Council tax drags poorest into debt

5 Nov 14

Withdrawal of Council Tax Benefit has resulted in a postcode lottery for households that can’t pay part of the bill. Local authorities are also feeling the effects, with arrears on the increase

It used to be credit cards, or unsecured personal loans, but not any more. This year, according to Citizens Advice, the number one cause of personal debt is council tax – and the reason is staring everyone in the face.

Since April 2013, people on low incomes have no longer been able to claim council tax benefit (CTB) and so possibly avoid paying any council tax.

Instead, English local authorities have come up with a range of support schemes that often require households which previously paid no council tax to contribute.

The result? Arrears have risen, along with the cost of chasing them. Figures from the Department for Communities and Local Government show total arrears rose by 21% in 2013/14, from £691m to £836m.

Analysis by the New Policy Institute for the Joseph Rowntree Foundation shows that 235 of the 326 English authorities that collect council tax saw arrears increase last year, with the largest increases coming in areas where councils charge higher minimum sums.

The cost of chasing non-payers is also increasing, with councils spending £233m on court and administration costs last year – up from £209m. The NPI report, published in September, reveals how nearly three-quarters of councils where households are required to pay more than 20% of their council tax saw increased court and administration costs.

Wirral, which demands a minimum payment of 22%, saw its costs increase from £234,000 to £896,000 while, in Newham, where the minimum is 20%, costs rose from £1.6m to £3.4m.

The problem is that, in many cases, councils are chasing relatively small sums owed by low-income families who are not used to paying the tax. During the first half of 2014, more than 70,000 people sought help from Citizens Advice over council tax arrears – up about 20% compared with the first six months of 2013.

Gillian Guy, chief executive of Citizens Advice, acknowledges that local authority budgets are stretched, but says: ‘They must ensure that the resources available for their local council tax support schemes are focused on those who are most in need.’

Councils chose in early 2013 whether to continue giving poorer households the same level of relief as under CTB. If they did, they had to find ways to cover a 10% cut in government funding.

Some that did not impose minimum payments tried other solutions, such as scrapping rebates for second adults who live with people on low incomes or cutting the level of savings people can hold and still qualify for assistance.

NPI describes the situation as a ‘postcode lottery’ with, in some cases, neighbouring councils adopting vastly different approaches towards poorer families. ‘It’s grossly unfair that people in the same circumstances are receiving very different levels of support depending on where they live,’ says NPI research officer Sabrina Bushe.

According to another study by NPI, 1.5 million of the 2.3 million families involved live below the poverty line and 1.8 million rely on means-tested benefits because no family member is in work.

This year, 244 councils require all working-age households to pay a minimum sum, compared with 229 during the first year after CTB was abolished. Only pensioners who qualified for CTB and paid no council tax are automatically protected under local support schemes.

So what difference is all this having on collection rates? Not as much as you might imagine. A study in July by the Society of District Council Treasurers shows collection rates fell marginally, from 98.16% to 97.96%, between 2012/13 and 2013/14. Eighty-five per cent of councils said they collected as much as, or slightly more than, expected last year.

But the hassle is increasing. Dean Langton, the society’s lead adviser on council tax support, says: ‘There have been more reminders and summonses to collect the same amount of money.’

Langton dismisses the argument that councils are inconvenienced by the need to chase small sums of money, as that was also true under CTB. The main problem is confronting households who have not paid council tax before. ‘It’s about people getting used to paying on a regular basis,’ he says.

All local authorities collected 97% of council tax due in 2013/14, down 0.4 percentage points on the previous year. Peter Kenway, director of NPI, said: ‘The fall in the council tax collection rate between 2012/13 and 2013/14 was only the second decrease since council tax was introduced in 1993/94. Councils should consider the implications for the collection rate when deciding their schemes for next April.’

The NPI report shows 78% of councils that cut council tax support in 2013/14 saw increased arrears, compared to 47% of councils that offered the same assistance as under CTB.

In Stoke-on-Trent, where households must pay a minimum of 30%, arrears have risen from just under £3m to nearly £6m. The council points out it had an extra £6.5m to collect this year as more households became eligible to contribute. It uses a range of methods to chase arrears, including out-of-hours calling. ‘We take a dim view of those customers who can pay but refuse to do so, and where appropriate, we have started to instigate formal proceedings,’ a spokesman said.

The London Borough of Islington runs a cashback scheme where households receive £15 if no money is owed by March. Last year, about 9,000 households received £15, but the council admits it cannot say what effect this had on arrears.

In Weymouth, the authority gave some people until May to clear last year’s bill. But households in arrears that do not contact the council are more likely to be summoned to court than granted an extension. ‘We look at each case individually,’ says revenue and benefits manager Stuart Dawson.

In 2013/14, councils that introduced a minimum payment of 8.5% or less qualified for transitional government relief. But that was only available for one year. The NPI research found only 69 councils are now charging 8.5% or less, down from 113.

Some authorities are consulting on what to do in 2015/16, with options including higher minimum payments. ‘It’s possible that support will be reduced further,’ says Bushe.

Councils are generally reluctant to discuss their individual arrears picture or the sums they are spending chasing late payers. As one council finance director said: ‘It’s quite an emotive issue politically, particularly in the run-up to the general election. It’s just another welfare reform.’

Did you enjoy this article?