Are Scotland’s local authorities making the most of the powers at their disposal to maximise the efficient collection of council tax due?

In recent years, while there has been considerable discussion about council tax in Scotland, ranging from the Scottish National Party’s failed attempt at replacing council tax with a local income tax, the perennial complaints about the amounts payable, proposals to freeze the tax, and the debate about its perceived “fairness”, the administrative process of council tax collection seems to have escaped attention. As the ongoing debate about how spending cuts will be implemented in Scotland continues, with hearts and minds being focused on how to achieve value for money in the public sector, council tax administration is perhaps one issue which is worthwhile considering.

In 2006, a report published by the Scottish Executive (based on research carried out in 2005) identified that Scotland has a lower year-in collection rate of council tax than England & Wales. The report suggested that this difference may be attributable to the fact that water and sewerage charges are billed separately in England & Wales, whereas in Scotland, water and sewerage charges are collected jointly by councils, though a variety of other reasons were suggested, ranging from the cultural legacy of anti-poll tax campaigns, to the absence of a prison sentence as a sanction. However no changes were made to the administrative arrangements for the collection of council tax, which are contained in the Local Government Finance Act 1992 and the Council Tax (Administration and Enforcement) (Scotland) Regulations, which have seen few substantive changes since they were enacted.

Debit variations

The current arrangements provide that council tax is payable by the householder either in one instalment or in 10 monthly instalments. No distinction is currently made between the different methods of payment such as direct debit, cheque, or cash, despite the fact that the different methods of payment have differing collection rates and collection costs.

The Scottish Executive research identified that there were considerable regional variations in the takeup of the most cost effective method of payment, direct debit. Research by the author has revealed that this continues to be the case. The estimates of the amount collected by direct debit by each of Scotland’s 32 councils during the 2009/2010 financial year are shown below, with Stirling Council topping the list with 81.20% of council tax collected by direct debit. This contrasts with East Ayrshire, where the collection rate by direct debit was only 50.53%.

The figures clearly show that there are significant regional variations in collection rates, with rural councils generally outperforming their urban counterparts, and with the larger city councils towards the bottom. In the past, many households such as those in receipt of welfare benefits or the state pension would have paid all their bills by cash, and the distribution of such households among local authorities may perhaps explain some of the regional variations in the takeup of direct debit. However due to the changes made in recent years to the payment of welfare benefits and the state pension, and given the universal availability of the necessary bank accounts, there should, in principle, be no reason why this should continue to be the case.


  % of council tax paid by direct debit   % of arrears due from direct debit payers
 Stirling  81.20  n/a
 Midlothian  75.90 5.80
 Argyll & Bute  75.40 4.00
 Moray  74.96 n/a
 Fife  74.00 n/a
 Highland  73.92 n/a
 Angus  72.60 n/a
 South Ayrshire  72.50 1.90
 Perth & Kinross  71.07 n/a
 East Dunbartonshire  70.00 1.15
 West Lothian  70.00 n/a
 South Lanarkshire  69.43 4.30
 Inverclyde  69.36 0.57
 Falkirk  68.70 1.40
 Orkney Islands  67.00 1.00
 Renfrewshire  66.32 n/a
 East Renfrewshire* 66.00 n/a
 East Lothian 64.00 1.00
 Aberdeenshire* 63.40 1.00
 Clackmannanshire 63.33 n/a
 Eilean Siar 59.20 n/a
 Aberdeen City 59.00 2.00
 Shetland Islands* 57.90 8.84
 Scottish Borders 57.66 5.90
 Dumfries & Galloway 57.00 0.00
 Dundee City 56.00 n/a
 Glasgow City 53.65 4.03
 North Lanarkshire* 53.00 n/a
 Edinburgh City* 52.46 n/a
 East Ayrshire 50.53 n/a
 North Ayrshire* 48.00 0.00
 West Dunbartonshire* 39.00 n/a

*Proportion of households which pay by direct debit

Research by the author has also revealed that the arrears due from direct debit payers only account for a tiny fraction of the total council tax arrears. Whether this proportion is low because householders are less likely to fall into arrears if they pay by direct debit, or because bad debtors are less likely to choose direct debit, is unclear. Arrears are run up by debtors for a number of reasons; however direct debit may help to discipline debtors who would otherwise be able to delay payment by the other methods, leading to a reduction in the amount of arrears. As direct debit is the cheapest method of collection and enforcement, the overall cost of collection will also be reduced if more households pay by direct debit.

