Latest statistics indicate ongoing importance of Council Tax collection

Latest statistics indicate ongoing importance of Council Tax collection.

The impact of pausing enforcement activity during the COVID-19 pandemic lockdowns continues to be reflected in the latest government statistics. It reinforces the importance of responsible debt collection and resolution to address local authority budget deficits.

In April 2022, the Department for Levelling Up, Housing and Communities calculated that the total amount of council tax still outstanding amounted to £5.0 billion, an increase of £540 million over the figure for 2020-21. The total amount of non-domestic rates still outstanding amounted to £2.6 billion, an increase of £58 million. These are somewhat alarming figures when considering local authority revenue expenditure and financing in England for 2020 to 2021:

All of the sectors in the above table are negatively impacted by shortfalls in council tax collection rates. The temporary reduction or delay in recovery action during the pandemic has added to the level of outstanding debt going back several years.

By the end of March 2022, local authorities had collected £33.9 billion council tax related to 2021-22 and achieved an average in-year collection rate of 95.8%, an increase of 0.2 percentage points over 2020-21. They also collected £20.8 billion in non-domestic rates and achieved an average in-year collection rate of 95.5%, an increase of 2.5 percentage points. Many local authorities have reported that the recommencement of recovery action during 2021-22 attributed to these increases.

This month, the Department for Levelling Up, Housing & Communities released its official statistics Council Taxbase 2022 in England, an estimate of the number of properties liable for Council Tax as of September 2022. All 309 billing authorities in England were asked to show the number of dwellings in their area by council tax band. They were also required to show the number exempt from council tax. The response rate was 100%.

The report found that in England there were a total of 25.2 million dwellings as of 12 September 2022, an increase of 238,000 (or 1.0%) compared with 13 September 2021. Of this number, 24.5 million dwellings were liable for council tax. This was an increase of 205,000 (or 0.8%) compared with September 2021.

As seen in the chart below, 62.7% of all dwellings are liable to pay 100% council tax and have not been registered as entitled to any exemptions, discounts, or charged a premium. There were 692,000 dwellings exempt from paying council tax, an increase of 32,000 (or 4.9%) compared with 2021. It is important to note that exempt dwellings still account for just 2.7% of all dwellings.

Considering the findings

Three things become clear when reviewing these April and November statistics in unison. The number of dwellings that are deemed required to pay has not declined (in fact, marginally increased), local authorities continue to need to fund essential public services and enforcement activity has had a positive effect on collections when it has been maintained.

The Importance of paying council tax is clear and it remains a legal obligation for the vast majority of dwellings. It is important to remember that many people pay their council tax on time and in full. It should also be remembered that enforcement is the final stage of debt collection, in which the court has already issued a warrant or order instructing an enforcement agent to take control of goods in lieu of payment. The charges for enforcement services are set by government and designed to avoid increasing the overall debt.

CIVEA commissioned a leading economic research specialist, Europe Economics, to analyse the impact on the public services if debts were not enforced. The data used for this research was drawn from a wide range of sources including the Office for National Statistics, the Institute of Fiscal Studies, the Ministry of Justice (MoJ) and the industry’s own exclusive data.

This technical project modelled if people would be compliant if there was no or little enforcement of taxes and fines, based on current compliance data, geography and demographics. The detailed report was published in October last year.

The key findings make a clear case for the government to use enforcement agents in order to protect the public purse and ensure that people who pay are not subsidising those who don’t. The headline results are:

With only light touch enforcement an additional 7 million households would default on Council Tax payments each year, resulting in shortfall of 12 billion pounds.

An additional 4.6 million people would not pay Penalty Charge Notices (PCNs or parking fines each year, leading to losses of 383 million pounds.

An additional 860,000 more people would not pay their speeding fines each year, resulting in underpayment of 107 million pounds.

The report makes a strong case for the principle of early payment, as established in the fixed enforcement fee structure, because it increases the likelihood of engagement from debtors, which prevents further arrears.

There will always be a need for enforcement as some people will continue to deliberately avoid making payments, despite being able to afford to do so. Our shared industry ambition has always been to recover funds from those who can afford to pay but are making the choice not to.

CIVEA and its member firms understand the challenges for those currently facing financial hardship and will always support customers who are vulnerable or are struggling to pay their debts. We continue to believe that early communication, whether that be through debt advice charities or enforcement representatives, can only be beneficial to all involved and encourage anyone who is unable to pay to make contact as soon as possible.

November 2022