The Impact of Covid-19 on Collections: Expectation Vs Reality
No one could ever have predicted the arrival of the Coronavirus pandemic and once it arrived it took the world by storm. Now, over a year later, it remains unclear how long the pandemic and its economic impact will last.
With job losses, redundancies and ill health, along with the Government’s own lending to support emergency funding, there is no question that the UK has seen a significant rise in debt as a direct result of the pandemic.
In the first three months of the new financial year (April – June 2020), Local Authorities reported on an increase of £500m in Council Tax arrears. The latest figures from the COVID monitoring survey put the financial impact of COVID-19 on Local Authorities at an estimated £9.7 billion for 20/21 and a further £2.8 billion of lost income from council tax and business rates.
What was the expectation?
With the country under a national lockdown for the first half of 2020 and all collections activity placed on hold, it was to be expected that with the economic crisis, along with less priority being placed on recovery action, including a temporary suspension on enforcement between March and August 2020, there would be a noticeable rise in debt.
There was an expectation that many people would suffer a negative economic impact even if they didn’t become ill themselves, potentially resulting in;
A high volume of debtor’s severely impacted by job losses and income shocks, including those on short or zero-hour contracts, or those who have been unable to work due to the government restrictions
Severe mental health issues of high proportions
Increased overall vulnerability, impacting ability to pay
It was believed that resumption of recovery activity could ultimately;
Put pressure on debtors and push those who have suffered a negative impact into a worse financial position
Adversely impact already vulnerable customers
Worsen the risk of spread of Covid-19 should doorstep recovery resume without precautionary measures
Cause an influx in complaints
What was the reality?
Throughout the national lockdowns between March and August 2020, the industry worked closely with central and local government through CIVEA to ensure the safety of customers, staff and the wider public; and continues to do so.
The Taking Control of Goods (Amendment) (Coronavirus) Regulations 2020 meant that no letters or other outbound contact methods were sent to debtors requesting payment and all enforcement visits were stopped. However, we remained ‘open for business’ for those who wanted to contact us and wanted to continue to pay off their debts. Here at Dukes, we made a conscious decision to ensure that we continually had a multitude of front-line staff available to support debtors and to actually talk to, in these difficult times. To deliver an ethical approach we trained all staff on the new grants and financial support available so we could offer appropriate advice and guidance as well as giving payment holidays and deferring instalments on a temporary basis.
We saw a rise in electronic communication including email and LiveChat from debtors who wanted to continue paying, and also from those whose circumstances had changed and needed additional support.
Recognising that this was an unknown and turbulent time for our local authority clients, we made sure that our client facing staff remained available to offer support and to provide regular updates on any industry news and changes to legislation.
Almost 6 months after lockdown, we saw the introduction of the CIVEA post-lockdown support plan, which involved mandatory vulnerability training, MoJ approved re-engagement correspondence, mandatory personal protection equipment (PPE) for agents and social distancing measures / new contactless visit procedures. These measures have been influential in ensuring a safe and effective return towards enforcement and have no doubt increased public confidence in the use of enforcement agents since last August.
Analysing the data
Since the arrival of the pandemic, we have been able to identify that the majority of those contacting us were;
Still working and had not been financially impacted, or;
Were in receipt of the Government Job Retention Scheme (furlough) and were able to continue to pay their arrangement.
Some even had more disposable income than previously, due to the changing circumstances and how this had affected their daily routine. Unsurprisingly a large proportion of debtors who had not been financially impacted, had not made payments simply because they had received no contact or prompt to pay.
Understandably this wasn’t the case for all debtors. Of those who contacted us, some were financially impacted which is why we ensured that there was flexibility to reduce, defer or cease payments on a case-by-case basis, to reflect any change to their financial circumstances.
Recent data captured for the MoJ confirms that industry wide, for the members of CIVEA, less than 1% of households have reported a financial impact of Covid-19. And despite visits resuming, less than 0.2% complaints have been reported, with only 2.5% of these complaints being Covid-19 related.
Resuming enforcement
Despite there being higher volumes of debt than ever seen before, Local Authorities understandably, have had to take a particularly cautious approach towards the resumption of recovery activity.
We understand that everyone has and will be affected to some degree by the pandemic, whether that is physically, mentally or financially, with some affected more significantly than others. Therefore, we have worked in partnership with individual Local Authorities to ensure that recovery of all debt streams resumes in a sensitive and pragmatic manner, tailored to meet individual council requirements and of course, ensuring that the most vulnerable are identified and safeguarded with the support of our Welfare Hub.
Our culture is aligned to recovering debt fairly and appropriately and as a result;
Our collection methods have always been based on delivering an ethical approach and helping debtors get out and stay out of debt
Our staff are employed and incentivised on quality over quantity
Supporting the vulnerable is one of our fundamental principles; all staff, including our welfare hub, receive regular vulnerability training and supplementary training specifically tailored to Covid-19 and government guidance, to ensure the right outcome for individuals and the right level of support is given.
Because of this, we have found that when resuming recovery, we have been able to help to maximise collections for each Local Authority, from those who can afford to pay, as well as providing welfare support to those who need it. For example, working with Mid Sussex District Council, we have been able to contribute to them being one of the few local authorities who it would appear have actually increased council tax collections on their 2020-2021 in year debt.
Additionally, we’re proud that our complaints have remained less than 0.1% across all cases and we’re confident that this will continue, even in the aftermath of these unprecedented times.
Where we are now
Although the enforcement industry has adapted and ‘bounced back’ relatively quickly in response to Covid-19 and the end of the initial restrictions placed on recovery activity, the Court backlogs and suspension of hearings has intensified the delay in council tax recovery.
We have found that this has been particularly noticeable for our clients in the South of the country, which as a result, may largely affect overall collection rates across the year and could highlight a clear divide between the north and the south of the country.
Such setbacks give rise to delays in payment being obtained, which is likely to make it much more difficult for a debtor to manage their finances in the future, as their debts continue to increase.
Looking forward
The highly-valued services that Local Authorities have delivered have been vital to the initial Covid-19 response by protecting lives and livelihoods. With growing pressure from the economic impact of the pandemic, it will be more important than ever to ensure that collection of tax is prioritised and recovered from those who are in a position to pay, so that Local Authorities can continue to have the funding for many crucial services concerning public health, adult social care, homelessness support, the vulnerable and those in financial hardship.
Further difficulties and delays to recovery, will ultimately increase the council tax bill on an annual basis. Therefore, minimising delays in the recovery process will be a significant part towards tackling the issue and reducing any tsunami of debt. It is also important to point out that the advice sector reported a supressed demand for advice/support during the lockdown period. It’s my opinion that as recovery continues there will be a natural influx in demand as more debtors face the reality that they now need to manage their arrears. Whilst this data is important, it should not be used to misrepresent the impact and success of enforcement. We hope that the changes that the enforcement industry has made over the last 18 months to protect and support debtors in the midst and the wake of covid-19 will be recognised and will encourage further collaboration and cooperation with the advice sector.
We remain hopeful that with the vaccination program now being rolled out, there is much less risk of a further surge in infections, resulting in another national or local lockdown. However, if this did sadly reoccur, our recommendation with regards to the collection of tax, would be to not hold recovery activity; to allow communication and social distanced visits to continue, as this is ultimately in the best interests of your debtors.
