06.09.18
NAO: Funding pressures forcing councils to chase debt ‘too quickly and aggressively’
Short-term incentives and funding pressures across local government may be pushing councils to pursue debt repayments “too quickly and aggressively,” the National Audit Office (NAO) had argued in a new report.
The auditor concluded today that government – both central and local – has a limited understanding of how personal debt problems affects the public purse, and criticised weaknesses in Whitehall’s strategy to deal with the issue.
NAO estimates that the UK public owe at least £18bn in debt to housing associations, landlords, utility providers and government, such as through council tax arrears or benefit overpayments. But the Treasury has “limited information” on debt in these areas and thus fails to fully understand the problem, which then hinders its ability to respond.
Locally, less than 20% of councils use established best-practice template in how to assess affordability of repayments. Many also employ bailiffs to pursue debt collection, although some local authorities such as Bristol and Hammersmith & Fulham are now moving away from this approach – which is largely considered unethical.
Poor debt collection practices can also compound problems by increasing residents’ anxiety and even triggering depression. The NAO’s modelling estimates that intimidating actions and additional charges on over-indebted people are 15-29% more likely to make debts harder to manage or increase the risk of mental illness.
The auditor estimates that the direct impact of a person’s likelihood to experience anxiety or depression adds a further £250m cost to the public purse. There are also around 600,000 people in the UK who need debt advice but are unable to access it.
Amyas Morse, the head of the NAO, said: “Problem debt has significant consequences both for individuals and the taxpayer. While government has made progress in seeking to address this issue, its attempts so far have been insufficient.
“The Treasury needs a better understanding of the scale of people’s debt problems and how it is impacting their lives and the taxpayer so it can effectively resolve the problem.”