‘Council tax collection practices are so aggressive they’d make the banks blush’

Up to 2m people with mental health problems are at risk of hideous harms, warns Martin Lewis’ charity

Research published today by the Money and Mental Health Policy Institute, the charity founded and chaired by Martin Lewis, exposes local council debt collection practices — showing them to be far more aggressive than financial firms, and driving unacceptable harms that disproportionately affect people with mental health problems.

The research (which is funded by abrdn Financial Fairness Trust) reveals that around 2m people with mental health problems in the UK have fallen into a ‘council tax trap’ - missing one payment and then facing a whirlwind of rapidly escalating debt collection activity, fees and charges when they are potentially too unwell to even open their post. It highlights that:

● Within three weeks of missing just one council tax payment, you can be hit with a final notice from your local authority requiring you to pay your full annual council tax bill within 7 days. This could be up to 12 times more than initial your missed payment. For an average UK household, this could brutally mean a missed £140 payment results in a £1,668 bill just three weeks later (2).

● That's despite our research showing that 91% of people behind on council tax bills could not afford an unexpected expense over £1,000, and a third (34%) could not afford an unexpected bill at all.

● In stark contrast, a credit card firm is required by regulation to go through more steps to engage people about a missed payment before demanding full repayment - and this process typically takes 3-6 months. It is also required to offer a much wider range of support and repayment options.

● Fail to pay your full annual bill, and after a week, the council can apply to take your case to court and to ask for a ‘liability order’ – a letter that lets them take much more aggressive forms of debt collection including sending in bailiffs. Regulations require just 14 days between a council applying to bring your case to court, and the case actually being heard by judges. After your case has been heard in court, councils can issue the liability order. Now your debt can be passed onto bailiffs, a mere 6 weeks after the first missed payment.

● Outrageously, local authorities are also charging people as much as £150 when they are issued with a 50p liability order. Liability orders cost the Ministry of Justice only 50p to produce – even with the additional administrative costs for councils, we believe the extra charge that they are levying on people for receiving this paperwork is completely unreasonable, and is in effect a disguised fine.

● These practices are widespread among councils. 71 of the biggest 100 councils in England and Wales share information about their debt collection processes. Our analysis shows that 87% of those 71 councils use the full strength of the law and demand that people pay the full year's council tax within three weeks of missing a first payment. 

The rapid and aggressive council tax collection process disproportionately affects people with mental health problems, who are over twice as likely to be council tax arrears. Our analysis of nationally representative data shows that approximately 10% of people with mental health problems are behind on their council tax bills, compared to just 4% of people without such conditions.

People with mental health problems are also disproportionately subjected to the most aggressive and intimidating debt collection practices, despite the increased risk of psychological harm for this group. Our research found that 73% of people in council tax debt who received a bailiff visit had a mental health problem. As well as acute financial harm, this punitive process is leading to people with mental health problems feeling hounded, helpless and at worst even suicidal.

Sharon, 55, from Lancashire, has borderline personality disorder and bipolar disorder. 

She took part in the research and described how she received a letter on Christmas Eve - which had arrived late due to postal delays - saying that she needed to pay her council tax bill by Christmas Day.

This was despite reaching out to her council before missing the payment to explain that she would struggle to afford that month’s payment and to try and set up a payment plan. Her request was refused by the council because she was not yet in arrears.

Sharon says: “I was in meltdown. I ended up taking out more credit and took out a credit card with 40% interest just to be able to pay it off. You would only set a deadline for something like Christmas Day to break people. I was a mess, I couldn’t do anything. I’d already bought Christmas presents for the grandkids, but I couldn’t spend any time with other family because I was so stressed.”

“It’s an appalling system, I can’t manage it. As soon as I start hearing threats, I become incapable. But even when I’m well enough to contact them and ask for a payment plan to help me keep on top of my finances, they bin me off.”

These practices do not lead to better returns for councils

Our research also shows that while aggressive debt collection practices cause significant harm for individuals, they do not lead to better returns for councils.

We spoke to 185 people with mental health problems, who said that the distress and strain that these processes cause makes it harder for them to engage with their council. They also say that extra fees make debts insurmountable, and that council’s use of bailiffs leaves people feeling scared and ashamed. That results in people being too panicked to reach out and negotiate an affordable and sustainable repayment plan — which makes it harder for councils to recover missed payments.

