Agenda item

ORDERED that Executive:

1.     APPROVES a time-limited change (2026/27 financial year only) to the Exceptional Hardship Fund - Section 13A (1) (a) policy which was approved at Executive on 4 February 2026.

Members were advised that this change would extend eligibility to Council Tax Reduction (CTR) claimants on the basis of their increased income from Universal Credit due to the removal of the two-child restriction, to enable individual council tax bills to remain unaffected, with automatic awards to be made.

The Executive Member for Finance submitted a report for Executive consideration. The purpose of the report sought Executive approval to change the, recently confirmed, Exceptional Hardship Fund policy. This would enable the Council to ensure recipients of Council Tax Reduction were not adversely affected by an increase in income following the removal of the two-child restriction which had previously applied within Universal Credit. 

Members were advised that under Schedule 1A of the Local Government Finance Act 1992, Council Tax Reduction (CTR) schemes had to be approved by 11 March each year. The requirement to publish a draft scheme and provide for consultation on changes to an existing scheme had to be in advance of that date.

The Chancellor of the Exchequer announced in her Budget on 26 November 2025 that the government would be removing the two-child limit in the child element of Universal Credit from April 2026 and estimated that the measure would lift 450,000 children out of poverty.

It was noted that the announcement was too late for councils to undertake the necessary preparatory work to design and consult on a scheme taking the change into account and then to obtain scheme approval by the 11 March 2026 deadline.

The Department for Work and Pensions (DWP) had been approached for data on those claimants who were likely to be affected by the change. However, it had responded to the effect that nothing was to be provided.

As such, it was difficult to predict with any accuracy the numbers and potential cost involved, as the Council was reliant on receiving DWP electronic notifications. Those notifications were expected during May and June 2026 as individual claimant Universal Credit entitlements were recalculated.

Existing data suggested that more than 1,000 claimants would be affected, and the impact in each instance would vary according to other factors in individual assessments. The effect this would have, in terms of the reduction in the rate of support to be provided by the CTR scheme, could be substantial particularly for larger families.

For each additional child, for which the child element will be awarded in Universal Credit, the income provided for would increase by £303.94 per month, or £70.14 per week.

Most claimants would be receiving CTR at a rate of 90% before the increase took effect, with 72%, 36%, 24% and none, all being possible entitlement rates afterwards. The current scheme bands prescribed income ranges as shown in the table detailed in the report. 

Members were advised that the proposal in the report was to negate the effect of a lower rate of CTR by reducing a claimant’s council tax liability to the value of CTR lost by crediting an equivalent amount under the Exceptional Hardship Fund - Section 13A (1) (a) Policy. The Exceptional Hardship Fund - Section 13A (1) (a) Policy provided for application-based reductions to council tax bills in exceptional circumstances, usually where a CTR award has been made.

A Member queried if the changes detailed in the report would have any cost implications for the Council. It was clarified that residents eligible for this benefit would not see any changes to their Council Tax liability. It was also clarified that where the Council needed to reimburse partners, such as the Fire Authority, there were contingency budgets for this and would therefore have no detrimental impact on the Council’s finances.

Members discussed, and agreed, that the work carried out on this initiative was a worthwhile endeavour. It was also commented that other Councils were keeping a watching brief on this issue while Middlesbrough had already taken action.

The Chair expressed her thanks to both officers and the Executive Member for Finance for their work on this initiative.

OPTIONS

The Council could have taken no action to provide additional support, which would have meant more council tax revenue would become payable due to the reduction in individual CTR claimants’ entitlements.

Those claimants would have borne the cost of the larger council tax bills and met it from the additional income the government had announced would be received through Universal Credit.

The perception could have been the Council was not serious about reducing poverty, particularly for families with children, and was taking financial advantage from the changed circumstances.

It was possible that a sum at a lesser rate than the full amount lost in CTR could have been awarded from the Exceptional Hardship Fund, but an additional level of complexity would be introduced for which a substantial amount of work might have been required to understand the range of consequences that would result and to then implement. The interplay between the CTR scheme income ranges and associated CTR award rates created the possibility that some households could have increased amount of council tax to pay if the full amount were not credited.

ORDERED that Executive:

1.     APPROVES a time-limited change (2026/27 financial year only) to the Exceptional Hardship Fund - Section 13A (1) (a) policy which was approved at Executive on 4 February 2026.

Members were advised that this change would extend eligibility to Council Tax Reduction (CTR) claimants on the basis of their increased income from Universal Credit due to the removal of the two-child restriction, to enable individual council tax bills to remain unaffected, with automatic awards to be made.

REASONS

The decision to extend eligibility was required if the Council’s intention was to ensure that there was no detriment to claimants of CTR who would otherwise benefit from additional household income to be made available by Government through Universal Credit due to the removal of the two-child restriction which had previously generally applied.

The cost of extending eligibility under the Exceptional Hardship Fund - Section 13A (1) (a) Policy was offset, to a substantial extent, by increased council tax revenue because the value of CTR awards for the claimants affected would be reduced. The impact from increased household income would commonly be a lower rate of individual entitlement under the CTR scheme.

Avoiding the requirement for individual applications would reduce the administrative effort required in arranging for them to be made and decided. A standard approach that enabled individual council tax bills to remain unaffected should have reduced the level of contact with the Resident and Business Support Service from affected claimants and avoided the need for more than one council tax bill to be issued associated with the income change.