Looking for incentives

Due to the cost benefits of collection, some councils such as Dumfries & Galloway, East Dunbartonshire, Highland, Midlothian, Moray, Perth & Kinross, Stirling, West Dunbartonshire, and West Lothian, are already actively incentivising households to pay by direct debit by giving households who pay by direct debit the option of paying over a period of 12 months, as are several councils in England & Wales, and it has to be asked why the remaining councils in Scotland do not follow suit.

The rationale for collecting council tax over a 10 month period is on account of the fact that local authority annual expenditure budgets are partially financed by the council tax revenue which will be collected in the same financial year, a consequence of which is that the council tax must be collected during the financial year. In contrast with most other personal taxes, such as income tax and national insurance, which are collected from intermediaries, council tax is collected directly from the taxpayer, and accordingly there is a greater risk of non-collection. Collection of council tax over the 10 month period is aimed at managing this risk, with the aim being to collect the majority of council tax before the end of the financial year, with a further two month period to chase up arrears before the end of the financial year.

Such a risk approach is perhaps necessary for those that pay by cash, as there is less certainty that these amounts will be paid on time since payment is more dependent on the co-operation of the debtor. However, in the case of payments made by direct debit, there is greater certainty that payments will be made on time, and if the direct debit is cancelled, the bank concerned is obliged to inform councils, who would then be in a position to initiate debt collection proceedings. A further advantage of direct debit means that councils have relevant details of the debtor’s bank account to warrant for arrest on the dependence.

As the figures show, the existing direct debit payers only account for a tiny fraction of the total arrears, and if incentivised to pay over 12 months, more households would elect to pay by direct debit, which would reduce the costs of collection, helping to improve the overall cash flow when looking at the whole 12 months of the financial year, rather than the first 10. The debtors which do get into difficulty clearly end up paying over a longer period than 10 months anyway, and if such households paid by direct debit, there would be greater certainty that payment would be received on time.

Some councils appear to be of the opinion that there is a legal impediment in allowing householders to pay by direct debit over 12 months because para 1 of sched 1 to the 1992 Regulations stipulates that the maximum number of instalment payments is 10. However reg 21(4) permits councils to enter into agreements to pay council tax, and when doing so, sched 1 does not apply. This provision is primarily designed to allow councils the discretion to enter into voluntary agreements with debtors who have built up arrears, but it can, in principle, be used to allow payment over a period of 12 months for all debtors.

If changes are to be made to council tax administration, then perhaps one measure which could be implemented would be to amend the 1992 Regulations to give householders that pay by direct debit the right to pay council tax over a 12 month period. Another change would be to give councils the right to requisition details of the householder’s income and assets, in the event of the first payment default. Penalties could also be imposed on those who fail to do so, and the sanction of custodial sentences could also be introduced.

The debtors within

Another aspect of council tax administration that is worth considering is the collection of council tax from council employees. Freedom of information requests by the author have revealed that it is estimated that several million pounds are owed by the employees of Scottish councils. The majority of Scotland’s 32 unitary local authorities were unable to provide any figures for the arrears of council tax due by employees, and only 13 councils could provide up-to-date figures of the arrears due from their employees. However, some of these figures represent the sums due where a warrant has been issued, while some represent arrears being collected from payroll deduction, so the true figures of arrears due from employees is much higher.

The figures provided reveal that some councils have a considerably better record than others, and questions have to be asked why councils with similar population sizes have such large variations in the amounts due from their employees. Questions also have to be asked about the size of arrears due by individual employees. For example, the sum of £553,500.27 which is estimated to be owed by employees of Dundee City Council was owed by 374 employees, which is an average of £1,479.94 each, and represents the equivalent of a full year’s liability for the typical band D property.

