DD2400 Council Tax Arrears in the London Borough of Newham

Type of decision: 
Director's decision
Code: 
DD2400
Date signed: 
09 September 2019
Decision by: 
Martin Clarke, Executive Director of Resources

Executive summary

The London Borough of Newham has faced significant challenges in relation to council tax collection in recent years due to the large growth in its taxbase arising from new developments. At 31 March 2019, it had arrears of £31.4 million of which the GLA’s notional share is £7.5 million (24%) in line with its share of the Band D council tax. The GLA is forecast to receive £25.3 million from Newham taxpayers in 2019-20 through the Mayor’s precept and a further £0.24 million in respect of prior year surpluses.

The GLA has already provided funding of £0.36 million covering the period 1 April 2015 to 30 September 2019 to part fund a dedicated project team to tackle the level of council tax arrears within the borough. LB Newham has matched this with £1.45 million of funding reflecting their authority’s respective share of the local council tax. Over this period the team collected around £5.2 million of outstanding arrears of which around £1.2 million has accrued to the GLA – nearly four times its investment – as well as reducing the build up of in year arrears.

Approval is sought to extend this project for a further 18 months from 1 October 2019 to 31 March 2021 and approve GLA funding of up to £49,000 for the final six months of 2019-20 and up to £99,000 for 2020-21 (which represents 24 per cent of the total estimated project costs of the team). The team would have a target to reduce overall arrears by up to £1.5 million - of which approximately £360,000 would accrue to the GLA - as well as limiting in year arrears. Subject to the continued success of the project the intention would be to carry forward funding into 2021-22.

Decision

That the Executive Director Resources approves:

A contribution of up to £148,000 covering the 18-month period from 1 October 2019 to 31 March 2021 towards a project by the London Borough of Newham to reduce its level of council tax arrears.

Part 1: Non-confidential facts and advice

Introduction and background

In Mayoral Decision 1553 it was agreed that the GLA should support borough business rates maximisation and council tax projects in principle and delegated authority to the Executive Director Resources to approve these on the condition that they should be self financing and result in additional revenues on an ongoing basis.

In 2019-20 the GLA will receive £25.3 million of income through the council tax precept from taxpayers in the London Borough of Newham. As a result of the significant increase in its taxbase in recent years arising from new developments – including in respect of the Royal Docks Enterprise Zone and Queen Elizabeth Olympic Park in which the GLA has a significant investment - and wider population growth, the London Borough of Newham has faced increasing challenges in maximising council tax revenues and collection rates. The scale of the change in the local taxbase is illustrated by the £7.3 million or nearly 40 per cent increase in the GLA’s council tax precept income from Newham since 2013-14. This compares to an increase of only 12 per cent for Richmond on Thames despite the Band D precept charged by the GLA being identical.

In DD1286 the GLA agreed to make a contribution towards a dedicated team focusing on reducing the level of council tax arrears for the 2015-16 financial year. The team created has been sourced primarily from local borough residents who are employed directly by the Council. In DD2058 this funding was extended to cover the 2016-17 and 2017-18 financial years and again in DD2274 for the period up to 30 September 2019.

The GLA has provided funding of £360,000 over this four-year period with Newham Council matching this with a contribution of £1.45 million – the split reflecting the respective shares of the local Band D council tax. Up until 31 March 2019 this team had collected around £5.2 million of outstanding arrears of which around £1.2 million has accrued to the GLA – an effective surplus of around £840,000. These figures understate the full benefit as they do not take into account the impact of the project team on minimising the build up of in year arrears which would otherwise have accrued had the team not been in place. Newham’s estimated council tax collection fund surplus for prior years paid to the GLA in 2018-19 and 2019-20 combined is £1.9 million which illustrates the broader financial benefit of this investment in cash flow terms.

The Council continues to experience challenges, however, in reducing the level of Council Tax arrears in light of its rapidly growing taxbase. As well as managing the the impact of a rapidly growing taxbase it also faces particular challenges in collecting tax revenues in a borough with a highly mobile population and a growing private rental sector which results in high levels of population turnover and lower levels of direct debit payments than is typical. Its council tax arrears stood at £31.4 million at 31 March 2019 of which the GLA’s notional share is £7.5 million. This in effect income foregone to the GLA.

The London Borough of Newham has requested that the GLA’s funding for the project team be extended again for at least a further 18 months to 31 March 2021 with the GLA providing funding of up to £148,000 and Newham funding of up to £469,000 making a total project cost of £617,000. The team will have a target to reduce arrears by at least a further £1.5 million of which an estimated £350,000 would accrue to the GLA as well as ensuring in year arrears are kept to a minimum. The GLA has an agreement with the borough as to how the funding (including the extension proposed by this Form) will be used.

