Martin Lewis warns council tax debt collection is 'so aggressive it'd make banks blush' – change is needed
Aggressive council tax debt collection practices – even after missing just ONE payment – are putting up to two million people at risk of serious harm, new research from charity the Money and Mental Health Policy Institute (MMHPI) has found. The charity's chair and founder Martin Lewis has called for Government action and urged local authorities to look at their methods in the meantime.
Watch: Martin's speech on council tax debt collection – Monday 9 September
Martin: "The majority of council tax debt collection processes are outdated, outmoded and cruel. They are behind the times.
"There are no commercial financial services firms who would be allowed to act in the way that we allow our councils to act. And it is somewhat paradoxical that this group, who do not have customers, they have constituents, are and have been for many years, the worst. Bully boy and girl tactics for collecting debt that banks would blush at if they did the same thing.
"The idea that you miss one monthly payment on your council tax and, within a week, your council, your elected officer, is not there, saying, 'How do we help? How do we support you? What can we do about your finances? How do we point you in the right direction? How do we enable you to rehabilitate your financial lives?'
"It says, 'We want the whole year. We want the whole year.' That's the way council tax debt collection practices work. And then, within another five weeks of that, the processes work that they can send the bailiffs in.
"Now, if you were a commercial firm it would be, typically, six months before you ever got to that. In council tax debt, you're asking for the whole money within a week or two, and then within six weeks, the bailiffs are coming in. That is not the right way to treat constituents.
"And if I circle this back to the point that I started on, councils are struggling. Well, I don't believe this is the most efficient way to bring money in either. Because asking for someone to pay for a year, when they can't pay for a month, doesn't mean they're going to have the money or deliver the money, and certainly doesn't mean they'll have the money or deliver the money next year, once you've crippled their finances and put them into a financial catastrophe.
"We have constantly found that the best way to deal with debts – the reason the breathing space on commercial debt exists – is to give people time to restructure, rehabilitate their own finances, so they can get back in a position and pay you. Win for the individual, win for the economy, win for the council, because more money will come in.
"But the problem is twofold. Central Government regulation allows councils to do this. That needs to change. We need to slow this down, and we need to put a better duty of care on councils. Now, I should note, and we're going to hear later, not all councils behave this way, but most do.
"And a second note, I call on council leaders out there who, in my experience, when we talk about commercial debt collection practices or loan sharks, are some of those who are out there shaking their fingers about the terrible world that we live in. Well, look at your own houses first. You're hypocrites. You castigate others to behave in a way when your councils are the worst.
"And this isn't me. We're going to hear from debt counselling agencies who for years have always heard in the hushed briefings whenever we talk about the issues that go on with debt: 'Yeah, it's public sector that's the worst. Public sector, that is the worst debt collection.'
"There is a systemic problem here, that is destructive to people's lives, that is destructive to councils' constituents, and that needs to change.
"Now, a lot of that has been known. Why are we doing it? Well because, as Helen [Undy, chief executive of charity the Money and Mental Health Policy Institute] started, there is a marriage made in hell between mental health problems and debt problems. The two are symbiotically, destructively linked.
"Two million people with mental health issues are affected by these council tax problems, and they tend to be affected more quickly, more damagingly to their mental health, and the catastrophe is rapidly accelerated when you have mental health problems. That's why [the Money and Mental Health Policy Institute] is dealing with it.
"I'll be honest, personally, I'm torn over this issue. I agree with everything, but I'm torn because I wear another hat that some of you will be aware of as well my general day-to-day MoneySavingExpert hat. And this is an issue for everybody.
"It's not just an issue for those with mental health [issues], but it is particularly debilitating and destructive for those people who have mental health issues, which is why I'm very proud to be the chair of the charity who is targeting it, who is tackling it, and who is bringing together so many people in this room.
"And I hope you too will be championing this issue out there. It shouldn't happen, and it shouldn't be allowed to go on. And we have to start getting rid of that little secret, that: [Martin whispers.] 'Councils are actually worse.'
[At full volume.] "And start saying, 'The councils are the worst.' We need to shame some people into changing in the short-term and we need to try and lobby the Government to change the regulations in the long-term."
