It’s clear that the Covid-19 pandemic has had a significant impact on every walk of life. Healthcare, education, the economy and the wider community have all been affected.
The impact of the Covid-19 pandemic on local authorities and central government include:
- loss of revenue from citizen services
- expected increases in council tax arrears
- the need for councils to provide grants, loans to local citizens and businesses
- increased demand for support and services from citizens
While much of this impact may be short-lived, as lockdown measures are gradually eased, the impact of the pandemic will undoubtedly be with us for many years to come.
There will of course be an increase in the amount of people who are finding it harder to pay for things like council tax and rent, because of a sudden loss of income. This issue will only be exacerbated as support measures from the government cease in months to come.
It’s critical that local authorities and central government are well-prepared for an influx of citizen support requirements, and are able to provide such support with empathy and fair treatment, despite tightened purse strings.
There is already a significant level of debt owed by citizens to government, with over 9 million people in “problem debt”, even at the start of the pandemic. This amount will undoubtedly rise, and quickly. Debt such as parking fines, council tax arrears, and tax credit/universal credit overpayment debts amount to over £13.5bn.
After initial support measures such as grants, payment freezes and mortgage payment holiday periods have expired, we would expect to see four types of citizens:
- They have seen no change to their income are able to continue with their payments as normal
- They may have received a pay cut or reduced working hours, which has left them with a reduction in income. They will require forbearance to ensure they are able to make reduced payments, safely.
- They have completely lost their income because of the Covid-19 crisis. This may be due to ill health, a business going bust, redundancy. This approach will require a longer term level of support and therefore resource from local authorities and central government.
There is also a fourth type, the fortuitous citizen who has been unaffected financially during the crisis, and may actually have some surplus income available to make over-payments, since their spending may have reduced.
Council tax debt was the single most common debt for the 635,000 new clients who contacted the national debt charity Step Change in 2019.
When there’s a sudden loss of income, just one missed monthly payment can easily escalate. Currently, a two-week delay in paying a single monthly council tax payment leads to debtors becoming liable for the entire annual bill of £1,750 for the average Band D home.
Citizens Advice received 474,500 approaches relating to government debt in the last financial year, compared to 221,300 relating to credit cards and loans.
The debt can easily spiral and become unmanageable without intervention. This is not only damaging for the citizen, but also for public sector finances. The more the debt increases, the less likelihood of the funds being recouped. It is not only an ethical approach, it makes good financial sense to carefully manage a person’s debt. One option is to spread the cost of missed payments across the lifetime of the relationship.
Payment Plans for Arrears Management
Where people miss one or more monthly or weekly payments, an arrangement is made to spread the cost of the default over the course of the subscription or loan, rather than having to pay double, triple or more in a single month.
This simple and flexible arrangement can be set up as a Direct Debit, and is based on a careful assessment of affordability. Target provides the software to enable such payment plans through a portal, which is ably supported by a team of technicians to ensure smooth and continuous running of the system.
Watch Richard South, Target’s Business Development Director for Public Sector explain how Target can support digital transformation in your organisation.