The future of council tax and business rates in a digital age

Derek Wise, chief product and technology officer, Civica

Lisa is a 38-year-old single mother living in a two-bedroom council flat in Manchester. She works part-time as a teaching assistant and receives Universal Credit to help make ends meet. Her monthly income is modest, which led her to real difficulties when her hours at the school were reduced due to budget cuts.

For several months, Lisa struggled to balance her household budget. She prioritised essential expenses – food, electricity, rent – while falling behind on her monthly council tax payments of £120. By June, she had accrued over £700 in arrears.

Lisa initially ignored reminder letters from the local council, hoping to catch up once her financial situation improved. Eventually, she received a final notice stating that if the debt wasn’t paid within seven days, the full annual bill would become due immediately. Failing that, the council would apply for a liability order through the magistrates’ court.

Lisa did not respond in time and the liability order was granted. The council added court costs of £85 to her bill and a bailiff was instructed to recover the amount owed. When Lisa received the letter warning that bailiffs may visit her home to seize possessions, she felt like her world was collapsing in.

Rising debts

This story is not unlike many happening around the UK every week. There has been an epidemic rise in late or missed council tax payments. According to research by charity Debt Justice, total council tax arrears across Britain reached £8.3bn in summer 2025, with £6.6bn from households behind on their bills in England, £1.5bn in Scotland, and £0.16bn in Wales. The cost-of-living crisis has exacerbated the delicate financial position of citizens everywhere and the number of households in council tax arrears has grown 79% over the last five years, according to the research.

While it leaves citizens like Lisa struggling to cope, the impact of an £8bn hole in council funding also carries significant implications. It’s becoming increasingly challenging for local authorities to deliver community commitments and support citizen welfare when, along with business rates, their most important streams of income fall short, are delayed or, in some cases, have to be written off altogether.

In addition to the growing numbers of citizens falling into arrears, debts also build up when businesses fall behind on their rates payments. In cases where these businesses ultimately cease trading, the outstanding rates payments can become uncollectable, meaning lots of owed money never makes it into the council coffers. Just a few examples from 2025 already include Wolverhampton Council reportedly writing off £2m in unpaid debts, East Lothian Council writing off £800k of bad debts, and Ipswich Council losing out on over £700k.

This is all money needed at a time when public services are already overstretched. So, what’s the best way out of this hole?

The ‘Blueprint for a modern digital government’ sets out a vision for transforming public services through data and technology. It’s time to look at how council tax and business rates collection, as the foundations for building financial resilience at local authorities, need to form a central part of any digital strategy, and here’s how.

From reactive to proactive debt management

Lisa’s next step was to contact the council’s revenue department who referred her to a welfare and debt advisor. They set up a repayment plan of £60 per month based on her affordability before applying for a Council Tax Reduction, which could be backdated to reflect when her financial position had changed. They also granted access to a Discretionary Housing Payment to free up some income for other bills. It gave Lisa the breathing room she needed and ensured that the council would still collect the vital payments over time.

Yet, to get to this point, the established collection systems had also created a lot of inefficiencies, delays, additional costs and negative experiences along the way.

Lisa had reached breaking point by the time she received the help she needed, meaning that her situation had escalated to a worst-case scenario. She had also received a long paper trail of letters and reminders over several months. The council did not have a full view of Lisa’s position, or the appropriate channels to communicate until she came forward. As a result, she was categorised as someone that should feel the full force of the council’s power against its debtors, which will have undoubtedly left a bitter taste.

From the council’s perspective, the administration and costs involved in chasing this one citizen to pay their debt spiralled with letter after letter in the post. If the debt recovery agents had been called in, then the council would have also had to deduct their fee from the recovered funds.

Overall, it’s fair to say, these current systems for managing debt are not effective enough. They create a cumbersome process that is hard to wield and is not designed around the citizen’s best interests.

So, how do we reimagine a solution in a modern, digital context?

Joining the dots

The council will already hold information about Lisa from her various transactions and interactions to know that she is a single parent on low income and receives various benefits. Had this information been joined up, there could have been an automatic, AI-supported assessment to flag that she was someone that may be vulnerable to falling behind on her payments. An early intervention could have been actioned to proactively offer support in a dignified way. Email or text prompts could have been sent out to instigate constructive conversations and build a clearer picture of her individual circumstances. Council resources would be freed up to focus on delivering value to the community.

Lisa wasn’t aware that she was entitled to support, but this approach would have fast-tracked to the best outcome for citizen and council alike, turning a challenging situation into a more positive user experience.

This scenario is not unrealistic – commercial organisations have been personalising user experiences for years – but it does require investment in digital infrastructure built on strong data governance that adheres to ethical, legal and security best practices.

In this way, citizen data will become a catalyst to move beyond traditional collection models towards early engagement and prevention. It will mean that services such as housing benefits, social care and council tax can be joined up as councils create a single view of every constituent. They will be able to introduce automation into revenues and benefits collection that anticipates needs and can target appropriate support for vulnerable people. Looking at the bigger picture, all of this data will build up a more detailed view of the local population to better inform policy and focus resources where they are needed most.

This is a proactive, data-driven and people-focused approach that will build greater trust, reduce the inefficiencies of outdated debt collection systems, and ultimately deliver better outcomes for communities.

To thrive in the digital age, revenue services will need to:

• Invest in robust digital and data infrastructure

• Embed ethical AI and automation to help manage large data sets and identify areas that need closer attention

• Design inclusive, empathetic services

• Collaborate across departments and the wider public sector to deliver unified services and a single view of each constituent.

Find out how Civica can transform your council tax and business rates collection for the digital age.

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