Research published by the Money and Mental Health Policy Institute, the charity founded and chaired by Martin Lewis, 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 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, local authorities can send a final notice requiring payment of the full annual council tax bill within seven days. This could be up to 12 times more than the initial missed payment. For an average UK household, this could mean a missed £140 payment results in a £1,668 bill just three weeks later .
- That’s despite 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.
- After a week, failure to pay the full annual bill can result in the council applying to take the case to court and to ask for a ‘liability order’ – a letter that lets them use much more aggressive forms of debt collection including sending in bailiffs. Regulations require just 14 days between a council applying to bring a case to court, and the case actually being heard by judges. After a case has been heard in court, councils can issue the liability order and debt can then be passed onto bailiffs just 6 weeks after the first missed payment.
- Local authorities are also charging as much as £150 for issuing a liability order which cost the Ministry of Justice only 50p to produce.
- These practices are widespread among councils.71 of the biggest 100 councils in England and Wales share information about their debt collection processes. Money and Mental Health’s 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 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. Money and Mental Health Policy Institute’s research found that 73% of people in council tax debt who received a bailiff visit had a mental health problem.
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.
“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.”
The research also shows that while aggressive debt collection practices cause significant harm for individuals, they do not lead to better returns for councils. Money and Mental Health Policy Institute survey 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.
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.”
Money and Mental Health is launching a 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, they are calling on the government to:
- 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.
2. Cap how much councils can charge people for being issued a liability order.
3. Ask Local authorities to 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.