Opinion: ‘loan shark' tactics over unpaid Council Tax trap households in debt and distress

With referrals to bailiffs over unpaid Council Tax soaring by 20%, Katy Ward argues that unduly aggressive debt collection punishes vulnerable people.

MoneySavingExpert founder Martin Lewis has launched a scathing attack on Local Authorities and their debt recovery methods for unpaid Council Tax, labelling their approach as “worse than loan sharks”.

“Council Tax collection practices are so aggressive they’d make the banks blush,” said Lewis.

“The grotesque process couldn’t have been designed better to accelerate distress for people in Council Tax debt, especially those with mental health problems.”

In my opinion, he’s absolutely spot on, and the system for debt enforcement needs a total overhaul.

Spiralling debt levels

The statistics on Council Tax debt speak for themselves.

According to figures released in June by the Department for Levelling Up, Housing and Communities, arrears in England stood at almost £6 billion in March 2024 – a 9% increase from the same time the previous year.

The number of people subject to enforcement action is also climbing.

Earlier this year, a BBC investigation revealed that referrals to bailiffs related to Council Tax arrears surged by almost 20% in 2023.

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‘Loan shark’ tactics

Surely, councils have a right to recoup their losses from people who are deliberately not paying. It is only fair to those who do pay their bills on time.

But there needs to be greater distinction between those who choose not to pay and those unable to do so.

And the way they go about it is desperately in need of review, especially for vulnerable households.

Under current rules, a Local Authority can issue a ‘final notice’ for the full year’s Council Tax bill just seven days after a missed payment.

To put this into context, the typical household bill for a Band D property currently stands at £2,171, an increase of £106 from last year.

If you don’t pay this ‘final notice’ within seven days (or it’s the third time you’ve been in arrears), the council can apply to a court for the right to collect this debt.

Distress for vulnerable families

Think of the impact on a family receiving a final notice after accidentally missing a payment due to bereavement, job loss or a hospital stay.

I’ve been in a similar situation. When my mother died, we received a letter from the council less than a week later enquiring who would be responsible for paying the bill.

Although her account wasn’t in arrears, receiving this letter so soon after her death only added to our grief.

A vicious cycle              

Once the cycle of Council Tax debt begins, it’s often difficult for people in arrears to get off the treadmill.

As soon as a council has handed the debt to a bailiff, the amount owing quickly spirals.

A £75 fee is added to the debt when a Local Authority passes an account to a bailiff, with a minimum £235 fee added when the bailiff visits a property.

On top of this, you’ll pay a minimum fee of £110 if a bailiff seizes and sells your possessions.

Bear in mind, you may face higher fees if you owe more than £1,500.

A double standard

While credit card companies receive a lot of flak for the way they treat customers, rules surrounding mainstream lenders and those in debt are far more flexible.

In these cases, a lender must first contact people who have missed payments and offer them the opportunity to set up a repayment plan.

Likewise, borrowers can ask a lender to pause their repayments while they focus on priority debts.

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A failure on all fronts

Frustratingly, it seems that the current system isn't working for anyone.

According to findings from Citizens Advice, inflexible rules on debt enforcement push councils to use aggressive and costly approaches, such as court orders and bailiffs.

As a result, households that have only fallen slightly behind can find it almost impossible to get their finances back on track.

Furthermore, a Freedom of Information request lodged by Citizens Advice in 2019 revealed that bailiffs typically recover just 30% referred Council Tax debt per year.

Although this statistic is now five years old, it's hard to imagine that much has changed in the intervening years.

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More households destined for debt?

Sadly, Council Tax debt levels will likely continue to rise as bills become more expensive each year.

Under current legislation, Local Authorities can increase Council Tax rates by up to 4.99% annually – with greater increases requiring a referendum.

However, there is an exception for bankrupt Local Authorities, which have special dispensation to impose greater hikes.

In fact, Croydon Council was able to increase bills by up to 15% in 2023/24.

Worryingly, there are fears that our Council Tax burden could increase even further.

One suggestion has been the Government could remove existing Council Tax bands, with households instead paying a percentage of their property’s value.

So, what’s the answer?

Clearly, treating vulnerable households compassionately should be a top priority.

As Citizens Advice states, there needs to be greater flexibility within the rules governing the collection of Council Tax debt.

Before issuing a final notice for payment, councils should be required to contact residents to assess any mitigating circumstances and attempt to set up a repayment plan.

Additionally, there needs to be better communication about support schemes, informing vulnerable households of initiatives that could help make their Council Tax bill more manageable.

In certain cases, those on a low income and in receipt of specific benefits could be eligible for a discount of up to 100%.

One thing is sure: the current situation can’t continue, or more and more people will become trapped in a cycle of problem debt, which can have a devastating impact on their financial and mental health.

Have your say

What do you think of the process for recovering Council Tax debt? Do you agree these ‘loan shark’ tactics need to come to an end? Or perhaps you have sympathy for cash-strapped councils bound by inflexible regulations?

Maybe you’d go even further and say that we all have a responsibility to stay on top of our bills.

We’d love to hear your thoughts in the comments below.