SCOTTISH EXECUTIVE

[Previous] [Contents] [Next]

It Pays to Pay - improving council tax collection in Scotland

CHAPTER 2: BACKGROUND

Introduction

13. Tax is never popular but provides the monies for essential services. History gives many examples of new taxes being created to greater or lesser public complaint. But local taxes, especially based on property value, have been with us for centuries. The need for them is widely accepted and, until recently, generated little controversy. In particular, local domestic property taxes were long regarded as one of the most efficient taxes, in the sense that they cost less to administer relative to the amount collected.
14. In Scotland, at least, the position has changed in the past two decades. Our work has shown 3 major factors behind the change; namely two significant changes in the form of local tax, major changes in availability of and attitudes about credit and the reorganisation of local government in 1996.

Changes in local tax

15. Local tax in Scotland can be traced to the Poor Relief Act of 1601. Various other Acts extended local taxation until the Rating and Valuation Act of 1925 consolidated the system by establishing domestic rates. They were based on the estimated market rental of each property and the "multiplier" or rate poundage was set by the relevant local authority. Following local government reorganisation Regional, Islands and District Councils each determined separate rate poundages; there was also a domestic water rate set by the Regional or Islands Council as appropriate. The late 1970s also happened to be a difficult period for the UK economy, with particular strains on public finances.
16. In January 1986 the Government launched a Green Paper "Paying for Local Government". This paper proposed a number of reforms to local government finance, with the aim of making local authorities more "accountable to their electorate". The changes suggested in the green paper were implemented fully in Scotland in the Abolition of Domestic Rates Etc (Scotland) Act 1987. Further measures were brought in by the Local Government Finance Act 1988. In Scotland domestic rates were abolished on 1 April 1989. They were replaced by the community charge (more commonly called "poll tax"). Domestic rates were not abolished in England and Wales until 1 April 1990.
17. Rates had been levied on a household basis with the occupier of the property held liable for payment. Full rebates had been available for those on low incomes and many tenants paid only indirectly with their rent. But under community charge, most adults became liable to pay the charge, or a proportion thereof. Many who opposed this new tax started a high profile campaign for non-payment. People, who had not previously been in debt, now had the potential to get into debt and, whether as a part of the non-payment campaign or not, many did not pay.
18. Opposition to the poll tax was high profile and widespread. There was a series of demonstrations, some violent, against the implementation of the community charge. Peter John subsequently noted in his book "Introduction of the Community Charge in Scotland.", Chapter 3: "In some areas the campaign had an early impact but soon petered out. In the more rural areas it had a low impact throughout. The greatest impact was in the major urban areas".
19. Similar opposition followed in England and Wales. The public reaction grew to the point where the Government recognised that the tax was simply unacceptable. Accordingly in 1993, the Community Charge was replaced by Council Tax.
20. The council tax is a property-based tax with personal elements taken into account. It means a single bill for each household, based on the assessed value of the property and the number of adults who lived in it. There are discounts to allow relief for people in special groups and circumstances. The tax had to be perceived as fair by the public, it had to have straightforward administrative arrangements for collection and enforcement, and it also had to be seen to have an equitable distribution of the tax burden. The introduction of the council tax achieved the objectives of restoring credibility to local taxation and took the steam out of the poll tax. The 1998 Local Government White Paper, which followed an extensive review of local government finance, noted that the council tax was "working well as a local tax. It has been widely accepted and is generally very well understood.".
21. The Poll Tax was a momentous event in UK politics. But it also had wider effects, some of which linger. The poll tax brought large numbers of people into contact with the debt enforcement system for the first time. Local authority efforts to recover money owed by defaulters received much publicity, (mostly adverse), through the media. As a result, public knowledge and experience of debt enforcement increased. The public debate around the issues of non-payment and enforcement is likely to have had some impact on the views and conduct of those involved in debt enforcement whether as debtors, creditors or facilitators. In particular it gave some respectability to the idea that it was acceptable not to meet liabilities.

Availability of and attitudes to credit

22. The increase in the availability and use of credit in recent years and the corresponding increase in long term and multiple debt is well documented. For example, in their work on credit and debt, Berthoud and Kempson quote Central Statistical Office figures showing an increase in the total amount of money owed by consumers from £21 billion in 1981 to £48 billion in 1989⁴. Trends in indebtedness are harder to track because information is not collected centrally. However, some indicators are available. Figures published by the Council of Mortgages Lenders show that the number of mortgages 6 months or more in arrears increased from 12,000 in 1979 to over 200,000 in 1991. In addition, the increased enquiries relating to financial problems recorded by Citizens’ Advice Scotland rose from 13,000 in 1983-84 to 94,000 in 1992-93 (see Citizens’ Advice Scotland Annual Reports, various years) suggesting that indebtedness was increasing over that period. ⁵

Multiple indebtedness. What is it?

