New 'poll tax' blow for UK's poorest

Millions of low-income households face a rise in their council tax bills costing them up to £600 a year from April under a "poll tax bombshell", according to new study.

People in low-paid jobs and those on benefits who currently pay little or no council tax will be hit with increased bills within months in three out of four local authorities, it has emerged.

Most councils have decided to reduce the council tax benefit available for residents on low incomes after central government imposed a 10 per cent cut on the total subsidy budget. At present 3.2 million working-age households receive such support.

The first picture of the new system's national impact emerges in a study by the Resolution Foundation think-tank, based on a survey by the New Policy Institute which reveals the intentions of 184 of the 326 local authorities in England. All councils must decide on their new systems by today.

About 74 per cent of those 184 councils will demand a new or higher payment from those on low incomes, meaning their support will be less generous than it is now. Two in three councils will impose a flat-rate cash cut.

Although the Government has provided a £100m transitional grant for councils, some Conservative MPs are worried about the prospect of a "second poll tax". The flat rate charge played a big part in Margaret Thatcher's downfall as Prime Minister in 1990 and was scrapped after she was forced to resign. At present, means-tested council tax benefit provides support to 5.9 million families, 3.2 million of which are of working age. It is being abolished on 1 April, when councils will provide local support.

They must maintain help for pensioners but there is no obligation to do so for the disabled, some of whom may face new charges. It is not yet clear how many disabled people might face cuts. According to today's report, many of the 2.5 million working-age jobless people on council tax benefit, who now pay no council tax, will have to find between £96 and £255 a year.

Of the 700,000 now receiving the benefit who are in work, most of whom pay some council tax, the worst affected will be single parents working part-time with children in childcare, whose council tax will range from £96 (a 55 per cent rise) to £557 a year (a 333 per cent increase). A typical couple with one partner in work will see their bills rise by between £96 (up 12 per cent) and £304 a year (up 37 per cent).

The report, No Clear Benefit, warns that the shake-up could undermine the drive to make work pay by phasing in universal credit, which will streamline the benefits system, from this year.

Although the Government argues that "virtually no households" will lose more than 80p in the pound for every extra hour they worked, the foundation says that nine in 10 of those who will be on universal credit and who also receive council tax support look set to face tax rates of about 81p.

The think-tank found that many authorities are setting aside a reserve fund to cover non-payment of council tax under the new regime. With some people previously exempt being asked to pay £2 a week, the costs of pursuing non-payers in court may outweigh the revenue to the town halls, it warned. Council tax payers in Scotland and Wales are not affected because their devolved administrations will cover the 10 per cent funding cut.

Gavin Kelly, the foundation's chief executive, said: "Millions of England's poorest households… are already very close to the edge given falling wages, tax credits and benefits. Very few of those currently exempt from paying the full rate of council tax are expecting a large new bill to drop on to their doormat this spring. When it does, they are going to find it hard to cope."

Brandon Lewis, Local Government minister, said: "Spending on council tax benefit doubled under [Labour] and welfare reform is vital to tackle the budget deficit we have inherited. Under the last administration, more taxpayers' money was being spent on benefits than on defence, education and health combined. Our reforms will localise council tax support and give councils stronger incentives to support local firms, cut fraud, promote local enterprise and get people into work. We are ending the something for nothing culture and making work pay."

The Government may include parental drug or alcohol addiction when it brings in a new way of measuring child poverty that is not based solely on income, Iain Duncan Smith will say today. The Work and Pensions Secretary will reveal that a poll conducted for his department found that three-quarters of the public (74 per cent) believe that such addiction should be the most important issue when defining child poverty.