|
Subject:
|
Corporate Debt
Policy
|
|
Date of Meeting:
|
18 March 2021
|
|
Report of:
|
Acting Chief Finance
Officer
|
|
Contact Officer:
|
Name:
|
Graham Bourne
|
Tel:
|
01273 291800
|
|
|
Email:
|
Graham.bourne@brighton-hove.gov.uk
|
|
Ward(s)
affected:
|
All
|
FOR GENERAL RELEASE.
1
PURPOSE OF REPORT AND POLICY CONTEXT
1.1
The council’s Corporate Debt Policy is reviewed annually. A
number of changes in approach to debt recovery and collection have
been emerging and therefore this year’s review has resulted
in a recommendation to update the policy to reflect best practice
in debt collection and replace the current version, last updated in
2018.
2
RECOMMENDATIONS:
That the Policy
& Resources Committee:
2.1
Notes that the proposed policy commits the council to ending the
use of committal proceedings to enforce Council Tax collection, in
all but the most exceptional of circumstances.
2.2
Notes the Equality Impact Assessment at Appendix 2.
2.3
Approves the revised policy at Appendix 1 and agrees that it is put
into practice with effect from 1 April 2021, subject to having due
regard to any necessary consultation and engagement processes.
3
CONTEXT/ BACKGROUND INFORMATION
3.1
The review of the Corporate Debt Policy has been conducted with
reference to a range of reports that explore current,
evidence-based practice in relation to the ethical collection of
debt. This includes reports from the Money Advice Trust, the
Financial Conduct Authority, Citizens Advice Bureau and
Deloitte’s.
3.2
Further reference has been made to best practice in Welfare
Support. The council is part of a Local Government Association
(LGA) working group developing best practice in this area,
underpinned by the 2019 LGA report – Reshaping Financial
Support.
3.3
Reference has also been made to the specific policies of other
local authorities where best practice has been identified, either
through the work with the LGA or identified by the council’s
Corporate Debt Team. These authorities are listed under
‘Background Documents’ at the end of the report.
3.4
The council is also the only local authority represented in the
Cabinet Office’s Cross Government Debt Group, which is
looking at improved coordination of debt collection and delivery of
best practice across the public sector. The policy is
complementary to the objectives and direction of travel of this
group.
Key
changes to the policy
3.5
The policy has been updated to reflect the increasing emphasis in
best practice on early intervention and pre-enforcement activity.
This early engagement of households struggling with debt
complements the council’s approach to welfare support and
will be important to the council’s recovery programme in the
post pandemic environment.
3.6
There is increasing evidence that pre-enforcement activity driven
by data analysis is producing more effective long-term collection
results and is more supportive to the broader objective of enabling
low income households to manage their finances as a platform for
moving away from crisis and benefit dependency. This is supported
by the Citizens Advice Bureau’s Council Tax Protocol as
follows:
“Early intervention and proactive contact with people
struggling with bill payments can help prevent them incurring
further charges and help alleviate stress. It can also potentially
help to reduce collection costs and the need to access local public
services, particularly mental health services.”
Citizens Advice Bureau, Council Tax Protocol
3.7
Both private and public sector debt collection agencies are
adopting operational models that reflect this change to a more
holistic approach. Teams focussed on supporting vulnerable people
to manage and pay their debts in a way that is sustainable for
them, recognising that a specialist, proportionate approach is more
effective and supportive, are a common fixture in reputable private
debt collection services, ensuring their adherence to Financial
Conduct Authority (FCA) guidance and best practice.
3.8
The developments in the field of data analysis and segmentation are
driving this change. The cross-government Cabinet Office working
group is supporting this transition with a number of pilots
exploring the value of data sharing between government agencies. In
keeping with this progression, the policy proposes that the council
joins the growing number of local authorities that aim to move away
from the use of enforcement officer home visits to collect debt
arrears. This is supported by advice and support agencies, for
example, the Money Advice Trust who issued the following
statement:
“We recommend that council leaders make a clear public
commitment to reduce the use of bailiffs over time by improving
their debt collection practices, in order to provide clarity to
officers at an operational level. This commitment could take the
form of a public statement, a formal decision or statement of
administration policy, or a motion of Full Council. This commitment
should include all debt types, not just Council Tax arrears. For
authorities in England, we recommend exempting recipients of
Council Tax support, who have already been identified as requiring
additional support through locally-determined criteria, from
bailiff action altogether. This recommendation would see local
authorities follow the lead of the small number of councils who
have adopted this approach, which has been shown to deliver
significant results for both residents and the
taxpayer.”
