Navigating the debt challenge: how local authorities can manage arrears

17th November 2023

Council tax arrears across England have risen dramatically over the last three years due to COVID-19 and the cost-of-living crisis. We examine the key challenges faced by local authorities when collecting council tax and tackling the increase in arrears

Local authorities have seen council tax arrears rise over the last three years: the Department for Levelling Up, Housing & Communities reported the total amount of council tax outstanding in March 2023 amounted to £5.5 billion, an increase of nearly £2bn compared to March 2020.

The cost-of-living crisis continues to impact many households. Those already in financial distress are facing even greater difficulties, and some individuals who previously had financial stability are now facing new financial challenges.

Research published by the Money Advice Trust in June 2023 showed 3.7m more people are behind with their household bills compared to March 2022, and one in five mortgage holders have seen their repayments rise as a result of higher interest rates and are struggling to afford the repayments.

At the same time, local authority budgets have come under greater pressure due to a mix of reductions in grants from the Government and increased cost and resource pressures, particularly around Adult Social Care.

In response to this, local authorities are being encouraged to think differently about the way they collect council tax arrears by being more joined up in the actions they take and considering individual circumstances rather than basing actions on a ‘one size fits all’ approach.

The focus needs to be on helping people in debt to pay by ensuring repayment plans are affordable and sustainable in the long term. Pushing customers into unrealistic payment plans only leads to further default that in turn restarts a recovery process. The Money Advice Trust identified that over 25% of people who were behind on their council tax bill had been asked to repay arrears at a rate they couldn’t afford.

We examine three crucial factors that local authorities should consider when determining their approach to managing council tax and other revenue collection.

1. Joining up the debt

In many local authorities, revenue collection functions sit within different directorates. This means that collection strategy and recovery activity is not completely joined up and depending on the revenue stream unpaid cases are held across disparate business systems.

As a result, establishing a joined-up view of a local authority’s total arrears debt can be difficult and typically involves analysis performed outside of business systems. Furthermore, drilling down to identify those customers with multiple debts across different revenue streams and understanding the reasons for non-payment can be difficult.

Local authorities can overcome these issues by bringing together revenue functions to enable corporate debt management and make improved use of valuable resources by consolidating and joining up activity.

Recovery activity can be joined up and made more efficient by implementing a single view of debt solution, such as CivicaCollect, to bring together arrears cases from the different revenues streams while at the same time providing the ability to manage recovery as one arrears case. This removes duplicated activity leading to more efficient recovery whilst at the same time improving the experience for the customer.

2. Customer-centric approach

Without a single view of debt, the ability to manage arrears cases in a more intelligent joined up approach can result in customers being chased multiple times, creating unnecessary contact, and potentially creating payment conflicts they are unable to pay. This often leads to customers being pressured into agreeing unaffordable repayments that eventually lead to default.

Customers should therefore be at the centre of the recovery process to improve their experience and make it easier for them when they are seeking to resolve debt issues. Having systems that provide a single debt view is therefore critical to proactively identify customers who may have payment issues as well as spotting any potential vulnerabilities. CivicaCollect enables early identification by providing the ability to use customer insight to bring together data from multiple systems to build a complete picture of the customer and their indebtedness.

Unlocking customer insight in this way to build a complete picture of the customers debt enables local authorities to segment customers and allow recovery to be tailored to individual circumstance.

Once a complete picture has been established CivicaCollect allows for recovery flows that are customer led, fully customisable and user-controlled so that changes can easily be made when required. This means defining specific stages for each recovery flow, control of the stage timings and automating actions where required. As part of the case moving through the recovery flow, multi-channel communications can be included to support early and effective customer communications.

Customer centric processes will remove unnecessary duplicated activity, make it easier for the customer to understand and remove potential payment conflicts. A local authority should establish a formal policy for the order of repayment where multiple debts are due to allow the customer to make one payment and use systems to handline the apportionment and posting of payments.

3. Increased customer support

To help vulnerable customers and those with financial difficulties navigate their way through the cost-of-living crisis, local authorities need to increase the level of support in relation to debt resolution. In cases of vulnerability where customers are not able to manage their finances, local authorities could consider moving to a case management approach to support and help them keep on top of repayments and handle changes to their circumstances.

Support can come in a wide variety of forms, but local authorities should look at how they can provide more welfare advice and support to claim welfare benefits to increase incomes and enable customers to pay. There are various reasons why benefits often go unclaimed, with the most common being a lack of awareness and the complexities of the claiming process, which local authorities or third-sector organisations can help customers to navigate.

Information published in April 2023 by Policy in Practice reported that households across the UK are missing out on £19bn a year in unclaimed welfare benefits. Helping customers to claim these benefits could unlock real increases in income for households that in turn could help make the difference in clearing their council tax arrears and meeting their ongoing payments.

To help provide an increase in support capacity local authorities should look to optimise use of systems to automate process where appropriate and reduce the level of manual activity where it adds little value to free up resource. Where manual intervention is required the freed-up resource can be re-focused to the high value add activity such as supporting customers.

Paul Mason, Divisional Managing Director

Get in touch to find out how Civica can help your local authority manage debt.