Housing Benefit and Council Tax Benefit Circular s4

Housing Benefit and Council Tax Benefit Circular Department for Work and Pensions The Adelphi, 1 - 11 John Adam Street, London WC2N 6HT

HB/CTB S9/2003

SUBSIDY CIRCULAR

WHO SHOULD READ HB and CTB staff

ACTION For information

SUBJECT HB/CTB Subsidy review – 2004/2005 changes

Guidance Manual

The information in this circular does not affect the content of the HB/CTB Guidance Manual.

Queries

If you have any queries about the  technical content of this circular, contact details are given at the end of the circular  distribution of this circular, contact Corporate Document Services Ltd Orderline Tel: 0113 399 4040 Fax: 0113 399 4205 Email: [email protected]

Recipients may freely reproduce this circular.

HB/CTB Circular S9/2003

Contents

HB/CTB Subsidy review – 2004/2005 changes ...... 1 Introduction...... 1 Background...... 3 The new subsidy rates and rules...... 5 Changes for 2004/05...... 7 Backdating...... 9 Local Authority error...... 14 Discretionary local schemes...... 22 Regulated rent allowance thresholds...... 26 Rent Rebate Subsidy Limitation Scheme (in England and Wales)....31 DWP claim form...... 43 Audit arrangements...... 44 Payments of interim subsidy...... 45 Transitional Protection...... 46 Impact of the transfer on HRA subsidy and on HRA and General Fund (Council Fund in Wales) accounting arrangements...... 52 Transitional Arrangements: rent rebates and rent rebate subsidy spanning 2003/04 and 2004/05...... 55 Queries...... 57 2004/2005 benefit subsidy arrangements – summary...... Appendix A

Subsidy circular December 2003

HB/CTB Circular S9/2003

HB/CTB Subsidy review – 2004/2005 changes

Introduction

1 Following the announcement of the Local Government Financial Settlement in England, some Local Authorities(LAs) have raised queries about the transfer out of the Revenue Support Grant(RSG) of subsidy formerly paid via the RSG. We would stress that the money that has come out of the RSG will be distributed as part of a consolidated package of subsidy reforms outlined below. It had been our intention to announce these changes alongside the Local Government Financial Settlement however for a variety of reasons it was not possible to do this.

2 The purpose of this circular is to notify LAs of the outcome of the Housing Benefit (HB)/Council Tax Benefit (CTB) Subsidy review that has been taking place over the past year. This review has led to some wide ranging changes to the way LAs will be subsidised from April 2004 and to the rates and rules that will apply to rent allowance, CTB and rent rebate benefit subsidy. DWP has consulted extensively and worked in partnership with the LA Associations and other government departments during the review, and would like to record our thanks for their assistance in this exercise.

Background

3 The Local Government Act 2003 makes provision for rent rebates to be taken out of the Housing Revenue Account (HRA). As a result, Ministers have agreed to transfer responsibility for payment of rent rebate subsidy from the Office of the Deputy Prime Minister (ODPM) and National Assembly for Wales to DWP from 2004/05. Since DWP is already responsible for rent allowance and CTB subsidy and rent rebate subsidy in Scotland, Ministers also agreed that the 5.5% residual rent allowance/CTB subsidy currently paid to LAs through the Revenue Support Grant/Grant Aided Expenditure should transfer from ODPM, NAW and Scottish Executive (SE) to DWP. All subsidy funding is therefore now under the control of DWP from 2004/05.

4 This provided the opportunity for a full review of the subsidy system. The aims of the review were to  achieve greater simplification and rationalisation of subsidy systems  reduce burdens on local authorities  achieve fairer incentives for performance  achieve a cost neutral revised system

Subsidy circular December 2003 HB/CTB Circular S9/2003

The new subsidy rates and rules

5 A number of options were considered. It was, however, considered the fairest and most reasonable option to reimburse LAs at the rate of 100% for correctly paid benefit claims, since if we were starting afresh, that would be the chosen rate.

6 As a result of the alignment of rates at 100%, in the absence of any other changes, less subsidy would have been paid to LAs. This permitted further subsidy reforms to be made within a cost neutral framework.

