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Government worse debt collectors than private companies

8 January 2016

Government departments are treating people worse than private companies when chasing debts, a new report has warned.

Citizens Advice says the number of issues people have sought help for on local and national government debts has doubled from just under 200,000 a year to around 400,000  in the last decade.

The consumer champion reveals that nearly £1 in every £5 of the debt people contact them for is now owed to government.

In the report, researchers focus on government debt problems most commonly raised – council tax arrears, tax credits overpayments, benefits overpayments and magistrates court fines.

The charity found evidence of poor practice, including a lack of consideration given to whether people can afford repayments and people forced to pay a debt when it is under dispute.

Researchers commend the Common Financial Statement (CFS) - which looks to help creditors identify how much someone can sustainably repay towards their debts. But Citizens Advice says it is contradictory government departments have not adopted this standard when collecting its own debts.

For the study Citizens Advice drew up a league table that compared government departments with other types of debt collectors. Some 259 of its debt specialists from all over the country rated them against seven factors, including how creditors resolve disputes, set affordable repayment plans and how easy they are to contact.

HMRC tax credit overpayments was worst overall with an approval rate of 34 per cent. Just above is mobile phone providers, magistrate court fines and the Department of Work and Pensions (overpayments of benefits). Water companies came out on top as the most responsible debt collectors and local authorities finished second for the way they collect council tax debt.

Advisers had major concerns over the difficulties people face when trying to contact departments. HMRC score particularly badly with 56 per cent of advisers saying they “rarely or never” get through to someone who can help - this compares to just 5 per cent for private debt collection agencies.

Not being able to make contact can have dire consequences for people, the report adds. The DWP and HMRC can seize wages and assets without a court order and deduct people’s benefits without consent. Magistrate courts can imprison people or pass debts to bailiffs. Some government departments also collect very old debts - one person that turned to Citizens Advice was chased by the DWP for overpayment of a benefit in 1989.

The report also highlights government departments can be inflexible on recovering debts. Only 12 per cent of advisers thought HMRC tax credits collections almost always set affordable payments, compared to 51 per cent for both debt collectors and banks.

Advisers also say some government departments are poor in terms of resolving disputes. Some 48 per cent of advisers reported that HMRC tax credit collections staff were rarely or never co-operative. This was 45 per cent for magistrates’ courts collections - compared to just 9 per cent for high street banks.

Despite the Financial Conduct Authority (FCA) saying consumer credit firms like banks and payday lenders cannot make demands for payments without providing evidence a dispute is not valid, the HMRC can continue to recover tax credit overpayments while a dispute is taking place.

Gillian Guy, Chief Executive of Citizens Advice, said:

“Fair debt collection practices are fundamental to any functioning economy.

“Of course people must repay government debts as soon as they can, but there is a difference between people who can’t pay and won’t pay. Our evidence shows glaring inconsistencies in how some government departments and private companies go about recovering money.

“It’s unacceptable that government agencies are behind the standards set for private companies when recovering debt. National government, private firms, utility providers and debt advice specialists need to get together and urgently agree a fair and consistent way forward.

“It’s vital people can also access free and independent advice to ensure they get the all the help they need to avoid getting into unmanageable debt in the first place.”

The report found that in many areas of the country the Citizens Advice service and local authorities have built up good working relationships that help them deal with debt problems. In these areas advisers report that problems can be sorted out more quickly and there are positive examples of fairer debt collection practices.

The report recommends central government works with the private sector and debt advice charities to develop a best practice debt collection protocol which would be publicly available. This would include a raft of commitments such as:

  • Ensure staff can be easily contacted by phone.

  • Reward staff for good service rather than the amount of money they collect.

  • When recovering old overpayments, provide full evidence of the debt and earlier communications.

  • Allow 30 day break from debt collections when a person has made an appointment for debt advice.

  • Stop collecting overpayments or reduce the amount collected during a dispute where the person is in hardship.

  • Set affordable deductions from benefits and adjust payment dates where people have short-term financial difficulty.

Best practice league table as rated by advisers

CreditorRating

1

Water companies

78%

2

Local authorities (Council tax collections)

69%

3

Social landlords

65%

4

Private debt collection agents

63%

5

Local authorities (overpayment of benefits)

63%

6

High street banks

62%

7

Energy companies

59%

8

DWP (overpayment of benefits)

47%

9

Magistrates court fines collected by HMCTS

40%

10

Mobile phone providers

37%

11

HMRC (tax credit overpayments)

34%

Notes to editors

  1. The Citizens Advice service comprises a network of local Citizens Advice, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.
  2. The advice provided by the Citizens Advice service is free, independent, confidential and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
  3. To get advice online or find your local Citizens Advice in England and Wales, visit citizensadvice.org.uk
  4. You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers.
  5. Local Citizens Advice in England and Wales advised 2.5 million clients on 6.2 million problems in 2014/15. For full service statistics see our publication Advice trends.
  6. Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 2,500 service outlets across England and Wales.