Taxing time for town halls

Tax collectors are never going to rank high on popularity lists, especially when they’re accompanied by bailiffs, bankruptcy orders and repossession notices. So there has been little sympathy for local authorities in recent press reports about the collection of council tax arrears.

‘Heavy-handed’ has been the most common reaction to the figures obtained by the Liberal Democrats under the Freedom of Information Act and published on 7 January. They reveal that some people have been made bankrupt and had their houses repossessed for council tax arrears of no more than £1,200. That doesn’t sound good in the current climate when the government is imploring the banks and building societies to go easy on people who fall behind with their payments.

‘Just as lenders are being asked to reduce repossessions, public bodies should do everything they can to ensure that bankruptcy is only ever a last resort,’ said the Lib Dem local government spokeswoman, Julia Goldsworthy. She failed to mention that the Lib Dem-run Sheffield City Council was one of the worst offenders. In 2007/08 it issued 39,064 court summons for council tax arrears and filed for bankruptcy in 143 cases.

The Local Government Association (LGA) was quick to mount a defence. Bankruptcy proceedings weren’t a last resort for town halls but ‘an absolute last resort – and with people who have a history of non-payment,’ said the LGA vice chairman Sir Jeremy Beecham. ‘Only a tiny percentage – around one in a hundred – of people who receive a summons or who are referred to bailiffs actually end up in court or have any goods seized.’

Collecting council tax is something local authorities do pretty well. They take in 97.1% of the money due in the same financial year. That still leaves a £1.8bn hole in town hall pockets, a figure Beecham describes as ‘eye-watering’, but which doesn’t sound so much in these days of mind-boggling debts and bail-out numbers. We all think in trillions now.

But councils are under intense pressure from central government and the press, when it suits them, to recover everything they are owed. Or as Beecham puts it: ‘It seems that, in terms of getting tough on council tax collection, town halls are damned if they do and damned if they don’t.’

What’s worth pointing out here is that these are old figures. They’re for the last financial year, which ended in April 2008, several months before the economic meltdown of the autumn, and many of them involve arrears cases that stretch back to 2006. In short, this is a problem that’s almost certainly worse than the stats indicate and likely to get much worse still.

Local authority managers will have to resolve conflicting demands to deal with this issue. They can rule out any notion of council tax rises and they can expect no let-up from central government targets to collect the maximum owing. But they will not be thanked by their residents – and voters – if it’s their bailiffs who are first to bang on the door. The public sector can’t preach restraint to the private sector on home repossessions and bankruptcy proceedings if it practises the same methods.

The rules change in a recession, throwing more responsibility at the public sector. Local authorities are already feeling increased strain in certain areas, reporting sharp rises in housing benefit applications, demand for free school meals, and the use of its welfare and debt services. At the same time they are recording falling revenues as interest rate cuts hit their investments – a shortfall of £640m in their annual income, says the LGA. And there’s that little matter of the £1bn that went down the Iceland plughole.

But, compared to central government and large swathes of the private sector, local authority finance is in pretty good shape. A recent report by the Audit Commission based on interviews with 145 council chief finance officers concluded that most town halls had seen the downturn coming and had accumulated sufficient reserves to cushion the impact.

There’s further encouragement for council finance in the local government grant settlement. The rise of 4.2% didn’t sound so good when it was announced but with inflation now forecast to fall to 1.5%, it starts to look more generous. The rapid fall in energy prices is also beginning to work its way through the system, cutting costs in transport and office heating.

There’s not a great deal of good news about at the moment and no one doubts that council services will be under intense pressure over the next year or two. But the evidence suggests that local authorities are reasonably well prepared for the downturn.