Insights ¦ KEEPING PACE WHERE NEXT FOR PUBLIC SECTOR COLLECTION PRACTICES?

Key Take Aways

• Public sector debt recovery practices have historically favoured the government, often at the expense of fair and compassionate treatment for those in debt.

• The recent government initiatives, including increased staffing at HMRC and new enforcement measures, signal a move towards more aggressive debt recovery in the public sector.

• There is a recognised imbalance between private and public sector debt recovery, with private sector entities benefiting from more flexible repayment options and risk mitigation strategies.

• The launch of the Fairness Charter in March 2024 marks a significant step towards establishing consistent standards and fair treatment across government debt collection practices.

• Currently, the scope of the Fairness Group’s remit is limited to central government, excluding local authorities, which handle substantial debts such as council tax arrears.

• Council tax arrears have increased by 69% from £3.2bn in 2018 to £5.5bn in 2023, with arrears now concentrated among lower-income households.

• There is a strong case for extending the Fairness Charter to encompass local government debts, particularly council tax, to ensure uniform standards.

• Public sector communication strategies often fall short compared to private sector standards, necessitating modernisation and clearer messaging.

• Digitalisation and outsourcing of communication channels, including webchat and social media, are seen as means to improve engagement with debtors.

• The public sector’s enforcement practices are often perceived as premature, with enforcement agents involved earlier than in private sector recovery processes.

• There is room to introduce a preliminary stage in debt recovery, utilising specialist agency support before escalation to enforcement actions.

• Improving citizen awareness and education on taxes and benefits can reduce non-payment issues and foster a more informed society.

Key Statistics

• Council tax arrears increased from £3.2bn in 2018 to £5.5bn in 2023, representing a 69% rise.

• 25% of households behind on council tax earn less than £9,500 annually; 82% have incomes below £29,999.

• Around 40% of overdue council tax debt is collected at the compliance stage, before enforcement actions commence.

• 94% of enforcement was found to be carried out compliantly, according to ECB-commissioned research.

• Approximately 40% of overdue council tax debt is collected during the initial enforcement contact.

• The additional investment of 5,000 HMRC staff is predicted to generate a return of £2.7bn by 2029/30 from a £44bn debt balance.

• The average amount due to HMRC per working-age adult in 2023/24 was approximately £1,189.

• £23 billion of unclaimed benefits are estimated annually, indicating significant gaps in public awareness and entitlement access.

Key Discussion Points

• The balance of debt recovery practices has historically favoured government interests, often overlooking fair treatment.

• New government initiatives are aimed at modernising public sector collection practices in line with private sector standards.

• The omission of local government from the Fairness Charter’s scope creates disparities in debt collection standards, particularly impacting vulnerable households.

• Extending the Fairness Charter to local authorities, especially around council tax, is a priority for equitable treatment.

• Communications, both content and tone, require significant improvement to better engage debtors and reduce anxiety or misunderstandings.

• The current approach of demanding full payment quickly may undermine efforts at meaningful engagement and sustainable repayment planning.

• Use of aggressive enforcement early in the process is seen as counterproductive; a staged approach build on specialist support may prove more effective.

• The legal framework often compels councils to demand full arrears rapidly, which can lead to adversarial relationships.

• Outsourcing debt collection functions to authorised agencies can help improve the timeliness and quality of public sector recovery efforts.

• The investment in additional HMRC resources presents an opportunity to adopt best practices that strengthen engagement and optimise yields.

• Greater public education about taxes, benefits, and financial obligations can decrease non-payment and foster responsible debt management.

• Broader reforms are necessary to enhance accountability, vulnerable customer identification, and forbearance options within public sector collections.

Document Description

This article discusses the evolving landscape of public sector debt collection practices in the UK, highlighting recent initiatives aimed at modernising approaches and establishing fair treatment standards. It critically examines the limitations of current practices, particularly regarding local government debts such as council tax, and advocates for expanded scope of fair standards, improved communication, smarter use of external agencies, and increased investment in financial education. The piece offers insights into the challenges and opportunities facing government bodies in balancing effective recovery with fair, transparent, and compassionate engagement with debtors, driving towards more equitable and efficient public sector collection practices.