A new report has found ‘widespread unfairness’ in the way in that central and local government collects debts including council tax, benefit and tax credit overpayments. The Money Advice Trust, the charity that runs National Debtline and Business Debtline, is calling for government to ‘level up’ its debt collection practices to those of other sectors – or risk pushing people further into difficulty in the wake of Covid-19.
The charity’s new report, Levelling up: The case for reforming government debt collection, is published as the Cabinet Office considers responses to a call for evidence on improving fairness in government debt management. The charity’s findings come at a time when more and more people are struggling to repay debts owed to central and local government – a trend the charity says is likely to be amplified by Covid-19.
The proportion of callers to National Debtline with council tax arrears has nearly doubled over the last decade, rising from 15% in 2009 to 29% in 2019. The proportion of callers struggling to repay benefit and tax credit overpayments – owed variously to the Department for Work and Pensions, local authorities or HMRC –increased sevenfold in a similar period.
Harmful impact of current practices
The report highlights the negative impact that current government debt collection practices are having on those struggling to repay, and particularly on people with mental health problems or other vulnerable circumstances.
- Large majorities of National Debtline clients surveyed who owed money to government bodies report that collection activities had a negative impact on their wellbeing (80% of those with debts to DWP, 79% to councils and 78% to HMRC).
- A national survey of debt advisers shows just 9% think that DWP identifies and supports vulnerable customers ‘well’ or ‘very well’, with just 12% for HMRC.
- These figures are in sharp contrast with the private sector, with 46% of advisers reporting that banks/building societies identify and support vulnerable customers ‘well’ or ‘very well’, 45% for energy firms and 68% for water companies.
Unaffordable repayment demands
Debt advisers report widespread concerns over the way that government creditors assess the affordability of repayments, leading to unaffordable payment demands – with advisers rating government practices as worse even than payday lenders.
- Seven in 10 debt advisers (69%) surveyed rated DWP as ‘poor’ or ‘very poor’ at assessing the affordability of repayments, with 63% reporting the same of HMRC.
- This was higher than the 60% who said the same of payday lenders, and dwarfs the 17% of advisers who rated banks/building societies as ‘poor’ or ‘very poor’.
- Nearly half (47%) of debt advisers surveyed across the country rated local authorities as ‘poor’ or ‘very poor’ at assessing affordability, with 90% saying the same of bailiffs, who often collect council tax debt.
Ineffective and unhelpful communications
Both debt advice clients and debt advisers surveyed highlight problems with the way government organisations communicate with people when trying to collect debt.
- Debt advice clients surveyed cited examples of government creditors being “unhelpful and unsympathetic”, with contact centre agents “talking down” to people and government bodies sending “harassing” letters lacking empathy.
- When asked about the biggest challenge facing people owing debt to government bodies, 31% of debt advisers surveyed cited the difficulty that people in debt face in getting through to speak to someone about their debt.
- Other concerns raised include confusing statements, a lack of clarity on why debts are owed and being pressured into making payments they can’t afford.
The charity has written to Ministers to make the case for what it calls a ‘bold package of reform’ designed to level up government debt collection practices to those seen in the private sector.
The proposal includes:
- Backing calls for a new Government Debt Management Bill to embed the principles of fairness and affordability throughout central and local government, as proposed by a cross-party group of more than 50 Parliamentarians in June
- Reforming council tax collection practices by amending outdated regulations and introducing a statutory ‘pre-action protocol’ for councils to follow
- Introducing independent bailiff regulation as part of a ‘reduce and reform’ approach to protecting people in debt from the harm caused by bailiff action
The issue of government debt collection has been rising up the political agenda in Whitehall and Westminster in recent years, following the publication of a sharply critical National Audit Office report in 2018 and a further influential report from the Centre of Social Justice earlier this year.
Joanna Elson CBE, chief executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said:
“There is widespread unfairness in the way that central and local government collects debt from people in financial difficulty – with outdated practices that are harmful to the financial, mental and physical health of the very people that government organisations are supposed to serve.
“Instead of leading the way, the government’s own debt collection practices lag far behind the private sector in fundamental areas such as assessing the affordability of repayments, communicating effectively and supporting vulnerable people. While some progress has been made in recent years, this has been too slow and too slight.
“With more and more people struggling to repay debts owed to government even before the devastating impact of Covid-19, the government must act swiftly to level up its collection practices to those of the private sector.
“This should include a new Government Debt Management Bill, reforming outdated council tax collection rules and introducing much-needed independent regulation of the bailiff industry. Without these urgent changes, the government risks pushing people further into difficulty at the worst possible time.”