Summary

6.2 million of us are behind on key payments owed to government, such as council tax, benefits overpayments and unpaid income tax

• This is a concern, as our research shows local and national government operate with greater powers, and with weaker protections for the person in debt than many other creditors, including the financial services sector. 

• People with mental health problems are more than twice as likely to be behind on council tax payments as those without such conditions – driven by lower than average incomes, higher relative costs and difficulties managing money and accessing help.

• Heavy-handed and unsupportive debt collection practices across the public sector create a lose lose situation, causing harm to those who are least able to pay – often as a result of their mental health. But these approaches also push people away from engaging with collections teams or repayments, ultimately impacting the creditors’ ability to recover vital income. 

Debt collection practices from public sector organisations pile pressure onto people who often are struggling with their mental health and cannot afford to pay

• Our research shows how unhelpful and unclear communication from public bodies drive confusion and distress. Poor communication discourages people who are struggling from getting in touch, and missing a vital opportunity for early support.

• Public sector debts typically escalate rapidly, leading to spiralling costs and swift legal action. Missed payments can lead to a demand for the full annual council tax bill (which currently average £1,668) after just three weeks. Our research shows that the majority (91%) of those behind on council tax payments are unable to afford a payment of that scale.

• Those who don’t make up payments become embroiled in costly legal processes. Liability orders, an opaque court process that acts as a gateway to more aggressive collection action, come with a charge of up to £155 for the person in debt.

Enforcement action is driving serious harm, leaving people feeling small, alone and misunderstood.

• The use of enforcement agents, and in particular invasive home visits, often leave people feeling terrified, powerless and alone, while current standards for the industry lack statutory underpinning and need updating. This is especially concerning given nearly three-quarters (73%) of people in council tax arrears who were referred to a bailiff have experienced a mental health problem.

• At the sharp end of public sector debt collection, substantial and unpredictable direct deductions from wages or benefits, and the threat of more severe consequences, such as involuntary bankruptcy and imprisonment, can profoundly undermine our mental wellbeing.

Key recommendations

To transform public sector debt collection and mitigate the harms people with mental health problems and others in vulnerable circumstances face, the government should:

• Change the regulations on councils’ collection practices to ensure people are given more time before they are required to pay an annual council tax bill. 

• Implement an upper limit on the "reasonable costs" that councils are allowed to charge for Liability Orders. This should be implemented alongside a wider, cross-government review of all court process that people in public sector debt encounter. This should build on the commitment from the previous parliament to review the Single Justice Procedure, a process which allows people to be prosecuted without a court hearing.

• Undertake an immediate review of local government finances, with a view to reinstating adequate funding levels for local authorities. 

• Abolish legislation that allows for imprisonment as a sanction for the non-payment of council tax.

The Ministry of Justice should:

• Introduce statutory underpinning for the Enforcement Conduct Board – the body responsible for standards in the bailiff industry – to put real force behind protecting those in vulnerable circumstances from the psychological harm of enforcement action.

The Government Debt Management Function in HM Treasury should:

• Collaborate with all public sector creditors to implement the basic steps set out in our pre-action protocol to protect those in vulnerable circumstances, including people with mental health problems, from harm before escalating debt collection. 

• This should include pausing debt collection activity while an individual is actively engaging with their creditor, and building on the current partnership with the Money Advice Network to offer warm referrals to debt advice.

Local authorities and public sector creditors should: 

• Get ahead of the government, by implementing recommendations themselves and raising the standards for debt collection across the board. Local authorities including Bristol City Council and Manchester City Council are already leading the way on this by moving away from the use of enforcement agents to collect council tax arrears.