Low-earning households in England can experience markedly different levels of support with paying their council tax depending on where they live, according to new research from the Institute for Policy Research (IPR).
The report, Council Tax Reduction and Universal Credit: winners and losers of the postcode lottery, highlights how local Council Tax Reduction (CTR) schemes – means-tested discounts on council tax for low-income, working-aged people – are affecting claimants who work, with consequences for household finances and work incentives.
IPR researchers found that while CTR schemes are intended to support those on lower incomes, the rules and generosity of schemes vary widely across England.
Introduced in 2013 to coincide with the rollout of Universal Credit, CTR schemes are designed and delivered by local authorities, rather than at national level. There are currently 313 different locally administered schemes, each with distinct eligibility criteria and levels of support.
Dr Rita Griffiths, a Research Fellow in the IPR, and lead author of the report, says: “Our research shows that people with similar earnings and household circumstances can receive very different levels of help with council tax depending purely on where they live.
“Sharp cut-off points in support as income rises can also mean some people are worse off after starting a job or working longer hours. This can undermine work incentives and raises questions about consistency and fairness in how help with council tax is provided to low earners.”
Dr Marsha Wood, a Research Associate in the IPR and co-author of the research, adds: “For some working households, higher earnings do not necessarily translate into better financial outcomes if council tax support reduces as a consequence. This highlights the importance of looking at how different parts of the system interact.”
Variation and uneven outcomes
The study suggests that scheme variation is producing uneven financial outcomes. In certain areas, some working claimants may receive substantial reductions in their council tax bill of up to £125 per month, while elsewhere comparable households receive little or no support.
The research also indicates that support for working households has gradually been eroded over time, as council funding has been squeezed. In many schemes, assistance is withdrawn more quickly as earnings rise, or eligibility thresholds have not kept pace with living costs, reducing entitlement in real terms.
For some households, small increases in income can lead to a reduction in support greater than the additional earnings – a situation sometimes described as a ‘cliff edge’.
Implications for work incentives and financial stability
The research points to tensions between the aims of Universal Credit – designed to simplify benefits and smooth work incentives – and the current design of CTR schemes.
Findings suggests that, in some cases, interactions between the two systems can weaken incentives to work or increase earnings, while also making it harder for households to keep up with council tax payments.
Researchers also highlight administrative complexity for local authorities, which are responsible for designing and managing their own schemes, alongside potential risks relating to legal challenge by people who feel financially disadvantaged by the rules.
Options for reform
The report outlines several options for reform, including:
- retaining local CTR schemes but introducing more central government parameters
- reintroducing a nationally designed system, administered by local authorities
- integrating council tax support within Universal Credit
Each option carries trade-offs in terms of cost, administrative complexity and impacts on claimants.
The findings are based on research conducted between May and October 2025, including a survey of 160 Universal Credit claimants in work, follow-up interviews with 30 participants, and discussions with local authorities and advice organisations.
A summary and policy brief accompany the main report.