A new approach to the collection of council tax in London

Paul Howarth looks at new research about the collection of council tax in London commissioned by the Greater London Authority and published by Policy in Practice today. 

Managing problem debt is understandably a high-profile issue right now. The impact of the pandemic on household finances has been severe. Citizens Advice estimates that over 7 million adults across the UK have fallen behind on at least one bill during the pandemic, and that around 2.8 million households have missed a council tax payment. In recent years, the focus of problem debt has shifted from consumer credit to money owed to the government and essential service providers.

So, it is timely that Policy in Practice has just completed a research project for the Greater London Authority on the collection of council tax debt in London. The project involved a mixture of new research and the collation of views from London boroughs.

Read our report for the Greater London Authority, Council Tax debt collection and low-income Londoners, here

Watch and listen to Paul Howarth present the research findings and recommendations from our research into council tax debt collection and low-income Londoners in this short clip, below.

Three key findings from our research on collecting council tax

1. We could find no clear relationship between stricter council tax collection policies and higher council tax collection rates
2. Higher council tax collection rates are associated with the generosity of a borough’s Council Tax Reduction Scheme and lower collection rates are associated with the level of poverty in the borough
3. Seeking to recover the full council tax bill, rather than a missed instalment, significantly weakens financial resilience, more so if charges for enforcement action are added

Do stricter council tax collection policies work?

Council tax collection policies can be very strict. If a household misses a payment and doesn’t respond quickly to reminders, the whole of the year’s council tax becomes due. And if the new demand is not paid quickly, a court summons can quickly follow. If the council obtains a liability order, enforcement action is taken. This can include action by bailiffs.

Using publicly available data, Policy in Practice plotted the relationship between council tax collection rates and collection policies, ranging from strict to flexible, but we could find no clear relationship between the two. Some London boroughs may be concerned that more flexible, customer-centric collection policies will have an adverse effect on collection rates but this does not appear to be the case in practice.

What factors affect council tax collection rates?

Our research did show a clear relationship between the generosity of a borough’s Council Tax Reduction Scheme and higher collection rates. To some extent this is an obvious relationship, but it shows the importance of aligning the two policies. Where a borough’s Council Tax Reduction Scheme is based on 100% liability and does not involve a minimum payment by the household, collection rates tend to be higher.

Collection rates are higher where a CTRS is based on 100% liability and does not involve a minimum payment

We have seen similar findings in other studies we have carried out where households with the most generous level of council tax reduction had fewer council tax arrears, and vice versa. Collection rates are also associated with the amount of poverty in a borough, with the poorest boroughs having lower collection rates. But these are the only two factors. We also looked at both enforcement policies and council tax charge, but we could find no clear relationship between these factors and council tax collection.

Council tax collection rates are linked with poverty; the poorest boroughs have lower collection rates

What impact does recovery of the whole year’s council tax bill have?

Policy in Practice has developed a sophisticated measure of household financial resilience. This involves looking at income and expenditure, both now and in the future, taking account of relevant policies such as minimum wage and personal taxation. Policy in Practice’s Low Income Family Tracker (LIFT) Platform allows local authorities to identify and support households with low financial resilience and monitor the impact of interventions that are designed to support them.

We looked at existing administrative data that we hold for most London boroughs. We were able to use this to determine how many households would be pushed into a cash shortfall between their income and expenditure if one month’s council tax was recovered over 12 months. Then we did the same calculation for recovering the whole council tax bill over 12 months and for the whole council tax bill plus average costs for liability orders and enforcement action.

We found that only 0.1% additional households in the sample would be pushed into a shortfall from recovering one month’s council tax over 12 months, but an additional 25% for recovering the whole bill, and an additional 60% if costs were added. So, as the amount of debt increased, the chances of successful recovery were much reduced.

Our analysis shows that the more the amount of debt increases, so the chances of successful recovery reduces.

Three key messages from discussion with London boroughs

1. The relative rigidity of the regulations and limitations to the IT systems create problems but they can be overcome, enabling councils to pause recovery action for Council Tax Reduction recipients before the summons stage
2. More data-sharing would help move towards a more rounded, single view of household debt and would also help to identify the households who need the most help, both now and in the future
3. In-year collection performance indicators are a barrier to more flexible approaches and different performance indicators should be considered

Overcoming barriers to flexible collection council tax

On the face of it, the regulations that govern the collection of council tax do not allow much scope for pausing the process to assess vulnerability. They set out a quite rigid, step-by-step, approach that goes quickly from missing one payment to enforcement action. IT systems tend to follow the regulations systematically, so it can be difficult and costly to introduce variables.