23. The Scottish Law Commission in its "Report on Diligence and Debtor Protection" explored the problem of multiple indebtedness. They concluded that "Every year in Scotland many thousands of ordinary wage or salary earners or small traders became insolvent, that is to say, unable to pay their debts as and when they fall due". ⁶ Research also found that "Multiple debt problems (defined as difficulties with more than one bill), occur when a number of creditors are in active pursuit simultaneously." "Rent and rates, and fuel are the two types of debt occurring most frequently together." ⁷
24. The issue of historical and multiple debt was raised by a number of respondents to the consultation paper "It Pays to Collect". Evidence collected by one respondent suggested that people with multiple debt problems were more likely to see council tax/community charge arrears as an "abstract debt". The inference was that those debtors tended to be more aware of the consequences of other types of debt such as rent arrears or unpaid utility bills, and since non-payment of these debts could have unpleasant consequences, they prioritised their debts accordingly. Another measure, which respondents echoed was that in most cases of multiple debt, default was attributable to the debtor’s inability rather than unwillingness to pay. This particular view was confirmed by the research undertaken by the Scottish Office Central Research Unit, (CRU) for its Debt Counselling Survey in 1980.

Local Government Reorganisation

25. The structure of local government throughout Scotland underwent substantial reorganisation on 1^st April 1996. In Scotland, the 9 Regional Councils, 53 District Councils and 3 Island Councils were abolished and 32 Unitary Authorities were created in their place, along with 3 separate water and sewerage authorities. Prior to this, collection and recovery of local taxes rested with the Regional and Islands Councils as did the responsibility for the provision of water and sewerage services. The administration of council tax benefit rested with the Regional Councils and responsibility for the administration of housing benefit rested with the District Councils. The Islands Councils dealt with both council tax and housing benefit.
26. Wales experienced similar problems to Scotland, but not quite on the same scale. England on the other hand suffered very little impact, with only one new council taking on an aggregation of local tax and benefit administrative responsibilities from other former authorities, and no new authority taking on local tax and benefit responsibilities from a disaggregating authority
27. Scotland as a result was uniquely affected by the reorganisation of local government. Local taxation information from the former disaggregating regional councils had to be combined with the work of the former district councils. At the same time these new authorities had to deal with aggregating housing benefit systems without the benefit of the continuity of the former Regional Councils’ highly experienced IT staff, many of whom had either retired or had moved to different councils or projects. The abolition of the Regional Councils also meant that major local taxation functions were transferred to a much larger number of Unitary Authorities. Not only were senior officers in the new authorities faced with unfamiliar functions, but so too were the politicians of the Councils of those new unitary authorities.

Conclusion

28. Tables 1 to 3 in Annex I give data on council tax and community charge collection rates for the 32 Scottish councils created on 1 April 1996. Table 1 shows the council tax and community charge debt the new authorities inherited as at March 1996 and the position as at June 1999. Table 2 shows the net amount billed in each financial year and the amount collected in the financial year in which it was billed. Table 3 again shows the net amount billed in each financial year but this time shows the amount collected in the period up to June 1999.
29. Care must be taken in interpreting the data. At a general level, however, some key issues are immediately apparent:

29.1 the new councils inherited considerable levels of debt;

29.2 collection levels vary significantly across councils;

29.3 variations in collection levels are to some degree influenced by locality and the nature of the council — for example, urban areas tend to have lower collection rates.

30. These data confirm the difficult legacy inherited by the new councils in Scotland. They also show that problems vary from council to council. The data do not reveal, however, the individual circumstances affecting each council. The evidence we have obtained suggests that council tax collection difficulties arise from a complex array of causes. Different councils will be affected to different degrees by each of these factors.
31. Nonetheless, the data support the key issues covered in this background chapter, and in particular the problems left by the legacy of non-payment from poll tax.
32. We are aware that a number of councils are taking initiatives to deal with outstanding debt and improve council tax collection levels. Non-payment by employees is being tackled. Several councils have created special debt recovery teams. Almost every council in Scotland is forecasting an improved collection rate for next financial year. All of these are welcome trends and demonstrate that Scottish councils are alert to the difficulties and facing up to them. The rest of our report deals in turn with each of the key issues that we believe affects council tax collection rates and, where relevant, recommends action to improve in-year collection rates.

[Previous] [Contents] [Next]