During the initial months of the pandemic, when various protections were in place – such as the £20 per week uplift to Universal Credit – the number of people who sought help from Citizens Advice on debt problems dropped significantly. Since October 2021, however, when many of these protections came to an end and energy costs began to rise, the number of people seeking debt advice has surged.
For now at least, this isn’t being driven by more people borrowing and struggling to service consumer credit, but rather because more and more people are falling into arrears on essential household bills such as council tax, energy, and rent.
This is reinforced by recent Citizens Advice research which found 28% of people in Wales are currently behind on a bill or payment, with this most likely being council tax, water or energy bills.
Put simply, many people just haven’t got enough income coming in to cover their ever-increasing essential living costs. Most worryingly, 46% of our debt clients are currently living on a negative budget, up from 36% in early 2019. This occurs when someone in debt has £0 or less after paying housing and other recurring bills, meaning there is no money left to make debt repayments. People are often left with no other option but to go without essentials – for example, cutting back on spending for food and utilities.
This makes it incredibly challenging for debt advisers as the usual tools and options for supporting people with problem debt are no longer viable.
Our data analysis shows groups particularly affected include the unemployed, private sector tenants, disabled people, and those with long-term health conditions. But it’s not just those reliant on benefits facing this situation. Increasing numbers of debt clients living on a negative budget are working, with significant rises amongst people who are self-employed (up over 20% since early 2019). Debt clients are also more likely to report mental health problems, particularly those in arrears on essential bills such as rent and council tax.
Improving financial inclusion amongst people on lower incomes remains a critical policy intervention for increasing financial resilience and reducing the likelihood of people becoming over-indebted. But this needs to be combined with wider interventions that help tackle the affordability of essential services, particularly for people at the bottom end of the income distribution.
Given the eye-watering energy price rises we’re likely to experience in the coming months, the current focus of policy debate around the cost-of-living crisis has, quite rightly, been on energy costs. However, another area in urgent need of reform is council tax.
Since January this year the average number of people coming to us for advice each month on council tax debt has been 23% higher than pre-pandemic levels, making it the most common debt issue we see. More than a third (38%) of our council tax debt clients are living on a negative budget, with around a quarter also needing help with energy or water debts.
Earlier this year we conducted research to hear directly from people who had fallen behind on council tax payments about their experiences of dealing with council tax arrears. The findings, along with our client evidence, highlight how the punitive measures currently used to collect council tax debt can prevent people from finding sustainable solutions. Outdated regulations, alongside budget pressures that drive local authorities to pursue in-year collections, mean many people face recovery methods that can worsen debt problems and exacerbate financial insecurity. This also negatively impacts other areas of people’s lives such as their job security, physical and mental health, and personal relationships.
Several interventions to improve council tax collections were introduced during the last Senedd term. While welcome, much more radical change is needed. The Welsh Government’s commitment to council tax reform during this term provides an opportunity to introduce a more progressive local tax system in Wales which ensures liability is more fairly distributed across different household types and people on lower incomes are better protected. In the short term, it also provides an opportunity to bring forward long overdue changes to the 30-year-old council tax regulations so that they support fairer and more sustainable council tax debt collection processes. Changes that are needed include:
- Stopping people being asked to pay their entire annual bill if they miss one monthly payment
- Creating a statutory code of practice governing council tax debt collection, building on the Council Tax Protocol for Wales
- Showing greater flexibility to those who are struggling to afford debt repayments
- Continuing to improve awareness of council tax support and increase take-up by eligible households.
As we go into a time of huge financial uncertainty and difficulty for many, it is more important than ever that the Welsh Government and local authorities in Wales use all the levers they have available, like changing the way council tax debt is collected, to support people’s financial resilience.