CTS policy issue – how to best express a % cap on entitlement in our “regs”

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  • #43344
    Patrick Doherty
    Participant

    I'm wondering if anyone can offer any ideas on the following. I'm trying to draw up draft rules for our scheme, using the default scheme regulations as a starting point, but I've hit a bit of a stumbling block due to our choice of not going down the liability cap route, but to cap entitlement.

    Apologies for the longwinded post, but its a bit complex, however I’m hoping that there is a simple solution that I am missing. Our approach is an 85% cap on working age entitlement and doing away with the 2nd Adult rebate equivalent for working age, but I am struggling to devise a neat and consistent way of expressing our 85% cap for all the relevant "classes" of person. The problem is as follows:

    Regs 12-17 define the classes of person (pension age, working age, income above and below applicable amount, alternative max (2nd Adult rebate))

    Reg 28 defines the "maximum reduction" possible (and obviously for pension age this is simply 100% of liability)

    Reg 31 defines the relevant "amount of reduction" for each class of person

    For pensioner "classes" it is straightforward, as the "maximum reduction" in Reg 28 is equivalent to full Ctax liability, and the "amount of reduction" in Reg 31 is the "maximum" reduction defined in Reg 28 for Class A, and the maximum minus taper for Class B.

    However, due to our 85% entitlement cap for working age, the "maximum" for classes D&E (working age, income above and below applicable amount) can't be expressed as full Ctax liability, as this will never be achievable for them.

    I think this could be easily dealt with for class D (working age people with income under their applicable amount) as I could express it in Reg 28 ("maximum deduction") as something like:

    Full CTax liability, less non-dep deductions, less 15%. And then Reg 31 "amount of deduction" for class D can just be the amount of the maximum reduction given in Reg 28.

    However, this won't work for persons in class E (working age with income above applicable amount) due to the taper calculation. In Reg 17 (where CLASS E is defined), part of the definition is that the maximum reduction exceeds the taper, i.e. that they have some entitlement after the taper calculation, so for the purposes of Reg 17, the "maximum reduction" must be 100% of Ctax liability, as that must be the starting point of the calculation, with the 15% coming off after the taper calc, not before.

    However, as stated above, I don't want to define the "maximum reduction" as 100% of liability for working age persons, as that level of deduction will never be achievable for them. Also, In Reg 31 where the "amount of reduction" for Class E is defined, it also refers back to Reg 17, so this also needs the "maximum reduction" to be 100% of Ctax liability, but as above, this simply can't be for Class E.

    Has anyone else encountered this problem and/or have any ideas?

    Thanks

    #123000
    Julian Hobson
    Participant

    Patrick – have a look at ours.

    http://www.kirklees.gov.uk/you-kmc/payments/councilTax/pdf/reductionscheme.pdf

    I think i have covered it in para’s 17 and 19 on pages 152 and 155 respectively. If you think i haven’t i’d welcome your comments

    #123001
    Jon__Blackwell
    Participant

    I was about to suggest that you take a look a Julian’s scheme(!)

    Kirklees aren’t alone in going with an output restriction rather than a liablity restriction (Ashford is another example) but liability restriction seems to be a much more popular approach.

    #123086
    Patrick Doherty
    Participant

    Thanks for the responses.

    Julian – I have had a look at your scheme. I did consider a similar approach to adding a line to the definition of the “max reduction” such as that in your Para 17 (1): “Followed by any further reduction set out in paragraph 19”, but I thought I saw a kind of “circular” problem with doing so.

    I hope I am wrong here as I have spent quite enough time on this already, but my thinking was as follows:

    For the problematic class or classes of person, in adding a reference to deducting the “amount of reduction” (your Para 19) into the definition of the “max reduction” (your Para 17), does this not lead to effectively making the deduction multiple (or infinite) times as the “max reduction” is itself the starting point for the calculation of the “amount of reduction”?

    Also, does it not mess up the definition of the “Class” itself, as the “max reduction” is also part of that definition?

    Taking your “Class K” as an example, they are someone who is working age, has income over their applicable amount and as per paragraph 10 (f):

    “in respect of whom amount A exceeds amount B where— (i) amount A is the maximum council tax reduction in his case; and (ii) amount B is 2 6/7 per cent of the difference between his income for the relevant week and his applicable amount; (So it’s someone whose max reduction exceeds their taper)

    And as per paragraph 19 (5) the relevant “amount of deduction” for Class K is:

    “…the amount found by deducting amount B from amount A and deducting 29% from that result, where “amount A” and “amount B” have the meanings given in paragraph 10(f).” (So it’s the max reduction, minus the taper, minus 29%)

    So does the inclusion of the reference to paragraph 19 into your paragraph 17 not mean we now have the following reduction calculation for “Class K”?

    Max reduction = Daily C Tax liability – NDDs – Taper – 29%
    Amount of reduction = Max reduction (CTAX – NDDs – Taper – 29%) – taper – 29% (which in turns affects the max reduction calc again, and so on…)

    With part of the definition of “Class K” becoming someone whose max reduction (Daily C Tax – NDDs – Taper – 29%) exceeds their taper, which would of course be wrong.

    Perhaps I am misreading all this and seeing a problem that doesn’t actually exist, but including that sentence seems to create a loop between the “max reduction” and “amount of reduction” calculations?

    Removing the sentence referring to Para 19 from Para 17 would of course just lead to a problem outlined in my original post, as Class K’s “max reduction” would then be defined as C Tax liability minus NDDs, which isn’t actually achievable for them.

    Am I over-thinking this? Perhaps I’m just losing my mind and imagining things?

    Any thoughts? Preferably just on the above, not my mental state!

