Council tax timebomb in aftermath of coronavirus as Scotland's debt mountain doubles in five years

The amount currently owed in council tax in Scotland which has led to tens of thousands of households being pursued is enough to pay for nearly four NHS Nightingale Hospitals.

It comes as Scots face huge council tax rises to fill a £500m local authority funding black hole.

Citizens Advice Scotland (CAS) has warned of a council tax debt ‘explosion’ as it has found that council tax debt is the number one debt issue its network sees.

It says it would like to see more support for those in debt which could be through Citizens Advice Scotland said it would like to see those who have fallen into debt, which could be through the Scottish Government undertaking to meet the costs of writing off such debt or the establishing a council tax hardship fund.

Analysis of CAS figures for 2019/20 reveals that 2,257 people sought help from the Citizens Advice network with a complex debt issue involving council tax, owing a cumulative £6.8 million in council tax arrears.

A complex debt issue is where someone owes multiple debts.

Worryingly, the average debt owed was over £3,000 - almost three times the average council tax bill of £1,201.

The charity fears council tax debt could grow even further in 2021, as payment protections and furlough schemes end.

This will force more people into reduced incomes and putting extreme pressure on household decision-making around which bills to pay, particularly council tax.

READ MORE: Scots face huge council tax rises to fill £500m funding black hole

CAS is calling on people to make use of the Scottish Government’s council tax reduction scheme which can help reduce future payments. For some people, it can also offer a backdate of up to six months.

CAS financial health spokesmans Myles Fitt said: “Scotland is potentially facing an explosion of council tax debt in 2021.

“The figures before the pandemic are bad enough, but the real fear is that Covid-19 is going to make matters much worse.

“Councils across Scotland showed a real empathetic approach to those who found themselves in council tax payment difficulties, and the payment breaks in the first six months of the pandemic were extremely welcome. However this has led to arrears building up, arrears that will be difficult to meet for the many people who have during that period experienced an income drop due to unemployment or reduced working hours.

“For others, this problem is yet to come in 2021 when the economic squeeze on personal finances is felt as the furlough scheme and payment support measures close at the end of April, ironically in the same month the first payments of council tax in the new financial year are due.

“Action is required to stop council tax debt - already the number one debt issue the Citizens Advice network sees - becoming an even bigger problem next year."

According to official figures, the local authority with the biggest council tax collection headache is Aberdeen City, which had failed to collect 6.4% of what was billed, followed by East Ayrshire and North Ayrshire (6%), North Lanarkshire (5.9%), Dundee City (5.8%) and Glasgow City (5.6%).

The councils with the best record for collection are Stirling which had failed to collect 2.2% of billed council tax followed by Orkney (2.3%), East Renfrewshire (2.5%), Angus (2.6%) and Perth and Kinross and Shetland (2.9%) In September, the Convention of Scottish Local Authorities (COSLA) asked to remove the cap for the rate of council tax which councils can set - which sat at three percent.

It said £500m of additional funding would be needed to help fund Scottish councils as authorities warn they face “devastating” financial black holes.

The demands were part of a new Blueprint for Local Government document which warned without "proper resourcing" cuts to council services are inevitable, risking the country's recovery from the virus.

The blueprint document added the lack of funding has “immediate and long-term implications for local government’s ability to both manage the financial impacts of COVID-19 and continue to deliver essential services.”

COSLA has called for fair funding of local government, longer-term certainty in relation to budgets and the “removal of a cap on council tax so that this is a truly local tax”.

A COSLA paper which emerged in July said: “Given the initial forecasts from local authorities it would require a council tax increase in 2021/22 in excess of 50 percent.”

A 'Save our Services' campaign was launched in October as fears rise over council tax hikes to fill in particular, a £91m back hole in Glasgow's public finances over the next two years.

One of the UK's largest unions, UNISON said there was "historical unfairness" over the Scottish Government’s funding arrangements, in particular for Glasgow, exacerbated by what it called "a decade of Tory cuts from Westminster and now the Covid19 pandemic.

Scottish Labour leader Richard Leonard has demanded a Covid Debt Amnesty for families suffering a pandemic domestic debt crisis.

Arrears on household bills and council tax bills incurred by low income families during the pandemic should be suspended by the Scottish Government.

And he said the relief should apply for the rest of the Holyrood parliamentary session.

The StepChange Debt Charity said the proportion of new clients with rent or council tax arrears has risen notably since the start of the pandemic.

READ MORE: 'Save our Services' campaign launched in Glasgow as council tax rises feared to fill £91m funding black hole

The proportion of clients with council tax arrears rose from 20% in April to 29% in October.

Almost two thirds of clients in the survey – and 70% of those who had experienced an income loss – had borrowed to make ends meet. Most commonly, people borrowed from family or friends, closely followed by using their credit card or overdraft.

Earlier this year, the Scottish Government announced support for local government through an estimated £90m Lost Income Scheme as well as £49 million of additional funding confirmed to councils in September.

And in October, finance secretary Kate Forbes said that councils had been given “game-changing” fiscal powers over their finances to aid the recovery from Covid-19.

Local authorities will be able to use capital receipts to relieve pressure on day to day spending, including those caused by the pandemic, as well being permitted to extend the repayment period for loans over the life of the asset the money was used to build, as opposed to the contractual period.

The Scottish Government has said the estimated value of the new powers is £600 million.

A Scottish Government spokesman said its Council Tax Reduction Scheme (CTR) "means nobody has to endure financial difficulties because they have lost their ability to pay their council tax – including those impacted by coronavirus".

The spokesman added: “The pandemic and the resulting economic hardship has led to an increase in CTR caseload, with just under 500,000 households now receiving some level of reduction. On average recipients save over £700 a year. We have allocated £25 million to councils to help them meet the increased costs of the CTR scheme in addition to the £351 million we already provide.

“During the pandemic we have asked local authorities to use their powers to backdate CTR applications by up to six months and not to take enforcement action until they are satisfied that the household concerned has not had its income impacted by the pandemic, or would likely be entitled to a reduction.”

CAS has an online tool at www.checkmycounciltax.scot for people to use to check all their Council Tax entitlements to savings, reductions, discounts and exemptions to help lessen the pressure on meeting council tax bills.

The charity has also recently developed a new online tool called Money Map, which allows people to round up all their options to boost incomes and cut living costs during these difficult times at www.moneymap.scot.

The Convention of Scottish Local Authorities (COSLA) was approached for comment.