Changes for 2004/05

7 A full list of the changes are shown in the tables at Appendix A. They are summarised as follows and discussed below  subsidy will be paid at the rate of 100% for all correctly paid benefit. This relates to rent rebate (HRA and non-HRA), rent allowance and CTB in England, Wales and Scotland, except when other subsidy restrictions apply, eg threshold and caps  the subsidy rate for properly backdated claims will increase from 50% to 100%  LAs will be subsidised for LA error overpayments in a performance related way, linked to an LAs achievements against thresholds set by DWP  LAs will be paid a contribution towards the cost of discretionary local schemes in respect of war pensions disregards  regulated rent allowance subsidy thresholds will be abolished  expenditure incurred in respect of rent rebate will be charged to the General Fund, in this circular, for LAs in Wales, any references to the “General Fund” should be read as relating to the “Council Fund”.  subsidy received in respect of rent rebate will be a credit to the General Fund  when shortfalls between rent rebate expenditure and subsidy occur as a result of, eg local schemes, overpayments, backdating, these will fall to the General Fund (where it was previously met by the HRA). ODPM are already consulting on provisions to allow English LAs to phase in a system of reducing transfers from HRA to General Fund as necessary. NAW are currently considering the position in Wales.  DWP will be responsible for the payment of subsidy in respect of rent rebate and this will be paid together with the existing 12 monthly instalments of rent allowance and CTB subsidy  DWP aim to produce a new claim form combining rent rebate, rent allowance and CTB subsidy claims  DWP will take over responsibility for the Rent Rebate Subsidy Limitation Scheme in England and Wales. Deductions will be calculated following the rules as previously set out by ODPM/NAW and remain a charge on the HRA

8 However, other elements remain largely unchanged, see Appendix A for details.

Backdating

9 In making changes to the subsidy rates for backdating we acknowledged that, subject to establishing good cause, LAs have little option but to backdate claims. We concluded that there was a strong case for rationalising the backdating subsidy rates, and increasing them to 100%.

10 Regulations provide that LAs may, in certain circumstances, treat a claim as made from an earlier date (reg. 72 of SI 1987/1971 refers). Before backdating a claim, LAs must be satisfied that  the claimant has shown good cause for failing to claim earlier, and  good cause existed continuously during the period for which backdating (if any) is allowed up until the date the claim for backdating was made

11 Guidance on good cause is available in the HB/CTB Guidance Manual, Chapter A2, Annex A.

12 Claims can only be backdated for a maximum of 52 weeks before the date of the backdating claim.

13 Backdating rules remain unchanged, but subsidy for backdating will increase from 50% to 100%. All backdating is subject to the external auditor’s certification that good cause has been established and has been properly undertaken.

Local Authority error

14 LA error overpayments are those caused by a mistake, by an act or omission, by an LA when the claimant did not contribute to the mistake, article 18 of SI 1998/562 refers. These can result from, for example  incorrect information being extracted from a benefit claim  failure to act promptly on the notification of a change of circumstances

15 It is accepted that error will arise even in the most efficiently run LAs.

16 In recognition of this, we are introducing new arrangements which will allow LAs to receive subsidy for improving their performance in reducing the level of their LA error overpayments. LA error overpayment thresholds will be introduced from 2004/05, based on the indicative amounts of LA error in 2001/02, the latest year for which we hold information. The thresholds would be set at 85% (lower) and 95% (upper) of the estimated amount of their LA error overpayments.

17 By assuming that the distribution of rent rebate LA error overpayment expenditure in England and Wales is similar to that in Scotland, we estimated that the total amount of LA error was about 0.57% of the total amount of correct benefit payments in 2001/02 on a national basis.

18 Therefore, the thresholds for 2004/05 expressed as a percentage of correct payments would be  lower threshold 0.48% (85% of 0.57%)  upper threshold 0.54% (95% of 0.57%)

19 LAs will receive 100% subsidy for LA error overpayments if the level of error does not exceed the lower threshold. If LA error overpayments are greater than their lower threshold but do not exceed their upper threshold, then 40% subsidy will be paid on the total LA error overpayments. If LA error overpayments exceed their upper threshold LAs will receive Nil subsidy on the total of their LA error overpayments.