    #123089
    Anonymous
    Guest

    Are you saying that the policy intention is, putting it simply, that the applicant will receive 85% of what s/he would have got if you weren’t capping it in that way? Rather than limiting maximum entitement for everyone to 85%? But this is more difficult to draft than a simple starting point of 85% for everyone?

    #123094
    Patrick Doherty
    Participant

    Yes – I think. If you mean that we are applying the cap at the “bottom” of the calculation i.e. to their entitlement, rather than at the “top” to the Ctax liability figure used in their calculation.

    And yes its proving much more difficult to draft. The problems I’m having, described above, wouldn’t exist if we had gone down the liability capping route, as we could just add “less 15%” for all working age classes in the section where we outline the “maximum reduction”.

    However, we are already consulting….

    Thanks

    #123098
    Anonymous
    Guest

    I thought that’s what you meant, and I can see how it makes the drafting more complicated. I was curious because it’s a more generous method for people on higher incomes – is that a conscious decision to provide a work incentive? The higher the taper, the greater the residual entitlement compared with what it would have been under the “top end” cap.

    #123100
    Patrick Doherty
    Participant

    As far as I am aware that’s an unintended consequence rather than a policy intention.

    To be honest I’m not entirely clear on what the thinking was here doing it this way, as my involvement with CTS only began with starting to draft the policy.

    #123101
    Anonymous
    Guest

    How about this. In the eligibility conditions for Class E (para 17(1)(f) in the default Regs), make the following amendment:

    (i) amount A is the maximum council tax reduction in his case; and
    (ii) amount B is the sum of
    (aa) 2 and 6/7 per cent of the difference between his income for the relevant week and his applicable amount, and
    (bb) 15 per cent of the difference between Amount A and the amount determined under subparagraph (aa)

    Para 31(3) then still works if you leave it as it is. I don’t think it matters that the maximum is not achievable – it’s just a label for one the ingredients in the calculation.

    #123103
    Julian Hobson
    Participant

    Not had time to consider your amendment yet Peter but certainly will and thanks Patrick for pointing out the potential circularity. I can confirm it was a conscious decision here to reduce entitlement rather than a flat rate in order to make it more generous. We show that in the EIA where a table demonstrates the reducing effect on those that would have received the least support.

    #123110
    Patrick Doherty
    Participant

    Thanks for this Peter. Will consider…

    #123116
    Patrick Doherty
    Participant

    Peter – I’ve looked at this and as far as I can tell you’ve nailed it. Thank you for that.

    I’m still a little uncomfortable leaving the definition of “max reduction” for Class E as Liability – NDD, but I’m happy to take your word that it shouldn’t matter and I certainly haven’t been able to think of a better solution.

    Thanks again.

    #123128
    Jon__Blackwell
    Participant

    [quote=Peter Barker]I thought that’s what you meant, and I can see how it makes the drafting more complicated. I was curious because it’s a more generous method for people on higher incomes – is that a conscious decision to provide a work incentive? [/quote]

    Peter you’re right – the output reduction approach gives a uniform percentage cut in support across the income range. An advantage is that this increases work incentives (for unprotected claimants) as you would keep more of any earnings. The effective CTS in-work taper on a 29% output reduction (for example) would be 0.71 x 20% = 14.2% or 14.2p lost through every £1 of net earnings extra (compared to 20p lost in CTB.)

    Unfortunately, it also means that, proportionately, unprotected claimants on the lowest incomes will see the greatest percentage cut in their income when compared to other CTS claimants on higher incomes (in what is in any case a hugely regressive change.)

    Compare A/B/C on a 29% output reduction (all unprotected single age 25+, CTax liability £20/week, £5 standard earnings disregard)

    A.
    Passported on JSA(IB) gets £71.00 JSA +£20 CTB, no earnings >>> on CTS loses 29% x £20 = £5.80 (or 8.2% (!!) of previous disposable income after CT (£71.00))

    B.
    Earning £126/wk net + £10 CTB>>> on CTS loses 29% x £10 = £2.90 (or 2.5% of previous disposable income after CT (£116).)

    C.
    Earning £160/wk net + £3.20 CTB >>> on CTS loses 29% x £3.20 = £0.93 (or 0.64% of previous disposable income after CT (143.20).)

    The liability reduction approach gives a cut of at least X% for all claimants, but a greater than X% reduction in benefit for claimants subject to the taper – rising to a 100% reduction for those claimants previously eligible for small amounts of CTB who are now floated off CTS entirely.

    For the same situations on a 29% liability restriction you get:-

    A.
    Passported on JSA(IB) gets £71 JSA +£20 CTB, no earnings >>> CTS=14.20 (= eligible CTax) so loses £5.80
    (or 8.2% (!!) of previous disposable income after CT (£71.) [as for A above]

    B.
    Earnings £126/wk net + £10 CTB >>> on CTS loses £5.80 [CTS = £14.20-((126-5-71)x.2))= 4.20]
    (or 5.0% of previous disposable income after CT (£116.00).)

    C.
    Earnings £160/wk net + £3.20 CTB >>> on CTS floated off so loses £3.20 (or 2.2% of previous disposable income after CT (£143.20).)

    The liability reduction (or Poll Tax!) model is therefore less regressive than the output reduction approach and, for a given level of restriction, the savings will be greater (as those on higher incomes lose slightly more.) Authorities should therefore be able to set (slightly) lower liability restriction to achieve the same savings thereby slightly reducing the impact on those on lowest incomes.

    Another point to consider is that all claimants, whether protected or not, get the same work incentives (same income taper) with regard to CTS under a liability restriction; the same is not true for output restrictions where protected claimants actually face a steeper taper.

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