Sundry debt! A ‘cinderella service’ or local government’s latent revenue stream?

“These figures are startling enough but what if councils are owed other significant debts beyond CT and business rates? Could recouping some of these hold the key to helping councils deliver essential services?”

Martin Jackson is Director with DSL Local Authority Debt Recovery

The financial challenge is becoming significantly steeper

As I write this on the 75th anniversary of the D-Day landings, alongside the stories of heroism, bravery and tragic loss of life, there is also much talk about the austerity of the times. Austerity is an emotive word that has very much been in the public consciousness over the past decade and, while we may not currently be experiencing austerity equivalent to that of the first half of the twentieth century, the effects of public spending cuts are certainly being felt by councils – and local service users – up and down the country.

Direct cutbacks and below inflation tax increases have forced local government into a fundamental re-examination of how public services can be configured – reducing service levels and passing the costs of delivering those services on to service users.

According to the Institute of Fiscal Studies, local authority budgets have fallen by an average of 26% since 2010, once the impact of inflation is taken into account. The Local Government Association suggests the financial challenge is becoming significantly steeper – it asserts that between 2015 and 2020, the Revenue Support Grant provided by central government is due to fall by 77%, leaving a funding gap of £5.8 billion, even if local authorities dramatically reduce the scale of services they currently deliver.

This reduction in funding, combined with growing demographic pressures on services – particularly social care services for our elderly – represents a perfect storm. So, with incomes falling and demand for services increasing, what else can councils do to maximise the funds available to deliver essential services?

One answer is to make sure that monies owed to local government are being effectively collected. According to research carried out by the Money Advice Trust (MAT), more than 2.3 million local authority debts were passed on to bailiffs in 2016/17. This is an increase of 14% on the Trust’s 2014/15 report, which also warns that the level of debt owed to authorities has increased, with £2.8 billion of Council Tax (CT) arrears alone at 31st March 2017.

These figures are startling enough but what if councils are owed other significant debts beyond CT and Business Rates? Could recouping some of these hold the key to helping councils deliver essential services?

The sundry debt opportunity

Sundry debts are made up of miscellaneous invoices issued for a number of reasons and in respect of a wide and varying range of services. They can also arise if members of the public receive benefits they were not entitled to, or as a result of legislative requirements or contractual agreements. Examples of sundry debts include nursing home overpayments, day care fees, respite care, licensing fees, planning charges, waste management fees, and building permit and service charge arrears.

Revenue from miscellaneous income accounted for £10.2 billion in England and Wales in 2011/12 and, while there are no readily available figures for the value of unpaid commercial invoices and sundry debt local authorities have on their ledgers, it is expected to run into millions, if not billions, of pounds. Clearly, recouping even a small percentage of these outstanding monies could have a truly beneficial impact on local authorities’ ability to deliver essential services!

While there doesn’t appear to be any official figure regarding the value of unpaid sundry debts owed to local authorities, according to the MAT, 2.3 million debts were passed to bailiffs by local authorities in 2016/17, of which 1.38 million related to council tax arrears. If we extrapolate that just half of the remainder – some 460,000 arrears – relate to sundry debts, this equates to over 1,000 outstanding debts per local authority in the UK.

If sundry debts typically range in value from just a few pounds to many thousands of pounds, it is clear the potential returns from a targeted collection program could run into the multi-millions, if not billions, of pounds a year nationwide.

In 2017, DSL carried out a pilot project for a London authority, tracing and collecting unpaid sundry debts up to six years old. With a success rate of over 50%, it’s clear that paying targeted and focused attention to this latent revenue stream offers a potentially invaluable role in releasing funds to support the delivery of essential services.

For further information call 01527 543672.

Published in IRRV’s magazine. June 2019