Thirteen years ago, George Osborne – then Chancellor of the Exchequer - delivering his Mais Lecture, noted that:
“The overhang of private debt in our banking system and our households weigh heavy on future prosperity”.
He was right. The Global Financial Crisis of 2007/08 fed into a deep recession, with the economy contracting for six consecutive quarters. The then Chancellor realised that the economic recovery was being held back by heavily indebted households.
However, whilst Osborne correctly identified the problem that household debt was causing, his deeds made matters worse.
Joseph Spooner’s essay on austerity and household debt, published last year, asked: “How does the Global Financial Crisis lead to English local authorities sending bailiffs to a million doorsteps to press low-income households into paying local government taxes?”
The answer lies in the years of austerity that followed the financial crisis. Against a backdrop of cuts to public services and a reduction in social security support, Spooner points out that a decade after the financial crisis, and just before the onset of the Covid-19 pandemic, there was still a considerable overhang of private debt weighing down on households.
But it was perhaps not the debts we immediately think of. The most common problem debt “was not sub-prime mortgages, payday loans, or credit card debt, but rather council tax arrears – debts arising from unpaid local taxes”.
In total, around £3.2 billion of council tax debt was owed by two million households immediately before the pandemic. Over a million more fell into arrears in the first three months following the initial lockdown, according to Citizens Advice.
Local councils employed harsh collection methods before a temporary suspension of enforcement action was put in place during the lockdowns. Spooner points out that in 2018/19 “local authorities resorted to court action for the collection of council tax debt on 2.3 million occasions”. Councils also deployed bailiffs/enforcement agents 1.4 million times during the period. And local authorities were “disproportionately high users of bankruptcy petitions against defaulting residents”, whilst the threat of imprisonment also looms large over the entire collection process. In 2016/17 almost 900 people faced committal proceedings or received suspended committal orders.
Spooner’s essay identifies the approaches taken to council tax enforcement as being at odds with local government’s historic role as “the main instrument of service delivery in the British Welfare State” and asks how such a change could have come about. How did the transformation of local authorities from welfare pioneers into “hardened creditors” happen?
The revolutionary change
Spooner cites an Institute for Fiscal Studies paper which highlights how the past decade has witnessed a “genuinely revolutionary change” in English local government finance. Reductions in central government grants, and changes to how local government can raise money, have reduced the spending abilities of councils – to the tune of 29% according to the National Audit Office. This drastically undercuts services. It also makes households worse off.
The devolution of responsibility (and risk) from central to local government has also played a major part. For example, in 2013 government abolished the national Council Tax Benefit scheme - a “social transfer payment that had effectively paid local council tax on behalf of low-income households”. Councils were then told to create local schemes, but with an effective funding reduction of ten percent. What resulted was a “postcode lottery” of inequality; an uneven variation in schemes. The move ended up pushing many people into poverty. Spooner notes that:
“Almost every local authority reduced the support provided to low-income households compared to the prior regime, through steps such as removing rebates and reducing exemption categories, or requiring even the poorest households to make a minimum payment.”
Citizens Advice reported in 2020 that fixed costs (such as council tax) alone pushed 11% of the people they supported with debt into a negative budget.
Spooner proceeds to investigate how cuts to local authority budgets and deprivation indices translate into increased use of bailiffs, finding a statistically significant relationship between the deprivation ranking of a local authority and council tax arrears cases referred to the bailiffs, as well as correlations between funding cuts and bailiff use.
This is a new analysis, which CfRC welcomes, but Spooner’s model could potentially be adapted to consider how the difference in council tax rates relative to local incomes, together with the relative ‘generosity’ of different local support schemes, also impact enforcement activity and costs. It is likely, as has been found in respect of debts owed to water companies1, that as the price of council services (reflected in the average council tax rate relative to income) rises, this leads to increased costs for debt collection activity. The extent to which the increased revenues gained from recent council tax increases are undermined by the rising costs of collection, and the negative welfare impacts this entails, deserves further investigation.
The need for action
Spooner’s essay reminds us that austerity policy responses to the financial crisis have led to increased pressure on local authority finances, and that – despite the brief respite provided during the pandemic – this has impacted most on those with the least ability to pay their council tax. Whilst there have been notable exceptions (such as Hammersmith and Fulham which stopped using bailiffs for council tax debt collection in 2018) there has been a recent surge in the use of bailiffs following the lifting of pandemic protections, and this activity is concentrated in deprived areas.
This is now leading to more organised opposition to the use of bailiffs at the local level. For example, Debt Justice’s Together Against Debt project, which is organising groups of debtors, is campaigning for an end to the use of bailiffs in Manchester, and Acorn have been actively involved in campaigns both there and in Haringey,
But government action in this sphere remains disappointing, focused as it is on improving the behaviours of bailiffs and debt enforcement agencies rather than on the conditions which give rise to their use2.
With a general election now coming closer into view, all parties urgently need to give thought to addressing the problems with local authority financing, the postcode lottery of council tax support, and the continuing use of the antiquated process of threatening low-income households with the removal of their goods and imprisonment.
- See p. 26 in https://www.ofwat.gov.uk/wp-content/uploads/2022/12/PwC_Retail_Services_efficiency_review.pdf which notes “There is a clear correlation between debt management costs and average bill size; probably because these bills are more affordable for customers. As a result companies with the lowest average bill value have the lowest debt management costs.”
- For example by supporting the establishment of the Enforcement Conduct Board, and considering whether this should be provided with legal authority by 2024.