The UK currently has a national deficit of over £80bn, so recovering money owed to both central and local government is crucial.

According to the Cabinet Office's Fraud, Error and Debt Taskforce, in early 2012 the debt owed to central and local government equated to over £400 for each working household every year.

Although local councils across England collected £300m more tax last year, overall council tax collection rates increased only marginally from 97.3% to 97.4% based on published figures, local authorities collected £22.4bn of £23bn owed in 2012/13 compared with £22.1bn of £22.7bn owed in 2011/12.

Government figures show almost £2.4bn in uncollected council tax remains outstanding, equating to over£5m for every council in the country.

While the average 2012/13 collection rate was 97.4%, there were marked fluctuations in collection rates between authorities.

Shire districts were broadly the strongest performers (98.1%) followed by unitary councils (97.3%), London boroughs (96.4%) and metropolitan authorities (96.2%).

Around a third of all councils (34%) are achieving collection rates below the average, some being as much as five percentage points adrift. At the same time, the top echelon remains small, with only a handful of authorities (5%) bettering the magic figure of 99% for in-year collections.

This mixed collection performance gives rise to a wider problem of debt backlogs or ‘warehouse' debt, where uncollected debt builds up on local authority books year-on-year until it becomes unworkable and has to be written off.

North Lincolnshire Council, by no means a large authority, hit the national news in 2012 when it wrote off more than £1m worth of debts including council tax, national non-domestic business rates and housing benefit overpayments after it concluded they were ‘uneconomical' to pursue and would be ‘irrecoverable' even after taking legal action.

In the context of the financial challenges facing all local authorities, these figures are significant and while communities secretary Eric Pickles welcomed the improved performance and the additional £300m collected, he observed: ‘…there is still over £2bn of unrealised income, which councils could use to support frontline services or
cut council tax bills'.

There are many factors that affect performance in respect of local authority debt collection, including geographic location, affluence or deprivation among the local population, social grouping and population ‘transience'.

In a recent study by debt collection specialists, TDX Group, more than a third of local authorities' performance in council tax debt recovery lagged behind private sector organisations when collecting debts such as unpaid utility bills in exactly the same geographic area.

The outlook is also likely to become more complex over coming months as the localisation of the Council Tax Support Scheme means many people will be getting a bill for the first time.

Bailiffs' fees are about to be set into statute under the Tribunals, Courts and Enforcement Act and the impact this will have, although as yet unknown, will require a response.  Only those councils with robust strategy and strong processes will be well placed to manage these regulatory changes effectively.

This situation represents both a huge challenge and a huge opportunity for the majority of councils, few of which have prioritised debt collection in the past and still fewer of which have well developed and co-ordinated internal processes to support fully effective debt collection.

Few councils have access to wider industry data to enable them to analyse their debt portfolio and adopt the most effective strategies for recovery.  Thus the key focus for councils must be on what practical steps local authorities can take to improve their overall collection performance.

Our experience indicates that collection operations within local authorities are typically spread across a number of departments with little co-ordination of collection activity and no ‘single customer view'.

Analysis of collections data tends to be basic and is hampered by a lack of wider industry data with which to compare and enable development of the most effective and targeted strategies for recovery.

There is rarely a single view of the customer, so multiple debts (council tax, parking fines, etc) may be pursued in different ways by different teams.

Some authorities have internal bailiff teams and some use external agencies, but the allocation of cases to these agencies is not always effective.  Performance management is sometimes lacking and horror stories abound in relation to ‘heavy-handed' practices.

This lack of a detailed picture of the debtor base and varied internal performance makes it immensely difficult to drive change and improvement, representing a significant lost opportunity.

A better understanding of current collection performance represents the base from which to identify where there might be scope to improve overall financial performance by improving collection outcomes, with the added benefit of the improvements benefiting in-year revenue, the area where authorities are under most acute pressure.

The critical considerations for local authorities in improving collections performance are summarised as follows:

Attack the debt backlog. Up to 10% of ