Councils under pressure to write off debt

Wychavon District Council wrote off debts amounting to almost £500,000 in 2014/15, and they're not alone. As central government cuts council funding even further this year, the amount of debt faced by councils is posing a serious risk to the delivery of front line services.

The state of things

According to PricewaterhouseCoopers' Local State We're In 2015 survey, 80% of local authority chiefs said they expected councils to struggle to deliver essential services in the next five years. Hardly surprising when local government debt has grown by 80% since 2004.

One of the biggest factors driving this debt crisis is council tax arrears. Local authorities have been hard hit by central government simultaneously devolving responsibility for council tax benefits and cutting funding to those benefits by 10% back in April 2013. This creates an environment in which many low income households are either unaware of revised responsibilities, or unable to meet them.

Equally difficult from a debt collection standpoint is the lack of understanding the general public shows towards their plight. PwC's survey also found that the percentage of the public that "accepted the need to make reductions in services" has fallen from 47% in 2011 to just 35% in 2015. This comes at a time when debt charities are taking an increasingly aggressive stance against debt recovery tactics, forcing councils to tread a fine line between confronting debt and writing it off.

Positive methods

The good news is that, while the pressures are serious and real, many councils are finding creative and successful ways to deal with them. For example, authorities like Wolverhampton City Council have "paused" loan repayments in order to boost investment in key areas: a useful approach when boosting the local economy and a key consideration.

Elsewhere, the proposed trading standards merger between Buckinghamshire and Surrey councils is predicted to save close to £400,000 per year, while Wychavon and Malvern Hills councils have saved around £100,000 per year by sharing senior roles.

When attempting to implement significant redundancies, however, these efficiency savings can carry publicity risks, as several Welsh councils found to their detriment earlier this year. This limits the impact they can realistically have on council debts, and shows why it's so important to address the core of the problem.

An effective debt recovery policy can make all the difference with local authority funding. The case of business rates in 2013/14 provides an excellent example. While council tax collection rates fell by an average of 0.4% across the country, business rate collections rose by 0.2%. In fact, the total collected was £400m (2%) higher than the previous year. Economic improvements undoubtedly played some part in the change, but collection rates still highlight an important fact for local councils: whether you write off uneconomical debt, or seek out more effective collection methods, dealing with debt is a vital part of maintaining healthy finances.

Contact Dukes Bailiffs for an ethical way to collect your debts.