nearest Citizens Advice Bureau here. 2. If you are living in temporary or supported housing, you should continue to get your housing costs met through Housing Benefit.

      If neither of these situations apply, you will not be able to make a new claim for Housing Benefit. However, as you previously qualified for Housing Benefit, you are likely to also get Universal Credit. You can predict how much your benefits will change under Universal Credit using our calculator.

      Best wishes,

  • Natalie Barber
    August 23, 2019 19:40

    Hi me and my partner are both receiving lcwra after moving onto uc when we moved in together. He has 2 children and previously we got 100% reduction on council tax. Since claiming as a couple we get an extra
    94 pound a month then he previously got on ESA but now our council tax reduction is only 40% and they want 155 pound a month surely this cant be right?

    • Zoe Charlesworth
      September 20, 2019 21:16

      Hi Nathalie, this doesnt sound right. If you are both receiving LCWRA then you should get maximum council tax support. The amount of this will depend on your local authority. If you previously received 100% it sounds like your authority is applying a generous local scheme. The local authority can change the scheme every April but it seems unlikely taht they would change to 40%. I would visit or call your local authority to discuss this.

  • Becky Mitchell
    March 12, 2019 18:36

    My husband is disabled and is in receipt of PIP. Before we changed to universal credit he claimed ESA which meant we got higher council tax reductions. He is no longer able to claim ESA but now is awarded limited capability for work work related activity but we are no longer awarded a higher amount of council tax reduction. This has meant an increase of £70 to our council tax bill per month. Will we ever be eligible for the higher council tax reduction, if there anything we can do? I have spoken to our council office and they sent a hardship form but because we have £70 excess income per month they said we were not eligible for a hardship payment. I feel we are being penalised for my husbands inability to work. Any advice would be very much appreciated.

    • Louise Murphy
      May 20, 2019 15:39

      Hi Becky,

      Sorry to hear about the situation you are in. I’d recommend speaking to an advisor from Citizens Advice – they should be able to provide you with some more information about the options available to you.

      Please let us know if you have any other questions.

      Kind regards,

  • I still dont understand why I’m paying £34 a month on universal credit I live alone in a housing association bungalow. My age is 61


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