These findings reflect research by other organisations which suggests that aggressive debt collection by councils is no more effective in recovering missed payments than more ethical approaches which are less harmful for individuals.

It’s time for government to end the ‘Council Tax Trap’

Today Money and Mental Health is launching its campaign calling on central government to end the ‘Council Tax Trap’ that millions of people are being caught in, by making council tax collection more humane, fair and consistent. Specifically, we are calling on the government to:

1. Change the regulations which dictate how quickly local authorities chase missed payments — to give people in arrears more time before being hit with bigger bills, extra charges, court summons and bailiff action. 

Currently, the Council Tax Regulations 1992 set out rules on how quickly councils can escalate debt collection and charges (councils can choose to allow people more time – though most don’t). Currently, the Council Tax Regulations 1992 set out rules on how quickly councils can escalate debt collection and charges. National government should change these rules to bring council tax debt collection at least in line with consumer creditors, who often wait 3-6 months before demanding full repayment of an overdue debt (and some consumer creditors give people more time). The government can easily change these regulations through secondary legislation.

2. Cap how much councils can charge people for being issued a liability order. 

The Welsh government has capped charges for issuing liability orders at £70 – a welcome improvement though we still believe this is too high, given that a third (34%) of people behind on council tax payments say they could not afford to pay any unexpected bill. 

3. Local authorities should urgently look at their own debt collection practices, and take steps to protect those in vulnerable circumstances from harm before escalating debt collection to court or bailiffs. 

While the regulations set out the rapid and aggressive way councils can collect council tax (and many follow these), they also have the freedom to take a fairer approach. This could include reducing the speed of escalation, proactively offering affordable repayment plans and warm referrals to debt advice, and considering writing off council tax debt where there is no realistic prospect that the individual will be able to repay in full.

Some councils are already taking these steps, and Money and Mental Health is urging all councils to act. For example, Gateshead Council gives residents twice as much time as regulation requires before issuing demanding payment of the full annual bill or issuing a court summons, while Bristol City Council has reduced its use of bailiffs and focused on providing more support and advice to people in arrears — all without adversely impacting its collection rates. 

Martin Lewis, Founder & Chair of the Money and Mental Health Policy Institute, says:

“Council tax collection practices are so aggressive they’d make the banks blush. The grotesque process couldn’t have been designed better to accelerate distress for people in council tax debt, especially those with mental health problems. When someone misses a monthly payment, rather than asking ‘how can we help’, many councils say  ‘now you have to pay 12 times that’ – it’s like a caricature of the worst loan sharks.

“Rapidly piling on payment demands, court threats, charges and bailiff action isn’t a fair or productive way to respond to someone missing a payment, either through limited funds, or personal life crisis. It’s like councils are setting a trap for people who miss a payment that they have no hope of escaping from, and that needs to stop. Councils will recover just as much money, and keep their constituents financially and mentally healthier, by working with those who are struggling, signposting them to help, and working on repayment plans.

“Of course, councils have faced major budget cuts, and some are struggling to survive – a policy challenge the new government must address. Yet plugging budget gaps by ramping up punitive action on people in debt, a significant majority of whom have mental health problems won’t fix that. That’s why we also need central government to change the rules and stop allowing councils to behave in a way no commercial lender would ever be allowed to.

“It is ironic that some of the council leaders who are ultimately responsible for overseeing this process, are likely among the most vociferous protesters against the harms of dodgy private sector debt practices and big financial institutions. So I’d ask them to turn that focus on their own organisations. While central government action is needed, while we wait for that, councils need to take a hard look at what they are doing and to mitigate the harms some are causing.”

Mubin Haq, CEO of abrdn Financial Fairness Trust, an independent charitable trust and a funder of the research, said: 

“While councils have an obligation to collect the council tax owed to them, the rapid escalation of enforcement action against people struggling to pay is a false economy where councils may be giving with one hand and taking with another. Piling debt onto people who are financially struggling not only risks further harm to their health and well-being - it may ultimately put further pressure on other parts of local authorities’ budgets, such as emergency discretionary assistance funds. The safeguards we have in place for mainstream lenders needs to be mirrored in the collection of council tax debt.”

Read the report