Councils are treating people better than central government when chasing debt, according to support charity Citizens Advice.

Local authorities have come second in a league table of private and public sector creditors, ahead of the Department for Work and Pensions (DWP) and HM Revenue & Customs (HMRC).

Citizens Advice rated debt collectors against factors including how disputes are resolved, the setting of affordable repayment plans and how easy they are to contact.

HMRC was ranked bottom of the list for its process of collecting tax credit overpayments, while water companies received the highest rating.

The charity also revealed the number of issues people have sought help for on local and national government debts has doubled to around 400,000 a year in the last decade.

However, the report found many areas of the country were benefiting from close working relationships between Citizens Advice and local authorities. Debt problems in such areas were being solved faster and with fairer debt collection practices.

The Government disputed the findings and emphasised it used long-standing debt collection practices to ensure people were not forced into hardship.

Gillian Guy, chief executive of Citizens Advice, said:

‘Of course people must repay government debts as soon as they can, but there is a difference between people who can’t pay and won’t pay. Our evidence shows glaring inconsistencies in how some government departments and private companies go about recovering money.

‘It’s unacceptable that government agencies are behind the standards set for private companies when recovering debt. National government, private firms, utility providers and debt advice specialists need to get together and urgently agree a fair and consistent way forward.’

A HMRC spokesman said: ‘We work to ensure claimants receive the right tax credit payments and when someone receives more than they are entitled to we aim to come to a payment arrangement so the debt can be reduced in a fair and manageable way.

‘The debt collection agencies we use follow the highest customer service standards in line with the OFT’s code of practice and our own customer charter and are audited by us regularly.

‘If anyone is worried about being unable to pay their debt, they should get in touch with HMRC as early as possible to discuss options. We currently have payment arrangements in place for almost 600,000 tax credit customers amounting to over £1.1bn.’

A DWP spokesman said:

'We have a duty to protect taxpayers money and ensure that debts are recovered wherever possible. Fraud and error is at a record low and overpayments are decreasing.

'Our debt collecting staff hold industry standard qualifications and follow best practice. It is vital that claimants contact us as soon as their circumstances change to avoid incorrect payments. Debt recovery rates are restricted in law to avoid undue hardship.'