Striking the balance: fair and effective public sector debt recovery

With councils under financial strain and households facing rising living costs, the challenge of public sector debt recovery has never been more complex. Daniel Spenceley, head of policy at the Credit Services Assocation (CSA), explores how fair and effective debt collection practices can support both taxpayers and those in financial difficulty, ensuring sustainable solutions for all

When it comes to the recovery of public sector debt, balancing the interests of those in debt, taxpayers, and the government is an incredibly tricky proposition. Public sector, especially local authorities, face extraordinary pressures to recover outstanding debts, with the Local Government Association reporting in October last year that 1 in 4 councils are saying that they are likely to need emergency government support. With limited sources of income for councils, those pressures bring some urgency to the need to recover what is due, to ensure that they are able to deliver the services that taxpayers rely on.     

On the other side of the equation, the general public continues to face rising costs of living, with a recent spike in inflation and an increase to the energy price cap coming in April, which puts their own finances under a pressure. Not to mention an expected increase in council tax, and in some areas by more than usual. We know just how much financial difficulties can impact individuals’ mental health – and we know that the reverse is true, that poor mental health can also contribute to financial difficulties. Owing money also forces those in debt to make incredibly difficult choices about their expenditure. It is critical, then, that those collecting give due consideration to the individual’s circumstances, to make sure that what they are recovering is affordable and sustainable.     

For the everyday taxpayer, those that meet their obligations to the council and who will also face a rising council tax bill, their key concern is that they see that their contributions are being put to good use and that essential local services continue to be funded – but every gap in a local authority’s budget spells danger for many of those services.     

A tricky needle to thread, then.

Effective and fair

When it comes to the treatment of those in debt, effective debt collection methods can help ensure a fair approach, balancing recovery with compassion. Debt collection practices have evolved considerably over the last couple of decades and the vast majority of collections activity is now largely consumer-focused. In fact, debt resolution – i.e. finding a suitable solution to resolve the consumer’s arrears, whether that be repayment, seeking professional advice, or affording the consumer time to manage their own finances – is the way in which many view the industry’s work these days, with activity aimed at encouraging positive engagement and prioritising measures around offering forbearance, agreeing sustainable repayment arrangements, and identifying and supporting those with vulnerabilities. Logically, these measures benefit creditors too, by ensuring they are deploying their recovery efforts and resources in an effective and efficient way.     

The CSA’s Code of Practice sets best practice standards for CSA members and has contributed to the evolution of the industry, ensuring that CSA members strike the right balance between successful recovery and fair treatment of consumers. The Code of Practice sets expectations for CSA members in a range of areas, including the identification and treatment of vulnerability, signposting towards free and impartial sources of debt advice, and affording individuals appropriate time to seek necessary support.   

In the public sector space, in recent years, the Government Debt Management Function (GDMF) and its Fairness Group have done considerable work to help central government strike that same balance. For example, the GDMF and the Fairness Group have developed toolkits for government departments that set standards in areas such as vulnerability and economic abuse; they have also committed government departments to meeting the standards of the Debt Fairness Charter. Even though the scope of the GDMF and Fairness Group is limited to central government, their published resources can provide useful guidance and insight to all areas of public sector collections, including local authorities. Tools and resources such as these are key to enabling creditors and those collecting on their behalf to find the right balance between recovering what is due and ensuring that those in debt are not treated unfairly.     

As with any sector, there are, of course, still improvements that can be made. The CSA recently published a discussion paper, ‘Keeping Pace: Where next for public sector collections practices?’, which aimed to generate conversations around recovery in the public sector and consider some options that may build on the progress that has been made so far.     

For example, the paper discusses the potential benefit of government investment into financial education in the UK, with some particular focus on enhancing awareness and education among the general public around taxes, benefits and the availability of support. Better awareness of what our taxes pay for – and what we lose when taxes go unpaid – could help give some members of the public a better idea of what is at stake and make them more personally invested in paying those taxes. In a similar vein, greater understanding among the public about the benefits and support available to them could go some way to helping those in financial difficulties access critical financial support.

Compassion

The paper also touched on the importance of tone and content in communications when trying to get those in debt to engage, especially setting a tone of compassion and cooperation in early arrears communications. The CSA explored consumer disengagement in some detail in our paper, ‘Tackling the Engagement Gap: Addressing the reluctance of consumers to discuss debt’, where we considered some of the underlying reasons why those in debt fail to engage with their creditors or their representatives. Our research in that paper indicated that some disengagement is, unsurprisingly, tied to fear and that giving individuals less to be fearful of (e.g. legal ramifications of non-payment), at least in early communications, could go some way to improving engagement. If it can help creditors to access more of their disengaged customers, then rethinking how we frame the consequences of non-payment, especially in terms of the legal implications, is worth exploring. Disengagement is damaging to all parties, but especially to the consumer themselves, missing out on potential forbearance and support, and leaving creditors with little option but to litigate to recover what is due.     

There has already been some illuminating feedback following the release of the Keeping Pace discussion paper and it has prompted some very interesting discussions with stakeholders. Later in the spring, we will be visiting a local council to learn more about their particular approach to collections, where we expect to gather even more insights. We greatly welcome the input we’ve had thus far and are even now contemplating a follow-up piece in the summer exploring and sharing what has come out of those conversations. These ongoing discussions are vital for continuing to improve the recovery process while maintaining fairness and compassion, benefiting both taxpayers, creditors and those in debt.

www.csa-uk.com