Posted May 29, 2020
Our Public Affairs and Policy Manager Grace Brownfield discusses the impact that Covid-19 is likely to have on peoples’ ability to pay their council tax and why a rethink of how arrears are collected is needed to prevent households being pushed further into difficulty.
When this year’s council tax bills landed on millions of doormats across England and Wales back in early March, few might have predicted the situation the UK would be faced with now. After housing costs, council tax is often one of the largest monthly financial commitments a household has. It didn’t take long for it to become clear that the coronavirus outbreak was going to significantly affect many people’s ability to pay it.
Unfortunately, official figures for the number of missed council tax payments due to coronavirus aren’t available but there have been reports of 20% of direct debits being cancelled in some areas , and Citizens Advice estimate that over 2 million people have fallen behind on council tax bills due to the impact of the coronavirus outbreak.
At National Debtline we have seen the severe impact that the Coronavirus outbreak has had on many people’s finances, and their ability to pay their bills as a result.
“We have lost both our incomes and are surviving on our child tax credit. This means we are unable to pay many of our larger bills, including council tax and gas/electricity.” – Business Debtline client
A potential wave of liability orders and bailiff action
The number of people falling behind due to coronavirus is particularly worrying because households who miss a monthly council tax bill face severe consequences. This includes demands to pay the annual bill upfront (liability orders), and the threat of bailiffs. Our Stop the Knock research has shown that in 2018/19 alone, 1.4 million council tax debts were passed to bailiffs.
Many councils have temporarily paused their own collection activity as they redirect resources elsewhere to support residents. Meanwhile, the government rightly legislated to prohibit bailiff visits during social distancing restrictions on public health grounds, as we and other debt charities called for at the start of the outbreak.
Other bailiff action short of this (including telephone calls and letters) have continued – and bailiff visits are likely to start again soon.
As public health restrictions ease, and emergency measures pausing collection and enforcement activity are lifted, we face the very real prospect of millions of households – who are already struggling to stay afloat due to the outbreak – being hit with harsh enforcement methods which risks pulling them deeper into longer-term financial difficulty.
Current rules undermine supportive approaches
Many councils are acutely aware of the impact coronavirus has had on peoples’ finances, and want to take a supportive and affordable approach to recovering arrears. However, current Government rules around council tax collection prevent them being able to do so, instead forcing local authorities to employ more heavy-handed, and often far less effective, debt collection methods.
The following graphic, produced by Citizens Advice, clearly illustrates how even small council tax debts can quickly spiral under the current rules.
Council tax collection cannot be ‘business as usual’
Last week we released a joint briefing alongside StepChange Debt Charity and Citizens Advice setting out the urgent changes the Government needs to make to ensure council tax arrears are recovered in an affordable way. As our Chief Executive, Joanna Elson, said when we launched the briefing: “There can be no going back to ‘business as usual’ for council tax collection”.
This wouldn’t just benefit individual households, but local authorities too. Research suggests that collecting arrears in an affordable, sustainable way can actually increase the amount recovered and also prevent wider costs caused when people are pushed further into financial difficulty by harsh collection methods.
What change is needed?
The good news is that there are some relatively simple steps that the Government could take to ensure arrears are collected in an affordable way. Alongside Citizens Advice and StepChange Debt Charity, we are calling on the Government to introduce a statutory ‘pre-action protocol’, which would require councils to take certain steps before seeking a liability order for bailiff enforcement action – including setting up an affordable repayment plan.
Enacting the proposed protocol would require only a simple statutory instrument, so could be done quickly, and would be in line with similar protocols that are in place to protect those in debt in other sectors.
Alongside the new protocol, the Government also need to:
- Amend existing rules in light of the coronavirus outbreak, to stop people becoming liable for their entire annual bill when they fall behind on instalments, and
- Encourage councils to collect debts over more than 1 year by changing collection rate targets
The Government will also need to look at providing more funding to local authorities to help residents with council tax arrears, beyond the existing £500 million Hardship Fund announced back in March.
While this funding was very welcome, since then we have seen a sharp rise in unemployment and subsequent claims for Universal Credit due to the impact of Covid-19– meaning there is likely to be a much larger group of people who need help through Council Tax Support than existing schemes are currently set up to accommodate. The provision of more funding would also enable councils to provide discretionary help beyond Council Tax Support for those who need it and would likely help to stem a further growth in council tax arrears over the coming months.
Affordable ways to repay debt help the whole economy, not just the individual
Ensuring access to safe and affordable routes out of debt for people who have fallen behind due to the coronavirus outbreak isn’t just the right thing for individuals; it’s the right thing for the economy. Affordable repayment plans will give people confidence, spread the cost of the outbreak, and help the wider economic recovery. Without this, the financial impact of coronavirus is likely to be felt for far longer and more widespread – and that will impact on all of us, not just those of us who have already fallen behind.
Grace is the Money Advice Trust’s Senior Influencing Manager. She previously worked in the policy team at StepChange Debt Charity. Before that she worked on issues related to the financial impact of cancer at Macmillan Cancer Support and NSPCC. View all posts from Grace Brownfield.