Council tax is becoming ‘increasingly regressive’, and a revaluation of property values is long overdue, according to a Commons Committee. Whether this is true or not, councils face a more pressing council tax issue, and one that’s more straightforward to immediately address – arrears.
In a recent report, the Housing, Communities and Local Government Committee outlined the need for reform to ensure the sustainability of local government finances.
The report makes a series of recommendations, including one to overhaul the council tax system. In the short-to-medium-term, this could involve the revaluation of properties and introduction of extra bands. Longer term, it may lead to the replacement of council tax with a ‘proportional’ property tax.
It’s proposed such changes would enable councils to grow and protect their tax bases to help fund wider service provision. While this seems logical, it’ll require a seismic shift to implement suggested changes, and it’ll take time.
Indeed, the Committee acknowledges that successive governments have shied away from making major council tax changes, fearing a backlash from individuals who’d lose out.
I believe a more prudent approach is to address a problem that’s already impeding tax revenues – the collection of council tax arrears – and then consider larger changes.
Government data (Collection rates and receipts of council tax and non-domestic rates in England, 2020-21) shows a total of £4.4bn in council tax arrears for the year 2020-21, an increase of £900m from the previous year. While an increase was to be expected from the pandemic impact, looking beyond COVID, the data shows total council tax arrears have consistently risen since 2016-17 when they totalled £2.8bn.
The situation doesn’t show signs of improving. Research by debt charity The Money Advice Trust suggests over seven million Britons are worried they won’t be able to pay council tax bills over the next year. This might see council tax arrears rise further.
Addressing the arrears challenge could help relieve the financial squeeze being placed on local authorities. As well as generating more funds through greater collection of council tax, it could also save costs. To achieve this, councils must rethink ineffective processes used to handle arrears and focus on communication, affordability, and vulnerability.
Due to the Council Tax (Administration and Enforcement) Regulations 1992, councils often progress to court action to pursue arrears, after postal reminders have failed to elicit a satisfactory response. For residents already struggling with debt, this can mean they quickly go from billing reminders to court summons and, in some cases, bailiff visits.
This process makes no allowances for a resident’s affordability and can drastically accelerate their financial hardship. In addition to outstanding tax, they can find themselves liable for court and administration costs due to the legally mandated escalation process. This increases the spiral of debt and can make the successful recovery of arrears even more unlikely.
It’s worth considering that Government data shows court and administrative costs have increased in recent years. In 2019-20, a year prior to COVID measures suspending collection enforcement, costs totalled £337m, compared to £292m in 2016-17. They were £312m for 2020-21. Costs of enforcement are rising but aren’t bringing down levels of arrears. In fact, they’ll only swell total arrears – and losses for councils – if residents can’t afford to pay debts.
Making no allowance for affordability risks making the financial situation more precarious for councils. However, it’s possible to transform this process by opening-up lines of communication with residents, replacing enforcement action with positive and proactive dialogue that prevents future escalation and arrives at a payment plan.
Software can be used to cost-effectively schedule outgoing calls to struggling residents, instead of sending postal reminders, which they often find daunting and are at a greater risk of going unread. Using a process of automation to schedule outgoing phone calls to residents and giving them the option to proactively engage to discuss their position, helps to create understanding of resident affordability and vulnerability. It also frees up resources within local authority revenues and benefits recovery teams, so they’ve time to speak to residents individually. Debt can take its toll on mental health and wellbeing, and many councils are keen to avoid inadvertently making problems worse for residents, while also improving staff wellbeing by creating opportunities for positive outcomes.
In a recent roll-out with a local authority, this approach has proved successful in collecting payments from around 60% of contacted residents in arrears. The proactive engagement also supported residents with other welfare needs, while generating additional council tax cash flow which would have otherwise taken the council potentially years to recover, if at all.
By moving away from the traditional approach, which often leads to costly court action, and using digital automation to create a more proactive, resident-focused way of thinking, local authorities could find they more effectively recover arrears. This is likely to prove a quicker way to protect taxes and funding than overhauling the whole council tax system.
John Doyle is CEO of local authority technology solutions provider Voicescape