Council tax owed by council employees in Scotland

  Arrears due
Glasgow City* £3,646,279
Edinburgh City* £2,900,000
South Lanarkshire £1,092,000
Midlothian £834,537
North Ayrshire £677,415
Inverclyde £605,000
Dundee City £553,500
Renfrewshire* £428,965
West Dunbartonshire £422,537
Argyll & Bute* £346,894
East Renfrewshire £300,000
Angus* £242,357
Falkirk £131,000
East Lothian £90,042
Stirling £72,010
Scottish Borders £23,106
Orkney Islands £11,561
Shetland Islands £4,084

* Based on a matching exercise carried out in previous years

Some councils advised that they occasionally undertake matching exercises of the addresses in their council tax records against the addresses in their payroll records to establish employees who are in arrears; South Lanarkshire Council carries out such exercises on a monthly basis in relation to arrears from previous financial years. However, several councils reported that these exercises have been unsuccessful in accurately identifying council employees, as some of these arrears represent households where there is joint liability with non-council employees.

For those councils which were unable to provide any information concerning the extent of employee arrears, the main reason given was that since local authorities are not required by law to hold such information (as the same enforcement procedures apply to all individuals), they do not hold the information. Several councils also advised that in any event, their record systems are not designed to identify council employees. East Ayrshire Council advised that one reason why their council tax record system does not record employee details is that they understand that this would be a breach of the Data Protection Act 1998.

While many of these arrears will represent payments which are delivered late and which will eventually be paid to local authorities, it can hardly inspire confidence in the administrative standards maintained by local authorities. While it may be technically correct in the eyes of the law that there is no difference between collecting council tax from council employees than from other taxpayers, it clearly does not represent a joined-up approach to conducting public administration. After all, local authorities are in a special position when it comes to collecting council tax from their own employees, as they have the capability to make payroll deductions from the employees who reside in the same local authority. They also have the capacity as an employer to initiate disciplinary proceedings, and some councils already initiate disciplinary proceedings when an employee is found to be in arrears. East Lothian Council also has a policy that it is a condition of employment that any employee with arrears has to have a repayment arrangement in place.

Some councils, such as East Renfrewshire, offer their employees the choice of paying council tax by payroll deduction, but the takeup is very low, with only 169 of the 5,000+ employees electing to do so. If such a measure was mandatory for all employees who reside in the same local authority, then the arrears due from council employees who reside within the same local authority would of course be zero. However a difficulty with this approach arises on account of the fact that households, rather than individuals, are liable for council tax. Where there are two or more other householders who are jointly liable, it would not always be the case that they would also be council employees, and payroll deduction from the employee who is a council employee would not always be equitable, since that employee would not necessarily be the highest earner. This perhaps explains why the voluntary take up of payroll deduction is so low.

Even if all the householders were council employees, there would be the administrative challenges of apportioning the payroll deductions. But surely, at the very least, it could be mandatory for council employees to ensure that their household pays their council tax by direct debit. Local authorities have an obligation to take as many steps as they can reasonably and practically take to minimize their arrears. One can hardly see what objections can be made to such an approach, and it has to be asked why councils are not doing so.

Further thoughts

Another aspect of council tax collection that could perhaps be amended is the calculation of the instalments due. It is currently the case that when the 10 monthly instalments do not equate to an exact multiple of £1, the last nine are amended to a multiple of £1, with the first instalment being adjusted to take up the remaining balance. The administration would be far simpler if the liability was simply divided up into 10 or 12 equal instalments, with appropriate rounding up to the nearest penny.

Finally, a compulsory revaluation of council properties every five years could be imposed, in the same way that commercial premises are revalued for non-domestic rates. The current valuations of properties are clearly out of date, being based on values as at 1 April 1991, and many residential properties have of course been constructed after that date. Regular revaluations would clearly improve the accuracy of the valuations.

All in all, the foregoing measures would be a far better way of improving council tax collection rates than Renfrewshire Council’s offer of a monthly prize draw entry to win £50 Marks & Spencer vouchers to households which pay by direct debit, Scottish Borders Council’s recently withdrawn offer of a 3.5% discount for early payment in a single instalment, or spending considerable sums on advertising campaigns trying to persuade households to “Pay up for Glasgow”, on which Glasgow City Council has spent an estimated £471,817 between the 2004-05 and 2009-10 financial years.


The Author
Andrew Vennard is a solicitor with Messrs E Thornton & Co, Oban  
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