Council Tax Reduction Consultation

Proposal for a banded income scheme

Council Tax Reduction helps residents on a low income to pay the Council Tax, by reducing their Council Tax bill.

Until 2013, Council Tax Reduction was a national scheme, and the reductions that people could receive were set by central government. Since then, each council has had the responsibility to specify its own Council Tax Reduction scheme for working-age residents (the scheme for pensioners is still set by central government).

Since 2013, the Royal Borough of Kensington and Chelsea's working-age Council Tax Reduction scheme has been based on the “Default Scheme” - a relatively generous scheme which is equivalent to the old national scheme. But for some residents, this scheme does not work very well, so the council is proposing to start a new scheme in April 2021. 

Why our Council Tax Reduction scheme does not work very well for some residents

Roughly one-third of our working-age residents who receive a Council Tax Reduction are on Universal Credit, the new welfare benefit administered by the Department for Work and Pensions (DWP). Over the next few years, we expect that most of our working-age residents who receive Council Tax Reduction will transfer to Universal Credit.

For residents on Universal Credit, the council uses the amount of their Universal Credit, and the amount of any other income, including earnings, according to the Department for Work and Pensions, to calculate their Council Tax Reduction.

Because Universal Credit can be recalculated each month, this means that a resident’s Council Tax Reduction might also be recalculated each month, and a revised Council Tax bill issued. This is a problem for workers on Universal Credit, whose earnings might fluctuate each month, due to variable working hours, or other factors.

Each time a new Council Tax bill is issued, a new payment instalment plan is offered, over-riding the previous one. If this happens often, the new instalment plan will start before the first instalment of the previous plan has become due. If this is repeated, then the resident cannot make payments according to their plan, and they will get into Council Tax debt. 

How can this problem be solved?

The Council is proposing that the Council Tax Reduction for residents on Universal Credit is calculated according to a banded income scheme. This means that the Council will place a resident’s income within a “band” of income, and that band will determine the percentage by which their Council Tax is reduced. For example, if someone’s income is £290 per week, they would be placed in a band of income £289 to £317, which gives 32% off the Council Tax.

If, in the following month, this person’s income changed to £300 per week, it would still be in the band £289 to £317, and the Council Tax Reduction would be the same. The Council woudn't need to issue a revised Council Tax bill and that person’s Council Tax instalment plan would remain the same.

Who does this proposal affect?

It only affects Council Tax payers who are on Universal Credit and working. If someone is on Universal Credit but has no earnings in a particular month, that person can claim maximum Council Tax Reduction as at present (for example, 100% minus non-dependant deductions if relevant).

If a resident is not on Universal Credit, whether pensioner or working-age, they are not affected by this proposal (they will still have their Council Tax Reduction calculated in the same way as the current scheme).

Would people on this banded income scheme get more, or less Council Tax Reduction, compared with now?

We will aim to make the banded income scheme at least as generous as the current scheme. The indicative rates of reduction are shown in the following pages.

Most people will qualify for the same, or slightly more reduction than under the current scheme. Our work shows that about 30% of people on Universal Credit will get more reduction under the banded income scheme. The average increase in reduction for this group is £146 a year. The rest of the people will usually get the same reduction as at present.

We recognise that there may be a small number of people with complex situations who might qualify for less under the banded income scheme. If their old rate reduction is higher than the new scheme on 1st April 2021, then this rate of reduction will be protected for an indefinite period. This period will only end if they become entitled to more reduction under the banded income scheme compared with the old rate. This protection can also continue after a gap in their entitlement to Council Tax Reduction.

Overall, the new scheme is slightly more costly than the current scheme. We expect this extra cost to be absorbed by the general fall in numbers of people on Council Tax Reduction in RBKC, a trend which began a few years ago, and is expected to continue.

Are there any other ways to solve this problem?

We believe that a banded income scheme is the only effective way to solve the problem.

We also looked-into an “income tolerance” scheme (ignoring small changes in earnings within a specified monetary range), and a “Housing Benefit-style” scheme (averaging-out earnings according to the resident’s pattern of employment), but these would be labour-intensive, and would add unacceptable administrative costs to the scheme.