20 These thresholds could be reduced in subsequent years in order to gradually provide further incentives for LAs to tackle levels of official error.

21 In general LA error overpayments are not recoverable. However, when the claimant, or his representative, could be reasonably expected to have known he was being overpaid, LAs should be able to recover these overpayments as provided for in regulation 99(2). Under these circumstances, LAs receiving subsidy for LA error overpayments will keep any amount recovered without any loss of subsidy.

Discretionary local schemes

22 Most LAs currently operate some form of discretionary local scheme for War Pensioners. This allows LAs to disregard some or all of any war disablement pension over and above the statutory disregards.

23 Currently there are two types of disregards for War Pensions as follows  a statutory disregard of £10 is applied to War Pensions in calculating entitlement to HB/CTB. In addition there is a statutory disregard of £60.97 for pre-1973 war widows’ pensions. Statutory disregards are subsidised.  LAs have discretion to apply a further disregard up to the full amount of any War Pension in payment. Any additional benefit granted, due to a disregard above the statutory levels, is funded from the LA’s own resources.

24 From April 2004, LAs operating a local scheme will receive 0.2% addition to their annual subsidy, capped at 75% of the cost of the discretionary local scheme to the LA.

25 The rationale behind this change to the subsidy rules on discretionary local schemes is to provide recognition through the subsidy system of the existence of such schemes in LAs. It does not relate to the extent of the disregard that the LA applies, which remains a matter for individual LAs.

Regulated rent allowance thresholds

26 Regulated tenancies are lettings by individual private landlords or companies that are not Housing Associations, entered into before 15 January 1989 (England and Wales) or 2 January 1989 (Scotland) and still in existence.

27 When HB is paid in regulated tenancy cases and the rent has never been registered, the subsidy available to LAs is controlled by a threshold.

28 Subsidy may be claimed at a rate of 95% on benefit paid up to and including the threshold and at 25% above the threshold. The intention of this subsidy control is to provide a downward pressure on excessive rent increases.

29 No new regulated tenancies have been created since 1989 so the number of tenancies on which to base the threshold falls each year. The rules and the thresholds themselves appeared increasingly outdated and were proving difficult to maintain at a realistic level.

30 As a consequence and in the interests of simplification it has been decided to abolish these thresholds from April 2004 and the subsidy for qualifying expenditure will therefore be 100%.

Rent Rebate Subsidy Limitation Scheme (in England and Wales)

31 DWP will assume responsibility for the Rent Rebate Subsidy Limitation Scheme from 2004/05, when they take over subsidy for rent rebates in respect of HRA dwellings from ODPM and NAW. Deductions will be calculated following the rules as previously set out by ODPM/NAW and remain a charge on the HRA. This will necessitate a transfer from the HRA to the General Fund and ODPM are consulting on an accounting direction to effect these transfers. NAW is currently considering the position for Wales.

32 The existing processes to collect base data to inform limit rents in England will continue for 2004/05. In June 2003, ODPM sent out the Base Data Return to LAs. The deadline for final audited returns to be received by ODPM was 10 October 2003. This data, together with assumptions as to the appropriate rent level if an LA was following the policy of rent restructuring, will be used by ODPM to inform calculations of limit rents for English LAs. Following the resolution of any external audit queries, ODPM will forward the final calculated limit rents to DWP in December. DWP will continue with the policy of pre-setting English limit rents via secondary legislation in advance of the relevant financial year.

33 In Wales, limit rents are not currently pre-set, but are calculated using data collected on the Subsidy claim forms throughout the year. Data is also collected through alternative returns to inform the limit rent calculation. NAW will for the time being continue to collect the required data from Welsh LAs and advise DWP of the various amounts necessary for any limitation calculations.

