Under coalition plans to reduce council tax benefits 2 million low-income workers will face an average bill of £247 a year from April – a charge from which they are currently exempt.
Low-paid workers will have to pay an average of £247 a year in council tax from April for the first time.
But the sums are so small – on average less than £5 a week – that councils are warning it “would in many cases be uneconomic to recover, with the costs of collection, including legal recovery costs, being higher than the bill”. The result is that councils are budgeting for large losses and potentially leaving the door open to widespread non-payment.
A series of freedom of information requests by False Economy, a campaigning group part-funded by trade unions, found that the two dozen councils that responded were resigned to seeing swaths of residents refusing to pay the tax.
In Darlington the local authority expects to collect only half the additional council tax charged from the 7,500 working-age people living there.
In the London borough of Harrow the council estimates a third of the proposed tax will not be paid. While in the Lancashire district of Wyre it is expected half the charge will go unpaid. Non-payment will leave a black hole in councils’ budgets, with Liverpool saying that it will run up a £6m deficit because of non-payment.
Other councils – especially those with low council tax rates – have decided to simply take the hit and preserve the current system. Tory-run Wandsworth says it will not charge low-income residents council tax because the cost of legal bills to recover the monies from persistent non-payment would be too high.
A council consultation says: “In all likelihood [it would] have to be written off when the debt is uncollectable which would militate against the savings made on reducing the level of support.”
Tenants and homeowners who fail to pay their council tax bills can face repossession and even prison. A 51-year-old woman from Feltham, London, was jailed for 17 days in April for non-payment of council tax arrears amounting to £1,985.
A False Economy spokesperson said: “This latest assault will force people to choose between paying council tax and feeding their families, while councils chase them for money they simply do not have … Councils have a responsibility to mitigate and counter these cuts, but ultimate blame rests with the Conservative-led government that is slashing funding from on high.”
Many have compared the new council tax schemes to the “poll tax” debacle – a policy that marked the beginning of the end of the Thatcher administration. The poll tax, which replaced rates in England and Wales in 1990, was a flat-rate charge on adults with a 20% levy on the unemployed. It was scrapped after two years.
Peter Kenway, of the New Policy Institute thinktank, said it was “not scaremongering to say that this policy could be a repeat of the poll tax. Ministers simply have not thought this through and it is being implemented at a time when the poor will be facing cuts to welfare.”
Ministers ordered cuts to the current scheme – which essentially pays the council tax of the poor in full – to save the Treasury £500m a year but told councils they had to decide who would lose the money. The scheme begins next April and the government has yet to issue a consultation paper. Peers in the House of Lords will vote on the measures on Tuesday.
Ministers are understood to be preparing to blunt the impact of the cuts by offering £100m of transitional relief “for councils that implement local council tax support schemes and adequately protect the poorest”.
Eric Pickles, the communities and local government secretary, will also look to cap the council tax payable by the poor to 8.5% of the full charge faced by ordinary households. However, documents obtained by the Guardian officials warn that “under any capping approach, there will still be low-income households, potentially wholly dependent on benefits, who will be asked to make some contribution towards their council tax bill”.
The Local Government Association says poor communities will bear the brunt of the cuts – and poor people will not be able to pay.
The chair of the LGA, Sir Merrick Cockell, said money offered by the government would be welcome. “But there is still a £400m shortfall to deal with. Councils are being put in a very difficult position … under the proposed scheme most councils will have to ask people on lower incomes, including the working poor, to pay more council tax than they currently do.
“Collection rates overall are very high. But there is clear evidence that, for a range of reasons including financial difficulties, the poorer people are the less likely they are to pay council tax. In their current form these changes are a significant concern.”
Labour described the changes as a “shambles in the making”. Hilary Benn, the shadow communities and local government secretary, said: “The fact that so many councils are predicting a high level of non-payment shows that the government simply hasn’t thought this through. Eric Pickles’ poll tax is unfairly targeted at people on low incomes.”
In a statement the local government minister, Brandon Lewis, said: “It is right that our reforms help reduce the deficit by giving councils a financial stake in getting spending on council tax support back under control and helping people back to work and off benefits.
“Many councils [such as Trafford, Brentwood, Croydon and Mansfield] are planning local schemes that let people earn more without losing benefits, making sure that work always pays.”
• This article was amended on 16 October 2012. In the original the following quote from Hilary Benn was repeated and attributed to Merrick Cockell: “Eric Pickles’ poll tax is unfairly targeted at people on low incomes.” The mistake was made during the editing process.
