TaxAdministrationDebt collection still taxing councils

Debt collection still taxing councils

In the private sector, cashflow is king. Businesses generally understand that cash needs are central to supplying their core business and are a crucial contributor to survival.

Local authorities do not have the same worry about survival per se. But, they too can benefit from paying more attention to the importance attached to cashflow by the private sector.

With senior executives at almost every council concerned that grants are not sufficient, income management is becoming all the more important.

Improving cashflow through boosting collection rates ultimately means there is more money to spend, resulting in better value for tax payers.

Having worked with local authorities in different areas, it is clear that the best councils are those looking closely at how the private sector collects debts. Although councils are not private businesses, many authorities have witnessed a quantum leap in the past few years in the value finance departments place in behaving more commercially in terms of collecting council tax and managing cashflow.

A staggering £530m of council taxes went uncollected across England in 2002/03, according to the latest figures published by the Office of the Deputy Prime Minister. This is despite the fact that scrutiny of public sector finances is putting councils under pressure to make every pound go as far as possible and poor collection rates reduce the sums available for public services.

While this could be seen as a frighteningly large sum, it is an improvement on the previous financial year. The figures showed councils collected more than £14bn last year in council tax, around 96% of all monies due.

This is a minor increase of 0.3% on the tax take by town halls in 2001/02, perhaps partly due to a raised awareness of the importance in collection, which is the result of a joint initiative between the Local Government Association and the government to help poorly performing councils improve their collection rates.

A few of the best tax collecting councils will find it hard to improve, with top performers collecting 99.5% or more of the tax due to them. Similarly, some local authorities are heading in the right direction – ODPM’s figures revealed that some boosted collection by as much as 5%.

The London Borough of Lambeth, which recently brought its council tax services back in-house after an unsuccessful period of outsourcing, saw its collection rate rise from 86.5% to 90.1%.

However, few local authorities have seen such levels of improvement and there are considerable variations in how effective each council is at gathering taxes.

Those at the bottom of performance tables collected less than 90% of council tax last year, while some local authorities slipped even further back in the proportion they managed to collect. The vast majority of councils could benefit from improvements.

So apart from following the lead of the private sector, what else are the better performers doing to put themselves so far ahead of some of their less successful colleagues?

Much of the advice that local authorities should heed involves the adoption of what are often relatively uncomplicated measures, which can nonetheless have an impact on achieving better levels of collection.

For a start, those councils that have not done so already should centralise their income management structures so that responsibility for collection is consolidated.

This focuses energy on adopting a customer-centred collection strategy. Everyone working in the relevant department should know what that strategy is and adhere to it, ensuring maximum effectiveness when it comes to recovering council tax.

Indeed, centralising responsibility for the management of receivables helps ensure that best practice is applied across the whole range of debt collection, not just council tax.

Greater use of technology is also common among better performers and should be employed by those struggling to improve. Challenging e-government targets are forcing councils to address how they use IT and modern communications, and payment facilities are an important element of plans and strategies. Citizens should be able to make payments via the telephone, direct debit and internet, and use of these methods should be encouraged.

Common sense suggests the more chance people have to pay and the easier it is for taxpayers to pay their bills, the more money councils will collect. Making the most of technology can reduce the cost of collection.

Efforts to improve collection rates should be closely allied to anti-poverty strategies. It is no coincidence that the lowest collection rates tend to be among those authorities taking care of the poorest areas of the country, making frontline tax collection a particularly hard task.

It is clear to see how rigorous anti-poverty policies that encourage councils to distinguish between residents who cannot pay and those who will not pay can have an effect on improving collection rates.

Last year’s 0.3% improvement in collection rates is the result of focused work and effective streamlining by some councils, but faster improvements are realistic. An overwhelming proportion of councils should aim for at least a 2% increase in the proportion of taxes they collect.

This is an achievable target if councils recognise the value of cashflow and would release £300m back into the public sector.

Although this may appear to be small change relative to the size of the public purse, it would make a substantial difference to the services that some authorities can provide.

  • Peter Buckle is head of receivables management at PricewaterhouseCoopers.

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