“IT'S TIME TO COUGH UP!”: Governments showing no sympathy to debtors?

Governments across England are making it clear that any financial leeway introduced to mitigate the effects of the COVID-19 pandemic will not continue any further into 2022. A recent report by the BBC highlighted that HM Revenue and Customs is upping its efforts to claim ￡39 billion in unpaid tax debt – more than double the amount at the start of 2020 – and would be hiring more staff to chase these losses. As we’re asked to adopt the mantra of ‘living with COVID’, the government is wasting no time at all in claiming unpaid debt.

At a time when the Chancellor’s cuts to fuel duty and National Insurance are barely scratching the surface of an ever-increasing cost of living, it seems a perilous time for the government to chase unpaid debt. If a family could not afford to pay their taxes beforehand, then what chance do they have of doing so now? But to justify such an increase in activity, the government must be confident of recuperating enough debt to cover the additional 2000 personnel the BBC reported will be hired to aid recovery efforts.

Stemming from the top, the trickledown effect to local councils and authorities is clear as they too seek to reclaim outstanding debts. Also making the headlines recently are Guildford Borough Council who are looking to recover ￡7.3 million in debts, and Birmingham City Council who since 2020 have passed onto collection agencies over 3000 invoices annually for adult social care alone. In contrast, Warrington Borough Council announced that it had chosen to write off a measly ￡68,000 in unpaid council tax and miscellaneous income debts.

Where the national and local governments differ, however, is on the outsourcing of their debt recovery. Whilst HMRC are keeping their activity in-house, local governments with less resource tend to turn to specialist debt recovery agencies. In the case of HMRC, they will be hoping to avoid a repeat of 2016 when the Citizens Advice service and other independent outlets accused them of being “worse debt collectors than private companies”.

The government is not averse to outsourcing, so why does it appear so eager to run its own tax debt collection activities? For starters, the government has a duty to protect its citizens and outsourcing would risk rogue collection agents putting profit over welfare. HMRC would need to carefully consider who they were outsourcing to and ensure that they had carefully negotiated the values and behaviours that would be adhered to. This would require ongoing monitoring of the outsourcing companies given the sensitivity of the work and the livelihoods at stake. Secondly, with such a high bill of debt racked up due to reduced collection efforts during the pandemic, it might be the wrong moment to begin outsourcing if the value added by the provider will not become evident for some time.

But once the majority of this unpaid tax debt is recovered – that is if the government is able to recover it – what will happen to the 2000 extra staff brought on to deal with this case? Unless the government is predicting that the debt of unpaid taxes will only grow in the coming years, a large number of these people will be on fixed-term contracts. Instead of investing in so much training to simply see these people go, would it not be better to outsource to a specialist debt collection firm who already have the manpower and specialist knowledge? With such a hefty sum of debt available, debt collection agencies wouldn’t need too much convincing to agree to government demands on expected behaviours and values, even for a small slice of the business.

But if debt collection activity is being kept in-house, what should HMRC do to maximise their efficiency and effectiveness? There are two suggestions that come to mind. The first is to target those businesses and individuals who are actively choosing not to pay their taxes, rather than those who are struggling to pay. Secondly, HMRC should look across the sector and employ some consultancy services. This will be the best way to quickly absorb knowledge of the current market and debtors’ behaviours. By drawing on these expertise, HMRC stands a good chance of recouping a large proportion of the debt.

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