This is a legitimate request as billing authorities do not explicitly receive additional funding from central government to fund the costs of council tax collection and any investment they make to improve collection rates or reduce arrears benefits their preceptors on a proportionate basis. Newham was the first authority to seek funding for this activity from the GLA and this has now been extended to several other boroughs. Funding is, in principle, available to all boroughs who wish to apply

The ability of Billing authorities to meet the costs of such investment has also become more challenging in recent years due to the impact of reductions in general government grant funding. Without this project the GLA would make no contribution whatsoever to the cost of administering and collecting council tax in Newham despite the fact it will receive £25.3 million from the borough’s council taxpayers in 2019-20.

The funding requested equates to 2 per cent of the GLA’s share of the outstanding arrears and 0.6 per cent of the sum which will be collected from Newham council taxpayers on its behalf in 2019-20. It is anticipated that this cost will be recovered in full through an increase in the collection fund surplus for council tax in future years – as has been demonstrated through the outputs of the project team in its first four years.

Objectives and expected outcomes

The proposed project focuses on addressing Newham’s current level of council tax arrears which was around £31.4 million at 31 March 2019 of which the GLA’s share is £7.5 million. When it originally approached the GLA for funding to tackle its level of council tax arrears in 2015 Newham had considered three different mechanisms to recover outstanding arrears debt:

• Commission a supplier to collect this debt – potentially on a commission based contract with a minimum fee;
• Sell the outstanding arrears for a percentage of the value to a private sector firm; or
• Recruit staff in house and undertake the work in house.

It considered that the final internal approach would be the most satisfactory as costs could be more easily fixed and controlled using staff sourced locally. This would also allow these staff to be flexibly employed to tackle other outstanding debts – albeit that the GLA’s funding would only be flexibly redeployed in relation to maximising Non Domestic Rating and Crossrail BRS revenues.

The team created uses appropriate tracing tools to contact debtors and maximise collection through telephone and SMS contact. In order to incentivise performance, staff are rewarded through performance related pay depending on level of arrears they collect. The staff are employed by LB Newham under the council’s terms and conditions. In common with other London boroughs the Council takes an ethical approach to debt collection.

The total cost of the project team and related costs is estimated at around £204,500 for the remaining six months of 2019-20 and £412,500 for 2020-21 allowing for pay cost and other inflation. As the majority of the costs are staffing related the project costs can be predicted with relative certainty.

It is proposed that the GLA would contribute 24 per cent of the costs in line with its share of the local council tax for 2019-20 with the London Borough of Newham the remainder. Subject to the project team demonstrating satisfactory performance in reducing arrears during 2020-21 the GLA would consider extending funding into 2021-22.

The GLA has agreed a target with Newham to reduce total arrears by up to £1.5 million by 31 March 2020 - £350,000 of which would notionally accrue to the GLA through the sharing of future collection fund surpluses. The aspiration would be that a higher level of arrears reductions would be achieved given the investment being made. The team will also focus again on reducing in year arrears as this represents a risk due to the number of new properties coming on stream in the borough most notably around Stratford and in the Royal Docks.

Equality comments

There are no direct equality implications for the GLA as the project will be managed by the London Borough of Newham and any staff will be recruited by it under its terms and conditions. The Council should have regard to appropriate equality considerations in its role as a public authority under relevant legislation including the Public Sector Equality Duty under section 149 of the Equality Act 2010.

Other considerations

The project is in effect self financing over time with any costs being more than offset by additional council tax revenues collected – as is demonstrated by the performance since 2015-16. There is a risk that council tax arrears might not be reduced in net terms as a result of the project but it is expected that the project will result in arrears levels being lower than they otherwise would have been. The rewards compared to the planned investment, however, are significant given that the GLA’s share of outstanding arrears is around £7.5 million – and this in effect represents foregone revenue.

Financial comments

The Mayor’s precept for the London Borough of Newham generates over £25.3 million of revenue for the GLA group annually. With the exception of this proposed project the GLA makes no direct contribution towards the enforcement or collection of these revenues. In light of its recent rapid population growth and increase in new housing developments in Stratford and the Royal Docks in particular the authority has experienced greater challenges than are typical for other local authorities in maximising council tax collection rates.

The Council collects council tax, non domestic rates and Crossrail Business Rate supplement revenues on behalf of the GLA but in respect of the former does not receive discrete additional funding to support its billing and enforcement responsibilities. In light of the additional spending pressures on the council it has invited the GLA to continue to contribute to the costs a project team with a remit to reduce existing council tax arrears levels.

The GLA’s contribution towards the project is also in direct proportion to its financial benefit from the scheme. The project also meets the objective as agreed in MD1553 as it will in effect be self financing over time and result in additional revenues on an ongoing basis.

The GLA also has a direct interest in maximising both council tax and business rates revenues in the borough due to the Royal Docks Enterprise Zone and the joint work undertaken with the Council through the LLDC in relation to Queen Elizabeth Olympic Park.

Activity table

Activity

Timeline

Delivery Start Date

2019

Evaluation of progress and submission of funding claim for 2019-20

Spring 2020

Consideration of approval to extend funding for a further year to March 2021

Autumn 2020

Final claim for funding under this approval for 2020-21

Spring 2021


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