More Debt Recovery Powers for Councils

Councils will be given the power to deduct tax debts directly from employees’ wages in a controversial move experts have warned could worsen the financial distress of vulnerable individuals and put employers attempting to improve the financial wellbeing of their workforce in a bind. It will also add another administrative burden to business says Chris from Expert HR Solutions. 

An HMRC-led trial, set to launch on 8 July, will affect individuals in 29 different council areas who are in significant council tax arrears or have received an order to pay from a local magistrates’ court. Councils will have the power to deduct their debt directly from earnings through an employer. 

The scheme marks the first use of the debt information sharing powers introduced by the Digital Economy Act (2017), enabling local authorities to obtain employer and income information from HMRC. 

It is hoped the pilot will lead to a decline in the use of bailiffs to reclaim unpaid funds; bailiff fees can increase the cost of a missed council tax payment by more than 1,200 per cent, according to Citizens Advice. Deductions are already made from wages for student loans, and by agencies such as the Child Maintenance Service, but this move would potentially extend the power to a huge number of local authorities for the first time. 

The move to automatic deductions from wages were likely to prove a double-edged sword. On the one hand, council tax is a priority debt and recouping unpaid tax arrears in this way may make it less likely people end up with even higher costs and bailiff experiences, which can be massive in terms of cost and horrendous in terms of experience. But on the other hand, if the reason people aren’t paying is because of far wider financial problems, it may actually worsen or exacerbate that situation if they don’t also get high quality advice about their finances and debts. 

Chris says the scheme represented a conundrum for employers suddenly implicated in reclaiming employees’ unpaid debts while possibly simultaneously championing a financial wellbeing agenda. 

Good employers have been tackling the issue of employers’ relationship with the financial security of their employees and this latest scheme points up the difficulty for employers who may on the one hand be trying to help their employees through various financial support schemes, and may find themselves on the other hand paying their employees significantly less than the employee is expecting, due to the attachment of earnings notice imposed through deductions at source by local authorities under this arrangement. 

The pilot will last one year and will then be reviewed to see whether the scheme should be rolled out to all councils in England and Wales on a permanent basis. But Chris warns that the employer can be fined if they fail to carry out what is a Court Order. He continues you also need to make yourself aware of the Protected Earnings Rate and what to do in the event of one employee having multiple such notices. If you want help on this or any other employment matter why not give us a call on 01202 611033.

www.experthrsolutions.co.uk