Money
Advice Trust, Levelling Up (Nov 2020)
3.9
Initially, the proposal to move away from enforcement visits would
apply to Council Tax collection but the Corporate Debt Board is
already introducing operational changes that will reduce and
ultimately remove this practice across the whole council
portfolio.
3.10 In 2019, there
were 30 local authorities in England who reported that they had a
policy of exempting recipients of Council Tax Support from
enforcement agent action. This represents 9% of authorities and is
an increase from 23 councils two years ago. Some local authorities
volunteered that they had implemented measures that fell short of a
full exemption but that did have the effect of making the use of
enforcement agents in these cases less likely.
3.11 The revised
policy also includes a proposal to end the use of committal as an
ultimate enforcement action for non-payment of Council Tax in all
but the most exceptional circumstances. This is a very rarely used
option and is only used as an absolute last resort when faced with
wilful refusal to pay. Only one resident has received and
served a prison sentence in the city in the last 10 years for
non-payment of Council Tax.
3.12 The
government’s statutory Debt Respite Scheme Regulations 2020
(‘Breathing Space’ scheme) comes into effect in May
2021. It offers struggling debtors a 60 day moratorium on creditor
action chasing, for example, chasing outstanding arrears, on
condition that they take specified constructive actions that
establish a sustainable repayment plan once the 60 day period
ends.
3.13 The Debt Respite
Scheme has two connected parts, both equally important. The first
is the Breathing Space scheme. The second is the Statutory Debt
Repayment Plan (SDRP), which Clause 32 of the Financial Services
Bill, currently working its way through Parliament, will address.
The SDRP scheme will introduce a new statutory debt solution in
England, Wales and Northern Ireland focussed on debt repayment
rather than insolvency. By introducing statutory protections for
people on a plan to repay their debts, the SDRP will give people a
much-needed route to recovery from the harm of spiralling debt
problems. The bill potentially introduces a new budget pressure for
the council as it will have to contribute to the funding of the
scheme to be administered by the Insolvency service. However, it is
unknown whether or not government will provide ‘new
burdens’ funding to local authorities in this respect.
3.14 Council services
will need to align to the requirements of both elements of the
regulations. Corporately and collectively, the council will need to
respond to the individual notifications from the Insolvency
Service, who will be running the scheme, informing us about those
applying for the 60-day moratorium and subsequent statutory debt
repayment scheme.
3.15 The policy has
been altered to reflect the forthcoming statutory responsibilities
in order to adhere to these regulations. Regardless of the
statutory imperative, the proposed changes to the policy are also
recommended to reflect best practice and the direction of travel
for debt collection.
4
ANALYSIS & CONSIDERATION OF ANY ALTERNATIVE OPTIONS
4.1
The council could choose to retain its existing policy and recovery
procedures but it would be diverging from its stated aim to reflect
best practice in its debt collection activities. It would retain
committals as an ultimate sanction and continue with other recovery
methods which are increasingly outmoded and were more applicable to
a pre-pandemic social and economic landscape.
4.2
Not adapting towards recognised best practice recovery and
enforcement would mean that financially and otherwise vulnerable
residents would still be subject to blunt methods of debt
collection and associated costs. Numerous studies have shown that
traditional debt collection techniques can push households into
spiralling debt positions and cause stress and wellbeing issues.
This has a wider impact on society. Households and families in debt
are more likely to need support and advice from health, local and
central government services. This results in increased pressure and
costs on those services. In the Covid recovery environment, not
positioning the council’s debt collection approach alongside
recognised and evidence-based best practice risks impacting the
most vulnerable in society who have already been disproportionally
affected by the pandemic, increasing financial hardship at a time
when unemployment is a key concern.
