Councils and collections: recovering revenues for public services

Chris Leslie, chief executive, Credit Services Association on how local authorities can recover their debts

Not many people relish the idea of paying their taxes – but our propensity to settle the sums we owe to our local authorities across the UK is pretty good, with over 95 per cent of bills paid within the year they fall due. Perhaps we are more likely to pay local taxes, fees and charges in the knowledge that they fund vital public services such as parks, social services and waste collection. Or perhaps as individuals we are aware that non-payment or avoidance of council taxes and charges can have significant consequences. Approaches differ between Scotland, England and Wales because of the wider devolution settlement. In England, councils can request a means enquiry summons court hearing to determine whether non-payment of council tax is wilful or culpable. Courts can issue liability orders to require payment by various means, including deductions from earnings or benefits, enforcement agent action, a charging order placed on property assets or ultimately committal to prison. But these days local authorities are far more willing to engage with those struggling to make payments or in difficult financial or vulnerable circumstances.

Growing arrears
The economic backdrop does not make the work of local authority collections any easier at the moment. The cost-of-living pressures facing households and small businesses are beginning to put greater pressure on payments. The latest data from the Office for National Statistics shows that arrears and non-payment levels have grown significantly in the past few years. Whereas in 2017 there were £2.8 billion of council tax arrears owed to English local authorities, in March 2022 that number had risen to £5 billion. Similarly, the sum owed in unpaid non-domestic rates by businesses was up from £1.7 billion in 2017 to £2.6 billion last year. While this still represents a collections rate on council tax of 95.8 per cent in 2022 and of 95.5 per cent on rates, these are significant sums of money that could make an appreciable difference to the quality of lives and services in the community. Much of the arrears situation can be traced back to the COVID pandemic period, when local authorities (like many in the financial services sector) suspended recovery work and many of the court processes were paused with courts closed. A backlog has grown, not only in council tax but also in parking fees, social care fees and other sundry debts, and ultimately the recovery process does need to continue.

Service pressures
For local authorities facing acute price and wage pressures simply to maintain existing levels of service provision, the imperative to collect monies owed is strong. Many councils have sensibly sought to bring in external expertise and specialist help, with joint ventures with private sector collections agencies growing but often outsourcing the enforcement process rather than expecting these capabilities in-house. Debt collection agencies are well-versed in working for non-FCA regulated organisations including local authorities, and can offer consultancy and training as well as direct service provision. There is a debate to be had about the extent to which local authorities can extend forbearance terms to those customers in need of more time to pay, because unlike many credit card or bank loan providers, some council bills are required by statute to be paid and collected within fixed time periods and of course are also automatically recurrent charges, such as the annual council tax. In this respect, it would be welcome if local government representative bodies and central government could work together to explore relaxing some of these time constraints that prevent a more flexible approach to forbearance from being developed.

Code of practice
When arrears occur, the private sector – especially the FCA-regulated consumer credit sector – have well-established processes to offer support, signpost advice and allow rephasing of payments, practices that have more recently been adopted in the public sector. At the Credit Services Association, our Code of Practice sets out best practice standards we expect from our members and which customers and businesses engaging with the collections sector should expect. While the code does not cover enforcement activities, it does set out common principles for the collections process so that member firms must show due diligence, care and competence in their work, treat customers fairly, communicate clearly, not subject customers to aggressive practices and exercise forbearance and consideration of a customer’s circumstances. While there is not a universal code or governance protocol covering all UK public services in quite the same way, and FCA regulation also does not extend to public sector financial recoveries, we know that efforts are being made to coordinate improved standards across public authorities, for example in the approach taken to central government procurement of collections work and through the Cabinet Office Fairness Group.

Early engagement
Perhaps the key lesson to be learned from private sector collections is the value of early engagement. Many independent free debt advice charities say that the accumulation of problem indebtedness for those in financial distress is as much to do with debts owed to the state or utilities and not always about credit cards or loans. Preventing problems from compounding with appropriate signposting to advice and help is crucial. Debunking misconceptions and encouraging open dialogue is crucial, and local authorities have a key role in urging individuals to take a first step to talk to creditors and collections agencies. Communications that emphasise the support that is available, as the CSA’s #heretohelp campaign has highlighted (www.csa-uk.com/heretohelp), can make a real difference. Ultimately all the evidence is clear that the sooner people engage, the more chance there is of reaching a solution acceptable for them and for the creditor too.

Breathing space
Rather than defaulting to enforcement action as may historically have been the practice in some councils, those local authorities who allow residents a ‘breathing space’ and consider things from the perspective of the person in debt will have a better understanding of possible solutions. If there is a default on a council bill, the chances are there may be other defaults with other creditors. And perhaps this is where the skill set of third-party debt collection specialists can add real value to the process, because they know well that different creditors have different degrees of flexibility. They also know what approaches work best and how forbearance can be tailored appropriately. Every person in debt is different. Some may have forgotten to make a payment, others may feel stigmatised and ashamed, others unsure what to do. The latter is especially true most recently with collection agencies reporting that cost-of-living pressures are bringing in new groups of the public who haven’t traditionally fallen behind on payments in the past. More engagement at an early stage means better help targeted where it makes a difference, recovery rates can increase and problems can be solved.
    
There are so many myths and misconceptions among the public about what fate may befall someone who misses payments. But if local authorities can work collaboratively, recognising they are one of many creditors, they will also succeed in improving collection rates – which in turn can benefit all local residents and the community at large.

The Credit Services Association (CSA) is the only national trade association in the UK for organisations active in the debt collection and purchase industry. Our membership employs nearly 11,000 people, held over £30bn of consumer debt for collection last year, across over 25 million accounts. And they held nearly £4bn of commercial debts in over 1.5million commercial accounts. Our members act on behalf of a large and diverse range of creditors including banks and utility companies and comprises specialist organisations such as tracing agencies and law firms. As the voice of the collections industry, our vision is to build confidence in debt collection by making the entire process clear, easy to understand and less stressful for all those involved. Further information on the CSA can be found at www.csa-uk.com.