ITEM NO
11
Report to the Audit Committee
DATE PORTFOLIO REPORT AUTHOR TEL NO EMAIL 27th September, 2006 Audit Committee Caroline Lee Head of Revenues and Benefits 01282 477151 clee@burnley.gov.uk
Selling Bad Debt
PURPOSE 1. To inform the Audit Committee about the feasibility of selling off bad debt to private companies.
SUMMARY OF KEY POINTS 2. In the last Audit Committee of 22nd August, 2006 , members requested information about the level of arrears of Council Tax and the amounts written off since 1993 and also information on the potential to sell off this bad debt to private companies. At 31st August, 2006 Council Tax arrears amounted to £4,485,342. As at 31st March, 2006 the provision for bad debt in respect of council tax was £3,163,878; £1,642,000 has been written off since 1993. Council Tax arrears plus the amount already written off amounts to approximately 1% of the total debt raised in respect of Council Tax since 1993; £40.8 million was raised in the year 2005/6 alone. Council tax debt recovery procedures are prescriptive and officers must issue reminders and final notices in order to obtain summonses and liability orders that enable further action to be taken. This includes bailiff action, attachment of earnings orders, attachment of benefits orders or ultimately commitment to prison and the Recovery Team has a lot of experience in these areas. Options for selling off debt have been considered and include debt factoring. Debt factoring involves selling your invoices to a third party and in return they will process the invoices thus allowing the business to draw loans against the money owed to it. It is a way of improving cash flow issues particularly in times of growth and is suitable for the commercial sector. Debt factoring organisations including Factoring UK and Alex Lawrie factors have confirmed that this system would not be appropriate for the public sector.
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Alternatively, the council could sell off the debt. Private companies could purchase the debt at a rate of 50p or 60p in the pound but would normally take on these debts only once they had established the likelihood of recouping their money. Commercial organisations tend to use this option when a debt has not been paid and they are at the point of referring it to a solicitor ; instead choosing to sell it to a company more experienced in debt recovery. The area of council tax debt is not one likely to generate much interest because, at the point of write off, the council’s recovery team has already exhausted all the options available to it and the debt is not an easy one to collect or make money from. Selling off Council Tax debt is also an uncharted area for local authorities and no other council has been found that carries out this activity. The majority of debts the council writes off are due to the debtor’s whereabouts being unknown. Debt tracing agencies will take on debts for the local authority charging a fee when the debtor is traced and commission on any monies raised after locating the debtor. This option is not used by the council as the service has access to debt tracing software provided by Experian which assists in this area. In reality a private company is unlikely to purchase debt from a local authority when all other options available to the local authority have failed and the debtor has not been located via an Experian check. In addition, care must be taken in these circumstances to ensure that debt tracing agents are not acting outside of their remit or indeed the law. The Information Commissioner published a document entitled ‘What Price Privacy’ in May of this year. In this document, he expresses grave concerns about the unlawful trade in confidential information and proposes that offences against section 55 of the data protection act are increased. These offences include procuring the disclosure of personal information knowingly or recklessly by unlawful means. The use of some tracing agents by local authorities to track down council tax debtors who have absconded comes in for specific criticism in this report.
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RECOMMENDATION 9. That the council do not undertake the selling off of Council Tax debt
REASONS FOR RECOMMENDATION 10. • • Debt purchase or debt factoring is not appropriate for council tax debts, companies operating these systems have indicated that public sector debts are not their target market Debt tracing agencies are not appropriate as the authority already has access to debt tracing software, controls are in place governing the information secured in this way and because of the risk of falling foul of the law as advised by the Information Commissioner
FINANCIAL IMPLICATIONS AND BUDGET PROVISION
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None
POLICY IMPLICATIONS 12. None
DETAILS OF CONSULTATION 13. Peter Doyle –Executive Member for Best Value and Resources Mark Townsend –Better Services Scrutiny Chair Nick Aves –Director of Resources Ruth Wynn –Democratic Services Manager David Wilcock –Head of Legal Services
BACKGROUND PAPERS 14. What Price Privacy www.ico.gov.uk - executive summary and paras 5.18 –5.20
FURTHER INFORMATION PLEASE CONTACT: ALSO: Caroline Lee Head of Revenues and Benefits
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