4.3
The Cabinet Office has invested in and led a fairness agenda in
relation to improving how public services approach citizens who
have government-related debts. It recognised that the public sector
had fallen behind the private sector in its approach to debt
collection and that analysing data held on citizens presents an
opportunity to develop a more balanced and supportive approach.
Using data to better understand citizens’ financial positions
enables a more tailored and ethical approach to debt collection,
protecting the vulnerable whilst at the same time taking a
proportionate approach to those that have the means to pay. This
approach enables ethical early intervention, often via digital
contact where appropriate, that encourages citizens to contact the
council early and agree sustainable repayment
plans.
4.4
The Third Sector has consistently reported over the last 10 years
on welfare reform that there has been a shift in the type of
contacts they receive. Service users who approach them about debt
to government, particularly local government, are now their primary
contacts. This is a shift from 10 to 20 years ago when debts to
private industry were the primary contacts. FCA regulation,
alongside greater consumer rights context and confidence, has moved
the private sector into a position in advance of local government
in how debt is collected and particularly, how vulnerable
households are supported. This is increasingly leaving the council
in a position where it is seen to have the most severe debt
collection policies in society. Without change, this position can
be expected to worsen as more and more local authorities realign
their practices and the Financial Services Bill gathers
momentum.
4.5
The link between people with problem debts and an increased risk to
their mental health has been clearly established. Current
enforcement approaches were developed in a period where this link
was not considered. The current practices do not take into account
the most recent evidence and do not align with the standards
required by private industry debt collection. In the case of
imprisonment for non-payment, England is the only country in Europe
where an individual can still be jailed for not paying a debt.
Imprisonment (or even the threat of imprisonment) for a civil debt
such as council tax has a very significant impact on the individual
concerned and, from national research, the threat of imprisonment
is often used by local authorities even when there is no realistic
prospect of the Courts imposing such a penalty. This has wider
implications in respect of harm to individuals and consequential
costs to the wider public purse. Use of committal proceedings are
therefore neither in the interests of the individuals concerned nor
the public interest more generally. The Financial Conduct Authority
standards that are applied to the private sector have banned any
threats of enforcement action that are unlikely to be carried
through, such as threats of a court summons when this would not or
could not happen. Firms using such tactics would be likely to have
their authorisations to operate removed.
4.6
It has been shown that early intervention is more successful in
supporting residents who are in debt. Not intervening at an early
stage in a more holistic way to offer support and advice pushes
people into debt spirals that are more difficult to resolve at a
later stage and can increase the impact on individuals and wider
society. Early intervention to support and agree sustainable
repayments increases the likelihood of payment being kept to by
residents and improves overall collection for the council.
4.7
The council will have a statutory requirement to adhere to the
Breathing Space scheme, which comes into force on 4 May 2021, and
this is a key part of the Cabinet Office fairness policy. The
benefits of this scheme will be undermined if, on the one hand, the
council adheres to this regulation, whilst on the other, it retains
punitive approaches to debt collection elsewhere in its approach.
If the council does not adopt the proposed changes, it will miss
the opportunity to engage with citizens at an early stage and help
them avoid a spiralling debt scenario. In committing to the new
scheme, the Council is working with the Insolvency service as an
approved ‘beta’ site to test data sharing technology
and procedures.
4.8
An increased number of citizens in a growing debt scenario is
likely to result in a higher take up of the Breathing Space scheme
provisions, resulting in increased costs to the council. This would
be through up front administration costs and due to a requirement
to contribute to the funding of the scheme at a rate of 10% from
each individual debt collected.
4.9
Moving away from the traditional reactive enforcement approach
means that the council can invest and explore further the digital
and proactive collection techniques that utilise data analysis and
segmentation. The council has successfully piloted digital contact
methods prior to any formal enforcement that encourage payment and
contact from citizens so they can avoid debt increasing through
legal costs. It is also able to monitor how citizens interact with
the communication and can report on how many citizens follow links
in the digital contact to information on welfare options and debt
advice. The council is then able to specifically contact those
citizens with more targeted approaches offering further help and
support if they subsequently do not make contact for help or make a
claim for a benefit.
