Council Tax Reduction in Scotland, 2014-15

Background

Introduction

Council Tax Reduction (CTR) provides vulnerable people with a reduction in their Council Tax liability, which can be up to 100%.

The Scottish Government introduced CTR on 1st April 2013 to replace Council Tax Benefit, which was implemented by the Department for Work and Pensions and was abolished under the provisions of the UK Welfare Reform Act 2012. Entitlement to CTR in Scotland after 1st April 2013 replicates, as far as possible, previous entitlement to CTB. Entitlement reflects a variety of circumstances including unemployment, low pay and inability to work because of disability or caring commitments. On a like-for-like basis, people have the same Council Tax liability as if CTB were still in place, provided that their circumstances remain the same.

How awards are calculated

Entitlement to CTR and the amount awarded is based on the status and income of the applicant. Under Council Tax Benefit (CTB), applicants in receipt of a ‘passporting’ benefit were called ‘passported’ recipients. They were entitled to full CTB since their income and capital automatically met eligibility rules. CTR maintains this policy and this terminology has been maintained in order to enable comparison between CTB and CTR recipients. The ‘passporting’ benefits are:

• Income-based Jobseeker’s Allowance (paid to people who are unemployed and are on a low income).
• Income-related Employment and Support Allowance (paid to people whose ability to work is limited by illness or disability and are on a low income).
• Income Support (paid to people who are on a low income and under state pension age).
• Pension Credit (Guarantee Credit) (paid to people who are over the qualifying age and on a low income).

Applicants who are not in receipt of a ‘passporting’ benefit, and who have less than £16,000 in savings, can qualify for CTR following an income assessment. Weekly household income, including from employment, pensions and benefits, is totalled up and compared to the applicable amount - this is the amount of money that the government says is required for a household to live on. The applicable amount varies depending on age and family status, and premiums can be added, for example if the applicant has a disability. If the total income is less than the applicable amount, then full CTR will be awarded. If the total income is greater than the applicable amount then the household is expected to contribute 20 pence per pound of their excess income to their Council Tax bill. This results in a tapering effect, where CTR awards decrease as income increases.

An illustration of the award calcuation for a non-passported claimant, using 2014-15 rates and not drawn exactly to scale, is shown in Figure 1 below. This example is for a couple, both aged 40, with a child aged 7. One adult works part-time and earns £6,000 per year, whilst the other has a disability and receives contribution-based Employment Support Allowance (ESA). Disablity Living Allowance Care (middle-rate) and Mobility (middle-rate) benefits are also paid, although they are disregarded from the calculation of weekly assessable income. Child Benefit is also disregarded. They also receive Child Tax Credit, which is counted as part of the weekly assessable income calculation.

The detailed breakdown of their weekly assessable income and applicable amount is as follows. Their weekly assessable income is £231.23 (made up of £115.38 from earnings, £20 of which is disregarded, £72.40 from ESA and £63.45 from Child Tax Credit). Their applicable amount is £197.48 per week (made up of the couple personal allowance of £113.70, a £17.45 family premium, and £66.33 child allowance). Their excess income is £33.75 (being £231.23 minus £197.48) and they are expected to contribute 20% of this (£6.75) towards their weekly Council Tax liability.

If, for example, they live in Edinburgh in a Band C dwelling, with an annual Council Tax rate of £1,039.11 per year (or £19.92 per week), their CTR weekly award would be £13.17 per week, calculated as £19.92 minus their contribution of £6.75.

Figure 1: Council Tax Reduction award calculation illustration

Excess Income and Council Tax bill elements are not drawn exactly to scale as the relative size of these elements is small.