Four ways to manage local authority debt in the cost-of-living crisis

With citizens’ incomes squeezed more than ever, levels of arrears are rising. We explore how local authorities can use data insight and best practice to help customers in debt and improve debt resolution

In 2022, our article Moving collection to resolution looked at how smart use of data could help local authorities find ways of resolving council tax debt in the post-Covid environment. Then, just as everyone was starting to recover from the impact of the pandemic, the cost-of-living crisis hit. In this article we propose approaches that councils can use to address council tax collection in today’s even more challenging environment.

Inflation rose sharply in 2022 and 2023 and although it has started to fall back, together with higher interest rate levels, it has resulted in a significant fall in disposable incomes. Even with government support, the cost-of-living crisis disproportionately affects poorer households, who spend more of their income on essentials such as heating and food.

Local authorities have seen council tax arrears rise because of this crisis: the Department for Levelling Up, Housing & Communities has reported the total amount of council tax still outstanding in March 2023 amounted to £5.5 billion, an increase of over 12% on the 2020-21 figure.

We have identified four ways in which local authorities can improve the way they manage debt in response to today’s conditions.

1. Data insight

Typically, local authorities hold debt-related data and other useful information – for example on council tax, unpaid parking notices and rent arrears – across multiple business systems. As a result, customers in debt can be chased several times by different parts of the council, creating more contacts and complexity. Different departments also often look at debt in isolation, creating payment conflicts when a customer is unable to pay.

This can be solved by bringing together data from different systems to create a single view where all citizen’s debt can be managed in one place. Civica’s cloud software, CivicaCollect, helps local authorities to improve the quality and accuracy of the data by matching and merging data to produce a complete debt record. The data can also be enhanced against third party data sets, such as propensity to pay and vulnerability factors, to enrich the golden record and unlock valuable data insight to help make better decisions on recovery.

This way, local authorities can avoid duplication and manage debt more intelligently; for example by consolidating a customer’s debts into single payments that can be applied to multiple debts.

2. Tailor recovery and communications to the individual

To help customers in debt, good engagement is the key to success. It should be based on the idea that one size doesn’t fit all. The ability to apply debt segmentation is therefore vital to a more successful and, where needed, sympathetic recovery strategy. In each case, insight driven recovery enables local authorities to use the actions that are most appropriate to the unique circumstances of a customer or business.

CivicaCollect allows local authorities to create fully customisable recovery paths and communications to a customer. Tailoring communications means having the flexibility to use multiple channels to reach and segment them according to their circumstances. For example, there may be customers who meet key vulnerability criteria or who have never been in arrears before and need support to navigate their way out of debt.

Southwark Council uses CivicaCollect to take a tailored, customer-centric approach to debt management. As Charlotte Acutt, Operations Manager, Income, says: “Having a clear picture of each person’s overall circumstances lets us take a more customer-centric approach to collections. CivicaCollect is instrumental in helping us do that.”

3. Engage early and digitally

The first customer contact counts. Get in touch as soon as arrears happen, and there’s more chance of a positive outcome. There’s also evidence that customers in debt prefer engaging digitally, as it can be a less intrusive way to deal with the sensitive issues of debt and discussing personal circumstances. Digital channels increase choice and allow customers to engage using their preferred option.

Systems must therefore allow for fast action and full digital capability. Recovery paths need to have digital stages, and customers should be able to self-serve, for example completing income and expenditure forms based on the Standard Financial Statement and submitting payment arrangements. For customers with multiple debts, it’s easy for them to pay by enabling one regular payment and using systems to apportion the payment across multiple debts.

4. Increase your support capacity

Many local authorities are recognising the need to shift from collections to support to deal effectively with debt resolution. Ideally, this is a job for skilled teams. But with headcounts under pressure, it’s not always easy to move staff onto this higher-value work. Resilience services such as Civica’s OnDemand Resource can free up capacity by helping you manage ‘business as usual’ recovery while you deploy your people on to support.

All local authorities are focused on trying to maximise collection as they try to balance the books in the face of increasing budgetary challenges. Making full use of data insight and systems can help in recovering debt and resolving debt issues while also improving the customer experience.

Paul Mason, Divisional Managing Director

Get in touch to find out how Civica can help manage your local authority debt.