34 The Secretary of State for Work and Pensions will make an amending Subsidy Order in January 2004, following a statutory consultation period, publishing pre-set limit rents for English LAs, together with the formulae to be used in both England and Wales to determine limitation deductions.

35 LAs will then be able to set their rents in the usual way.

36 Several options have been considered in relation to the calculation of limitation deductions for advance payments throughout the year. It has been decided that, at least for 2004/05, ODPM and NAW will continue to collect information from LAs in relation to their average rents and any other information needed for the limitation formula. ODPM and NAW HRA Subsidy claim forms will contain the formulae necessary for LAs to see the deduction for limitation to be applied in percentage.

37 DWP will collect all other information necessary for the calculation of subsidy in respect of rent rebates for HRA dwellings.

38 As each advance claim form is received, ODPM/NAW will forward to DWP details of any percentage to be deducted from each LA’s monthly subsidy payments throughout the year.

39 LAs should therefore be aware, at any point during the year, of any limitation percentage deduction to be applied to their subsidy claim.

40 After filling in the limitation cells in the final HRA Subsidy claim form, the LA will be able to see the final limitation deduction to be applied as a percentage of their rent rebate subsidy otherwise due.

41 On completion of the final DWP claim form, each LA will need to take this final limitation percentage from the HRA Subsidy final claim form and insert it on to the DWP form in order to calculate final subsidy.

42 When certifying the DWP final claim form, the auditor will check that the transcription has occurred correctly. If there are audit queries raised on the HRA subsidy final claim form which affect the limitation percentage, ODPM/NAW will make sure DWP are aware of this, so that audit changes can feed through to both claims.

DWP claim form

43 New simpler benefit subsidy claim forms are currently being designed that will incorporate rent allowance, CTB and rent rebate in England, Wales and Scotland and reflect the above changes to subsidy rates and rules. DWP will consult the Local Authority Associations (LAAs) on each of the forms. The initial estimate form will be issued to LAs in January. ODPM/NAW claim forms will also be changed to reflect the new arrangements. The new DWP subsidy claim forms will reflect all of the relevant changes in this circular.

Audit arrangements

44 In general current external audit arrangements will continue to apply. However it should be noted that the ODPM/NAW HRAS form will need to be audited before the DWP form in order to verify any percentage limitation deduction on rent rebate subsidy.

Payments of interim subsidy

45 DWP will pay all benefit subsidy by 12 monthly instalments throughout the year. It will not be possible, however, to provide for any rent rebate limitation deductions in the April payment as average rent information is not finalised until 31 March 2004. Instalments will be adjusted from May to reflect these deductions.

Transitional Protection

46 The introduction of new subsidy rates and rules across the whole HB system is intended to be cost neutral across Great Britain. This means that the Exchequer will bear the same costs to administer the new subsidy rates and rules as it would have done had there been no changes.

47 However, due to the variation in the way subsidy is currently distributed, eg between each benefit and by each country having regard to factors such as caseload, population, size of benefit payments and overpayments, it was not possible to establish a system that made sure individual LAs would receive similar amounts of subsidy from the new regime as from the old.

48 To minimise and cushion the effects of the new subsidy regime on LAs who might otherwise lose more than 1% subsidy compared to the existing system, it has been agreed with the LAAs that transitional arrangements will apply. LAs should be aware that to enable losses to be netted at 1%, thus providing a level of protection, those LAs who would be winners under the new scheme may have to meet some of the costs from the increased subsidy they would otherwise receive.

49 To implement this scheme, it will be necessary to wait until final audited claims for 2004/05 have been received. At this time, DWP will compare the amount payable with their assessment of what the LA would have been paid if the 2003/04 subsidy rates and rules had applied. LAs who would otherwise lose more than 1%, based on the old rules, will be netted to receive additional subsidy to prevent more than a 1% loss.

50 To allow LAs time to plan for the changes and to reflect them in their budgets in a gradual and phased way, a similar exercise based on what LAs might have received will be repeated on the 2005/06 subsidy claim, but applying a net of 2% for the LAs losing subsidy. In 2006/07, no general transitional scheme will apply, but we may need to compensate some individual LAs still facing substantial loss.