But we did find that these problems can be overcome. Some authorities have introduced a break period before a summons is taken out so that they can contact potentially vulnerable households and work with them to take debt advice and devise a repayment plan. Usually, those who are receiving council tax reduction are treated as a proxy for being vulnerable. This can be refined by using Policy in Practice tools to establish who is already in arrears for other services, and who may face the worst income shocks in the future.

Greater data-sharing reaps rewards

Most parts of central and local government tend to work in silos. Each department has its own procedures and generally there is little contact with other departments, even when they are both trying to recover debt from the same person. Several local authorities are breaking down these barriers so that they end up with a single view of debt. Read our report to the Greater London Authority, Council Tax debt collection and low-income Londoners, for full details of the case study with Newham Council.

Read our report to the Greater London Authority, Council Tax debt collection and low-income Londoners, for full details of the case study with Newham Council

There also needs to be more data-sharing between DWP and local authorities particularly Universal Credit data. This is necessary for local authorities to be really well-informed about those of their residents who need the most help.

Better performance indicators

Targets and performance indicators are important because they drive behaviour. Having a performance measure for in-year collection rates is an incentive for local authorities to do everything they can to collect arrears in-year. But it acts as a disincentive to give households breathing space and to collect arrears based on ability to pay. We think it is time to develop new indicators reflecting more flexible customer-centric collection policies.

Our evidence points to flexible collecting of council tax

Taking all these findings together, there is a very strong case for a more flexible, customer-centric approach to council tax collection, which looks at all debts in aggregate, takes account of the ability to pay, and encourages professional debt advice leading to realistic repayment plans.

We made recommendations for both the Greater London Authority and London boroughs, see below.

Seven recommendations for the Greater London Authority

1. 1. Help explain the outcome of the research undertaken in this project to London Boroughs:
      • flexible, customer-centric policies can be just as effective as ‘harder’ enforcement policies, if not more so
      • different collection policies have a significant impact on a household’s ability to pay, and therefore the relative likelihood of debts being recovered
   2. Support and lobby for changes to the legislation to support more flexible collection policies, so that IT systems automatically reflect these changes, engaging as necessary with bodies such as the Cabinet Office who are looking at reforms to the way public debt is collected
   3. Using the breathing space initiative as an impetus for change, offering practical support to boroughs to help them overcome the barriers to more flexible collection policies. As a starting point, work with boroughs to ensure that:
      • costs are not added to the debt, and
      • all boroughs differentiate between those with CTR and those without as a first step in identifying those who may have problem debt
   4. Promote the Citizens Advice and LGA protocol as the most used in London and as a useful starting point for the adoption of good practice. It is still worthwhile encouraging London boroughs to sign up, particularly in the light of breathing space. It can be supplemented by other good practice actions that have been suggested
   5. Continue to lobby for further reasonable changes to the breathing space scheme, particularly the inclusion, in all cases, of the whole council tax bill in the statutory debt repayment plan
   6. Support those boroughs who are urging DWP to share more Universal Credit data so that households’ financial vulnerability can be measured more accurately
   7. Lobby central government for changes to the key performance measures including:
      • moving away from in-year collection and placing more emphasis on previous years’ debt; and
      • looking at the viability of introducing an indicator for the number of debt repayment plans.

Eight recommendations for London boroughs

1. Adopt a policy of not adding costs to council tax debt for low-income households
2. Adopt the practice in at least one borough of identifying CTR recipients in advance of the summons stage to allow them to seek debt advice and draw up a repayment plan
3. Use the Standard Financial Statement as a means of assessing ability to pay
4. Place more emphasis on allowing repayment of one instalment to be spread over 12 months as this is more affordable for those on low incomes and is more likely to have a positive outcome
5. Share more data internally between departments to help move towards a more rounded, single view of household debt
6. Ensure that Council Tax Reduction Schemes:
   • are as generous as possible to support council tax collection;
   • do not incorporate Universal Credit policies such as the two-child limit
7. Consider the introduction of more customer-friendly contact hours for people in difficulty
8. If not already done so, sign up for the Citizens Advice protocol for council tax debt collection, in advance of the breathing space initiative

Find out more

• Read our report for the Greater London Authority, Council Tax debt collection and low-income Londoners, here

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