5
COMMUNITY ENGAGEMENT & CONSULTATION
5.1
The reports and research identified in this report reflect on
national data, case studies and real examples, which are highly
relevant in determining the best way forward.
5.2
Locally, the Moneyworks partnership of advice agencies have told us
they support the full implementation of the “Stop the
Knock” and Council Tax protocol that the proposals in this
report are aligned with. They expect that the demand for help
with debts will be much higher during 2021 than usual
years.
5.3
They report that some groups, for example families with young
children and Black, Asian, Minority Ethnic (BAME) communities have
been hit harder by the pandemic than others. These factors along
with local prevalence of zero hours and agency work are also a
concern and could lead to higher levels of arrears that the council
and advice agencies will need to support.
5.4
The advice agencies have highlighted that there were existing
problems with the way council tax was collected before the pandemic
hit. They said that the way the regulations are designed makes it
harder for people with council tax arrears to arrange and make
repayments. They support changes to regulations that would stop
people being liable for their entire annual bill if they miss one
monthly payment and that make it easier for councils to improve
collection by giving them more powers to collect debt in a fairer
way before legal action is necessary.
5.5
They have reported that across the debt advice partnerships, mental
health issues are more and more critical and the stress and impact
this is having on people is evidenced in the calls
received. There is growing concern that this is
becoming normal rather than exceptional. Moneyworks believe that
this requires Public Health and Clinical Commissioning Group
engagement with the debt and benefit agenda and service delivery,
both for clients but also staff and volunteers. They acknowledge
that a Mental Health and Debt Co-ordinator is in recruitment and
welcome this. They would appreciate any report noting this
vulnerability, the new project and the ongoing oversight of joined
up action in the public sector as well as with the voluntary
sector. They report at they are taking their own steps as a
partnership to expand their strategic partners to include mental
health support charities because of the crucial importance of this
issue across all their services
5.6
Moneyworks locally reflects the national view of the advice debt
sector that regulations need to be changed to set out the steps
councils must take before using the court process. This would
ensure that all people in debt are given the option of affordable
repayments to get back on track. They support steps to make
it easier for councils to improve collection by giving them more
power to collect debt in a fairer way without taking legal action
first. This would ensure that all people in debt are given the
option of affordable repayments to get back on track.
5.7
The recommended changes to the policy are aligned with the views
expressed by the Moneyworks partnership and are designed to provide
a platform for the council’s approach to debt collection to
develop into a more ethical and proportionate one.
6
CONCLUSION
6.1
The council aims to improve its collection performance while
maintaining ethical standards and providing comprehensive welfare
support to households struggling to manage their debts. The best
way of achieving this is by employing evidence-based best
practice.
6.2
The proposed policy amendments represent best practice as
identified by several independent sources. It is a template for the
council to deliver debt collection services that are effective but
also flexible, sensitive and empathetic.
7
FINANCIAL & OTHER IMPLICATIONS:
Financial
Implications:
7.1
The successful collection of income and taxation revenues of over
£300 million is increasingly important in ensuring that the
council can fund essential local public services, particularly
following the period of substantially reducing government grant
support between 2009 and 2019. The proposed revision to the
Corporate Debt Policy not only brings collection policies in line
with evidence-based best practice but also has the potential to
maintain or improve income collection performance by ensuring a
proactive, pre-enforcement approach to recovery that should prevent
people falling into spiralling debt or arrears. This also has the
potential to reduce not only administrative but other costs as
people are likely to require less support from the council or other
statutory agencies.
7.2
The likely costs of the Debt Respite Scheme (Breathing Spaces) are
not yet known and, similarly, it is also unknown as to whether
government will provide local authorities with any funding support
in this respect.
7.3
The cost of collection and recovery across the council is not
expected to change significantly, however, there is likely to be a
need for collection and recovery roles, including enforcement
roles, to be realigned with the proposed policy approach which will
be managed as normal through the council’s Organisation
Change Management Framework including consultation with staff and
trade unions where appropriate.