Full transcript of Martin's speech
Missing just ONE council tax payment can be disastrous
Within three weeks of missing one council tax payment, councils can require residents to pay their full bill within just seven days. For the average UK household, this could mean a missed £140 payment results in a £1,668 bill just three weeks later.
Fail to pay your entire council tax bill within a week and your council can apply to take your case to court and ask for a 'liability order' – a letter that lets them take more aggressive forms of debt collection, such as sending in bailiffs. Outrageously, these orders also come with a charge of as much as £155 for the person in debt, despite them only costing 50p to produce, according to the Ministry of Justice.
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 three to six months. Credit card firms are also required to offer a much wider range of support and repayment options.
Key findings from the MMHPI's report
The MMHPI's report reveals that the rapid and aggressive council tax collection process disproportionately affects people with mental health problems, as they're over twice as likely to be in council tax arrears. The MMHPI's analysis of nationally representative data showed that approximately one in 10 (10% of) people with mental health problems are behind on their council tax bills, compared to just 4% of people without such conditions.
Worryingly, the MMHPI found these practices to be widespread among councils. Out of the 100 biggest councils in England and Wales, 71 provided information, and of those, almost nine in 10 (87%) said they use the full strength of the law to demand that people pay the full year's worth of council tax within three weeks of missing a payment.
Scotland is governed by different rules when it comes to council tax collection, and so were not included in this research. Northern Ireland does not charge council tax.
'It's an appalling system, I can't manage it'
Sharon, 55, from Lancashire, has borderline personality disorder and bipolar disorder. She received a letter on Christmas Eve – which had arrived late due to postal delays – saying that she needed to pay her council tax bill by Christmas Day.
This was despite Sharon reaching out to her council beforehand to explain that she would struggle to afford that month's payment and to try and set up a payment plan. Her request was refused by the council because she was not yet in arrears. Sharon told the MMHPI:
I was in meltdown. I ended up taking out more credit and took out a credit card with 40% interest just to be able to pay it off. You would only set a deadline for something like Christmas Day to break people. I was a mess, I couldn't do anything. I'd already bought Christmas presents for the grandkids, but I couldn't spend any time with other family because I was so stressed.
It's an appalling system, I can't manage it. As soon as I start hearing threats, I become incapable. But even when I'm well enough to contact them and ask for a payment plan to help me keep on top of my finances, they bin me off.
Change to regulation is needed to slow down how quickly councils chase missed payments
Here's what Martin and the MMHPI are calling for in more detail:
The Government should change the regulations which dictate how quickly councils chase missed payments. These rules should, at the very least, be in line with consumer creditors, which often wait three to six months before demanding full repayment of an overdue debt.
It should also place a cap on how much people are charged for a liability order. The Welsh Government has already capped the charge for liability orders at £70. While the MMHPI says this is a welcome improvement, it's still too high as a third (34%) of people behind on council tax payments say they could not afford to pay any unexpected bill.
Local authorities should urgently look at their own debt collection practices. Councils have the freedom to take a fairer approach to council tax debt collection. The MMHPI urges councils to protect vulnerable people from harm by giving them more time before demanding they repay their full bill and offering affordable repayment plans.
If you're struggling, download our free Mental Health and Debt booklet. To find further support, see our Debt problems guide.
Martin Lewis: 'Council tax collection practices are so aggressive they'd make the banks blush'
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 a 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.
Of course, councils have faced major budget cuts, and some are struggling to survive – a policy challenge the new Government must address. Yet plugging budget gaps by ramping up punitive action on people in debt, a significant majority of whom have mental health problems, won't fix that. That's why we also need central Government to change the rules and stop allowing councils to behave in a way no commercial lender would ever be allowed to.
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.
What do the Government and the Local Government Association say?
A spokesperson for the Ministry of Housing, Communities and Local Government said: "While the collection and enforcement of council tax is the responsibility of councils, we expect local authorities to be proportionate and sympathetic to those in genuine hardship when determining the most appropriate action to collect unpaid tax."
A spokesperson for the Local Government Association, which represents 315 councils in England and all 22 unitary authorities in Wales, said: "Councils strive to ensure they have fair council tax collection policies and should always try to work with people who are struggling to meet their council tax bills. We agree that bailiffs should only ever be used as a last resort."
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