With local authorities facing budget constraints, debt collection has become a key issue. When you combine council tax arrears with adult social care debt and housing benefit overpayments, there is an estimated £5.2bn of debt remaining uncollected by local authorities. Considering the impact this level of funding could make in areas like housing and health provision, it’s clear why the effective collection of debt is so vital.
The current method of debt collection utilised by most local authorities is the use of enforcement agents. Whilst producing strong collection results, particularly in council tax recovery, this approach is a very blunt tool for solving the problem, and doesn’t always provide the wider solutions needed to address the underlying debt issues people face.
This sentiment was echoed by former local government minister, Rishi Sunak, when he said: 'The current guidance for local councils on collection of council tax and enforcement processes when people have fallen into arrears might not be helping to improve collection rates overall – and may also be contributing to individuals’ debt problems.'
Despite this, a recent report from Money Advice Trust showed over 2.6m requests were passed to bailiffs by local authorities in 2018/19 – a 7% increase over two years.
The importance of fairness and responsibility
One-size-fits-all has its limitations when it comes to debt collection, and evidence suggests greater results, both in collection levels and consumer wellbeing, are achieved when a fairer and more tailored system is put in place to deal with individual cases. With over 60% of those people facing continued enforcement action borrowing more money or delaying paying other bills, the need for a more thoughtful and sophisticated approach is clear.
There is little doubt that people in debt respond more positively when creditors employ an approach that provides appropriate solutions informed by a full understanding of the consumer’s financial situation. This, combined with the offer of other support such as free debt advice and specialist support networks, results in more money being collected and improved consumer wellbeing.
The role of data and analytics
Using data and modern analysis techniques can be a game-changer in pursuing a fairer and more effective solution. Having access to a range of consumer data helps build a more accurate picture of personal circumstances, and the level of vulnerability. This involves assessing income and other debt commitments, and using this data to construct a repayment agreement that is not too onerous and therefore will be kept to.
Analysis can also identify stress points in the consumer’s regular finances and help avoid the demand for payment at particularly difficult times. Effective use of this data can also help the consumer to agree manageable payment arrangements with other creditors.
The key benefit of all this is that the need to use enforcement agents with potentially vulnerable people can be dramatically reduced, whilst collection rates increase.
Creating long term social solutions
Standardised collection practices and the premature use of enforcement agents has been proven to lead to negative health outcomes, including suicide contemplation or attempt, problem drinking, depression and psychotic disorders. The Royal Society for Public Health found a strong relationship between debt and ill-health, with half of adults in problem debt also having a mental health problem.
The result is longer-term personal problems for the consumers involved, and greater costs to local authorities tackling these social problems – putting a strain on already over-stretched social care resources.
Providing a long-term solution to indebtedness that allows people a manageable pathway out of debt, and in particular supports vulnerable consumers, helps to avoid the exacerbation of the very problems local authorities are trying to resolve.
There are real financial benefits for local authorities from adopting a more sophisticated and responsible debt collection system. Using data analytics to tailor the approach to each consumer’s circumstances, collection rates increase whilst demand on social services is reduced, as indebted consumers are helped to get back on their feet.
Andy Briscoe is chair of Indesser