Finance
Officer Consulted: Nigel
Manvell
Date: 11/02/2021
Legal
Implications:
7.4
It is a requirement that local authorities should seek to recover
outstanding debt wherever possible. The method used by local
authorities is currently (and subject to existing legislation)
within their discretion. For instance, there is no requirement to
use committal orders to enforce debt, that is simply an option
amongst others.
7.5
As is indicated in the report the Government is considering
statutory reform to some elements of debt recovery and the public
sector. This is to be finalised. It is not envisaged that this will
change the enforcement policy as this report seeks ( as far as
possible) to have identified and predict changes in proposed
legislation.
7.6
The information sharing arrangements referred to as part of the
process are compliant with current data protection law and have
been checked by both the data teams and also legal services.
7.7
As further information on the government plan to restructure debt
recovery and post Covid situation, become available it may be that
part of this policy is revisited as detail become more clear.
7.8
It is noted that this report follows a general line of protocols
and guidance across both public and private sector debt enforcement
which aims to reduce use of the Court to achieve debt settlement.
This policy is in accord with that trend. The recovery rates will
no doubt be subject to ongoing scrutiny as part of audit
functions.
Lawyer
Consulted:
Simon
Court
Date: 16/02/21
Equalities Implications:
7.9
The equality implications and mitigations are outlined in the
Equalities Impact Assessment attached as appendix 2. This is
not a static position and as information and evidence emerge the
Corporate Debt Board will ensure the collection hubs services adapt
and improve their services
Sustainability Implications:
7.10 The Policy
objective is to ensure the council collects debt in the optimal way
that sustains the council financially in providing funding for its
obligations and ambitions while supporting debtors with affordable
sustainable payment arrangements.
7.11 Best practice is
moving services to more digital based platforms and desktop
interaction with the customers. This will have the knock on
effect of reducing the amount of paper transactions and the use of
vehicles
Any Other
Significant Implications:
7.12 None.
Crime & Disorder
Implications:
7.13 Non-payment of
council tax is not a criminal offence but under a specific law, in
exceptional cases of non-payment, councils can apply for a
‘committal order’ where a debtor can be imprisoned for
up to three months. The suggested policy revision commits the
council to not applying this option, other than in exceptional
circumstances where all other options have been exhausted.
7.14 The collection
hubs and the corporate debt team are supported by the ORBIS
Internal Audit Team to ensure that fraud is prevented and
identified and the systems they use for collecting payments and
recording customer details are secure.
7.15 Similarly, the
collection hub and corporate debt team work with Information
Governance Teams to ensure that no information is disclosed under
freedom of information requests that could be used for possible
criminal activity.
Risk and
Opportunity Management Implications:
7.16 A policy based
on best practice reduces the risk to the Council of failing to meet
its collection targets and the impact this would have on budget
projections
7.17 In combination
with the Council’s welfare support structure the policy
reduces the risk of debt collection impacting on the health and
financial resilience of debtors
Public
Health Implications:
7.18 There is an
evidenced link between metal health and financial stability.
The best practice advocated by the Policy and the welfare support
structure designed to support it are sensitive to the health issues
related to debt. Recovery of debt should be at sustainable
and affordable levels. Staff are trained to be aware of
potential health issues and possible paths of referral. In
anticipation of a post pandemic increased level of mental health
issues related to financial worries a Mental Health and Debt
Co-ordinator has been appointed within the Revenues & Benefits
Service
Corporate / Citywide Implications:
7.19 These proposals
are in line with the objectives of the council’s Corporate
Plan.
SUPPORTING DOCUMENTATION
Appendices:
1. Corporate Debt
Policy
2. Equality Impact
Assessment
Background Documents
Levelling Up: The case
for reforming government debt collection, Money Advice Trust
(November 2020)
Tackling the Corona
Virus personal debt crisis, Step Change (November 2020)
Guidance for firms on
the firm treatment of vulnerable customers, Financial Conduct
Authority (July 2020)
Council Tax
Protocol, Citizens Advice Bureau
Collection Strategies
for a Digital Age, Deloitte
Collection of Council
Tax Arrears Good Practice Protocol, Citizens Advice Bureau
(June 2017)
Stop the Knock,
Money Advice Trust (September 2019)