Martin Lewis: authorities handle unpaid council tax like ‘worst loan sharks’

The consumer finance expert Martin Lewis has accused local authorities of acting like “the worst loan sharks” in what he says is their aggressive and intimidating pursuit of vulnerable residents who fall behind on council tax payments.

In a blistering attack, Lewis accused councils of using “grotesque” collection practices that can mean a single missed monthly payment escalates within weeks to large cash penalties, a court summons and bailiffs being sent to a person’s home.

Lewis said many authorities’ council tax collection practices – which can push households into a costly debt trap as they try to avoid legal action – were far more aggressive than those in the regulated private financial services sector.

“Council tax collection practices are so aggressive they’d make the banks blush. The grotesque process couldn’t have been designed better to accelerate distress for people in council tax debt, especially those with mental health problems,” he said.

Lewis, the founder and chair of the charity Money and Mental Health Policy Institute , said the psychological harms inflicted by a council-enforced “whirlwind of debt collection activity” disproportionately affected people with mental illness.

He called on the government to change the rules to protect low-income households in council tax arrears by allowing them more time to put together affordable repayment plans before being hit with enforcement action.

Local authorities can issue a final notice for full payment of a council tax bill within seven days of a missed payment. A UK household which missed a typical £140 monthly payment could be forced to pay the entire remaining amount of council tax for the year – as much as £1,668 – within three weeks.

Failure to pay the full bill can lead to court action, with the debt passed on to bailiffs within six weeks. Residents unable to afford a hefty unexpected cash demand often borrow via a credit card at high rates of interest to avoid going to court.

By contrast, credit card firms and other mainstream lenders are legally required to engage with consumers who miss payments, offering them repayment options and typically allowing at least three months before escalating recovery action.

“When someone misses a monthly payment, rather than asking: ‘How can we help?’ many councils say: ‘Now you have to pay 12 times that.’ It’s like a caricature of the worst loan sharks,” Lewis said.

“Rapidly piling on payment demands, court threats, charges and bailiff action isn’t a fair or productive way to respond to someone missing a payment, either through limited funds, or personal life crisis. It’s like councils are setting a trap for people who miss a payment that they have no hope of escaping from, and that needs to stop.”

Lewis also denounced councils’ practice of charging people up to £150 to cover the supposed administrative costs of issuing a council tax liability order that cost the courts just 50p to produce – a practice he described as in effect a disguised fine.

He took aim at unnamed council leaders who campaigned against abuses perpetrated by “dodgy” private-sector lenders while themselves overseeing a system that left vulnerable residents in massive debt. Councils needed to “take a hard look at what they are doing”, said Lewis.

Lewis, a TV presenter and millionaire founder of the Money Saving Expert website, has become an outspoken campaigner on financial injustice, tackling the government on issues from carer’s allowance overpayments to winter fuel payments .

Official figures show the level of council tax arrears rose by 9% to £6bn in England last year as people struggled with cost of living problems such as rent increases and soaring energy bills. More than 3 million people have faced bailiff or enforcement action because of council tax arrears in the last two years.

A spokesperson for the Local Government Association said: “Councils strive to ensure they have fair council tax collection policies and should always try to work with people who are struggling to meet their council tax bills. We agree bailiffs should only ever be used as a last resort and anyone having trouble paying their council bills should get in touch with their local authority for financial help and advice.”