Council Tax Reduction Schemes Face Overhaul In 2026

As the calendar turns to 2026, the debate over Council Tax Reduction (CTR) schemes is heating up across the United Kingdom, with policymakers, local authorities, and advocacy groups all weighing in on how best to support vulnerable households while maintaining the financial health of local governments. The stakes are high: for many families, the ability to access CTR can mean the difference between keeping up with essential living costs and falling into debt, while for councils, Council Tax remains a critical source of revenue that underpins vital community services.

Recent policy shifts and upcoming changes are forcing councils to rethink the design and delivery of CTR schemes for 2027 and beyond. According to a trends report first published in 2025 and updated to reflect the current landscape, these schemes are among the most powerful tools councils have to protect low-income residents and mitigate financial hardship. But with new challenges and opportunities on the horizon, the need for careful planning and robust modelling has never been greater (Policy in Practice).

One of the most significant changes taking effect in April 2026 is the removal of the two child limit, a policy that previously restricted support for larger families. For councils operating CTR schemes based on the default model, this change is likely to result in increased caseloads as more households become eligible for support. As the report notes, "Councils may wish to proactively identify and contact households that newly qualify for support." However, for those with banded schemes that factor in Universal Credit income, the picture is more nuanced: as some families see their incomes rise, caseloads may actually decrease, prompting a need to review income bands to ensure the financial benefits are fully passed on to households.

At the heart of these changes is the government’s Child Poverty Strategy, Our Children, Our Future: Tackling Child Poverty. The strategy recognizes the central role of CTR in reducing child poverty and mandates that councils take into account the needs of vulnerable families when designing their support schemes. Statutory guidance will soon require councils to ensure their CTR offerings actively contribute to poverty reduction, setting a new standard for social responsibility in local governance (Policy in Practice).

But support doesn’t end with eligibility rules. The Child Poverty Strategy also calls for a shift in how councils approach debt collection, emphasizing supportive, rather than punitive, practices. Non-statutory guidance from the government will outline expectations and best practices for helping vulnerable families in debt. Given the close link between CTR and Council Tax arrears, councils are being urged to align their schemes with these collection practice objectives, reducing the risk of pushing struggling households deeper into financial distress.

Another major development is the introduction of a new Outcomes Framework for Local Government. This framework will require public authorities to consider socio-economic disadvantage in all strategic decisions, including the design of CTR schemes. The aim is to ensure that every policy decision helps reduce inequalities, with CTR scheme design serving as a key metric for compliance (Policy in Practice).

Complicating matters further is the Universal Credit Act 2025, which comes into force in April 2026. The Act narrows eligibility for illness-related support, linking entitlement more closely to the receipt of disability benefits. As a result, some CTR schemes may no longer provide enhanced support or alternative collection pathways for people who are ill but not in receipt of disability benefits. The upcoming conclusion of the Timms Review of disability benefits in autumn 2026 could also lead to changes in eligibility, potentially leaving some highly vulnerable residents without adequate support if scheme designs are not adapted accordingly.

Funding remains a perennial concern for local authorities, and the Fairer Funding review is set to shake up the financial landscape. While the review promises increased funding in both cash and real terms, the benefits are expected to flow primarily to more deprived areas outside London. In contrast, wealthier regions such as shire counties may see their budgets squeezed, raising questions about the generosity and design of future CTR schemes (Policy in Practice).

Structural changes are also on the horizon as local government reorganisation (LGR) looms. County councils anticipating conversion into one or more unitary authorities are being encouraged to harmonise their CTR schemes ahead of these changes. The goal is to foster collaboration among districts, streamline data and systems, and minimise fiscal disruption when new structures take effect.

These policy shifts aren’t just abstract debates—they have real consequences for families on the ground. Myles Fitt, head of financial health at Citizens Advice Scotland, highlights the daily struggles faced by low-income households. Council Tax, he explains, is both a vital source of income for local authorities and the most common type of debt encountered by Citizens Advice Bureaux (CAB) across Scotland. "For those on low incomes, paying Council Tax competes with essential daily living costs," Fitt writes in The Herald.

Personal stories bring the issue into sharp relief. Diana, a mother of two, shared with her local CAB: "I do understand it is essential to pay Council Tax but in terms of priority it is not at the same level as the basics to live. My priorities are food, gas, electric, clothing for my kids, then rent. Council Tax is way down my list." On the other hand, Steven, a single dad, has made difficult sacrifices, telling CAB: "Yes, I have had to go without food and heating to pay for Council Tax. It has happened two or three times. I would rather go without because I know that by not paying, I will end up in a worse position."

Recognizing these realities, Citizens Advice Scotland is launching a national promotional campaign throughout February and March 2026 to raise awareness of CTR, discounts, and exemptions. The campaign, run in partnership with local authorities, will use leaflets, posters, and social media to reach as many communities as possible. Fitt argues, "The more people that know, the better it will be for individuals, families and households. It may make the difference for people like Diana and Steven to meet their living costs, including Council Tax."

There’s also a financial incentive for councils: when eligible people receive CTR, councils are recompensed by the Scottish Government, preventing loss of income and the costs associated with debt recovery. As Fitt puts it, "It’s a win-win for everyone." Other proposed measures include increasing the time between a missed payment and the start of debt recovery, and encouraging people to seek help from advice agencies such as Citizens Advice, where income maximisation checks can help manage payments and avoid arrears.

Looking ahead to the Holyrood election, Citizens Advice Scotland is calling on all political parties to commit to a comprehensive review of Council Tax administration and debt recovery. The aim is to deliver a system that provides more upfront support for those struggling to pay, while safeguarding local authority income—a balance that Wales has already struck and England is preparing to follow.

For councils planning for 2027 and beyond, the message is clear: understanding the impact of CTR scheme design is essential. Robust modelling of both household impact and cost will be crucial in navigating the complex interplay of policy, funding, and social need. With free webinars and expert guidance available, including insights from practitioners like Lindsay Sayer of South Norfolk and Broadland Councils, the sector is gearing up for a period of significant change—one that could reshape how communities support their most vulnerable members for years to come.