51 Further details will be issued to LAs as soon as possible to enable them to assess their position.

Impact of the transfer on HRA subsidy and on HRA and General Fund (Council Fund in Wales) accounting arrangements

52 The removal of the rent rebate element from HRA subsidy in England and Wales will result in some changes to the calculation and administration of the remaining ‘housing costs element’ of HRA subsidy. At present, when an LA is assumed to have rental and other income greater than expenditure, that assumed HRA surplus is captured by offsetting it against HRA subsidy due in respect of rent rebates. However, under the new arrangements for rent rebate subsidy described in this circular, that will no longer be possible. From April 2004, the Local Government Act 2003 provides that such ‘surplus LAs’ shall pay the assumed surplus directly to ODPM/NAW. This will make sure the resources available for housing can be distributed equitably according to need.

53 In addition, the new accounting arrangements will mean that, the General or Council Fund may have to meet the cost of some unsubsidised rent rebates, eg in respect of overpayments to tenants of HRA dwellings) which were previously a charge to the HRA. ODPM Ministers have agreed that in England, this change will be phased in over 2 years. Full details of the proposed transitional arrangements are in the consultation package for England accompanying the draft HRA subsidy determination 2004/05. NAW is currently considering the position.

54 ODPM are consulting LAs on the new arrangements for the HRA and HRA subsidy in England. For further details, please refer to the draft Determination of HRA subsidy 2004/05 and associated consultation package issued to English LAs by ODPM on the 18th November. NAW will shortly be consulting on arrangements for the HRA and HRA subsidy in Wales for 2004/05.

Transitional Arrangements: rent rebates and rent rebate subsidy spanning 2003/04 and 2004/05

55 Rent rebate payments made in 2004/05 for benefit due in 2003/04 will be subsidised by DWP and should be claimed on the 2004/05 subsidy claim form.

56 There will be circumstances after April 2004, when an over or underpayment of rent rebate subsidy comes to light which relates to 2003/04 or an earlier year. Any adjustments that become necessary to the 2003/04 or earlier year’s subsidy claim form in respect of English or Welsh LAs will be made by ODPM/NAW and LAs should pass details to either organisation as appropriate. More information on transitional arrangements will follow.

Queries

57 It is appreciated that LAs will have queries about the application of this circular. For general queries contact Mark Jenkin on 020 7712 2494 email:[email protected] or Sally Simons on 020 7962 8076 email: [email protected]

58 For specific queries on

Subject Contact

Backdating Robert Sneddon 020 7712 2050

LA Error Dave Marley 020 7962 8393

Discretionary Local Schemes Robert Sneddon 020 7712 2050

Regulated Rent Thresholds Dave Marley 020 7962 8393

Rent Rebate Subsidy Limitation Robert Sneddon 020 7712 2050

Transitional Protection Sally Simons 020 7962 8076

Rent Rebate Subsidy Limitation and ODPM: Caroline Jackson 020 7944 the impact on HRAS in England 3587 or Bryan Lea 020 7944 3585

Rent Rebate Subsidy Limitation and NAW: Howard James 029 2082 5978 the impact on HRAS in Wales or Tony Wardrobe 029 2082 5074

2004/2005 benefit subsidy arrangements – summary

Basic rates of subsidy Arrangements 2003/04 Arrangements 2004/2005 Remarks Rent allowance } All Housing and Council Tax 100% now paid for all Non-HRA rent rebate } 95%1 Benefit --- 100% correctly paid claims Council Tax Benefit } Rent rebate (Scotland) }

HRA rent rebate England 101.7% Wales 102.2%

Additional 5.5% paid by ODPM/NAW/SE through RSG/GAE

Other rates of subsidy Arrangements 2003/04 Arrangements 2004/2005 Remarks

1 Backdated awards Rent allowance } All Housing and Council Tax Subject to external Non-HRA rent rebate } 50% Benefit --- 100% audit Council Tax Benefit }

HRA rent rebate (covered by % addition within the HRA rent rebate subsidy) Nil 2 Overpayments Rent allowance } All Housing and Council Tax See paragraph 14 Non-HRA rent rebate } Nil Benefit --- 100%, 40% or nil, i) caused by LA error Council Tax Benefit } determined by thresholds

Arrangements 2003/04 Arrangements 2004/2005 Remarks

HRA rent rebate Nil ii) caused by claimant fraud Rent allowance } All Housing and Council Tax Change re: Council Non-HRA rent rebate } Benefit --- 40% Housing rent rebates Council Tax Benefit } 40% in England and Wales Rent rebate (Scotland) }

HRA rent rebate Nil (covered by % addition within the HRA rebate subsidy) iii) rebate credited in advance of Non-HRA rent rebate } Nil All Housing and Council Tax No change Council Tax Benefit } entitlement (when overpayment Benefit --- Nil arises from change of HRA rent rebate Nil No change circumstances) iv) rebate credited in advance of Non-HRA rent rebate } Nil All Housing and Council Tax No change Council Tax Benefit } entitlement (when overpayment Benefit --- Nil arises from other than change of HRA rent rebate Nil circumstances and is recoverable) v) caused by DWP local office Rent allowance } All Housing and Council Tax Changed in line with Non-HRA rent rebate } 95% error Benefit --- 100% the change in basic Council Tax Benefit } subsidy rates HRA rent rebate 100% vi) caused by delayed award of Council Tax Benefit Nil Council Tax Benefit Nil No change transitional relief or budget substitution claimant (capping)

Arrangements 2003/04 Arrangements 2004/2005 Remarks vii) claimant error/other Rent allowance } All Housing and Council Tax Change re: Council Non-HRA rent rebate } 40% overpayments not covered by Benefit --- 40% Housing rent rebates Council Tax Benefit } i) to vi) above HRA rent rebate (covered by % addition within HRA rent rebate subsidy) Nil 3 Duplicate payments alleged to Rent allowance 25% Rent allowance 25% No change have been lost/stolen/not received and are later found to have been cashed 4 Disproportionate increase in Scotland and New Towns Scotland and New Towns No change Rent Rebate Nil LA rents – HB attributable to Rent Rebate Nil increase in rents of HB England and Wales HRA rent rebate Wales HRA rent rebate Nil Tenants which exceed those (covered by cash of non-HB tenants limited grant within HRA) Nil 5 Unreasonable high rents – Rent allowances 25% Thresholds abolished See paragraph 26 (subsidy on HB regulated private sector attributable to rent above tenancies the specified threshold) 6 Unreasonable rents – Rent Allowances (subsidy on 60% Rent allowances (subsidy on 60% No change deregulated private sector HB attributable to rent above or Nil HB attributable to rent above or tenancies (cases not affected rent officer determination) rent officer determination) Nil by the January 1996 changes only) 7 Homeless people in board and Non-HRA rent rebates 10% Rent rebates in Board & 10 % No change (subsidy on HB attributable Lodge (subsidy on HB lodging accommodation to rent above rebate attributable to rent above threshold up to level of cap) rebate threshold up to level of cap) Above cap Nil Above cap Nil Subsidy circular December 2003 HB/CTB Circular S9/2003

Arrangements 2003/04 Arrangements 2004/2005 Remarks

8 Homeless people in Subsidy on HB attributable 95% Subsidy on HB attributable 100% Rate increase to rent above rent rebate to rent above rent rebate accommodation held on threshold up to level of cap threshold up to level of cap license by LAs Above cap Nil Above cap Nil No Change 9 Short term leased Non-HRA rent rebates Subsidy For short term leased 100% From 2004/05 Short in England and limited to accommodation in GB accommodation term leased Scotland 95% up to (subsidy on HB attributable accommodation in level of cap to rent above rent rebate threshold up to level of cap) Wales to be subject to HRA rent rebates in Limited to the DWP non-HRA Wales 102.2%, but Above cap Nil thresholds and caps eligible rent above threshold is excluded 10 Modular Improvements Rule HRA rent rebates in Nil Nil No change England and Wales

Subsidy circular December 2003