An agenda for council tax after Covid – more support and fairer collections

Posted July 20, 2021

Grace Brownfield discusses the findings from our latest report ‘Council tax after Covid’ and explores what needs to be done to tackle rising council tax arrears. 

Latest government figures show that council tax arrears in England have risen to a record £4.4 billion. This is a significant figure – equivalent to almost £100 per adult in England.

Of course, the reality is that the burden of council tax arrears is not spread evenly. Much of it is falling on low-income, financially stretched households – like those we help at National Debtline and Business Debtline.

The arrears figure has, of course, been driven up this year due to the impact of Covid-19, with £1.5 billion worth of council tax going unpaid in England last year.

However, council tax arrears were rising at a worrying rate even before Covid hit, and it would be wrong to view this as solely a pandemic related problem.

Tracing the rise in council tax arrears

Instead, as our new report Council tax after Covid examines, the rise in council tax arrears can be traced back to the introduction (and reduction in funding for) local Council Tax Support in 2013.

• Between April 2013 (when local Council Tax Support was introduced) and March 2020 – just before the pandemic fully took hold - the amount of council tax arrears owed in England increased by over £1.2 billion, or 51%.
• In comparison, in Wales - where every local authority is still required to offer 100% Council Tax Support - arrears increased by only 28% (or £24.2 million).

A rise in unaffordable bills?

When the UK Government devolved Council Tax Benefit to local authorities in England in 2013, it was accompanied by a 10% cut in funding.

As a result, councils have had to reduce support, particularly for working-age people.

The most common change has been the introduction of minimum payments, meaning that people can no longer receive support covering 100% of their bill and must pay a proportion (the exact amount varies depending on the area). Recent research by the New Policy Institute and entitledto found that:

• over 75% of local authorities in England now have a minimum payment in place.
• 2.1 million people now have to pay more in council tax than they would have done under the previous, national Council Tax Benefit.

Unfortunately, for many people these council tax bills are simply unaffordable.

This is backed up modelling by the IFS, which found that reducing a household’s Council Tax Support entitlement significantly increases the likelihood of them falling into arrears.

“I just can’t afford to pay it out of my Universal Credit. What do you do? I know council tax and your mortgage are the priority debts, but if all the money you’re getting in is less than even your mortgage, what do you do?” – Robert*, National Debtline client

The impact of falling into arrears is made worse by harsh collection practices and rules that mean even a small council tax debt can escalate quickly to a much bigger amount.

“Just the thought of contacting the council brings back feelings of depression – I felt completely unsupported” – Sara*, Business Debtline client

How can we bring arrears down? 

When considering how to stem the tide of rising arrears it would be tempting to think the solution might be to double down on harsher collection methods in an attempt to extract the money owed from as many people as possible.

However, leaving aside the devastating impact that would have on households, evidence suggests it would be completely ineffective.

Research by Policy in Practice with London councils found there was no clear relationship between stricter council tax collection policies and higher council tax collection rates (indeed, the key determinants were the generosity of the Council Tax Support scheme and local poverty levels).

Plus, our own research found that, under the current rules, councils are actually incurring higher collection costs for little to no return – suggesting the current approach isn’t efficient or effective for them. The amount of collection costs remaining unpaid has increased by 1,413% (£291 million) in England since local Council Tax Support was introduced.

This puts local authorities in a difficult position. They are reliant on council tax for local services and have limited funding for local Council Tax Support. So, while many recognise the affordability challenges faced by people in their area, they have to charge them anyway. Local authorities then have to attempt to collect the inevitable arrears, despite knowing they are unlikely to recover these and are likely to incur significant costs doing so.

An opportunity for change 

So, what would work? What would bring the arrears bill down, while also reducing the negative impact of current collection practices on households?

Well, as our report sets out, we think the Government needs to take a twin-track approach; improving support through continued increased funding to prevent arrears in the first place, while reforming collection rules so that people who cannot pay are treated fairly and enabling councils to recover a greater amount in the longer term.

Such a move is likely to command strong support from local authorities and, importantly, from wider taxpayers too. Six in ten adults in Great Britain (59%) said they would support the Government increasing the amount of money given to councils to allow them to discount council tax for those on low incomes.

This would build on welcome steps the Government has taken during the pandemic, including giving additional funding to local authorities in England to provide further help with council tax bills.

With our research revealing that over seven million people in Great Britain (14%) are worried about being able to afford their council tax bills over the next year, these changes cannot come soon enough.

Read our full report

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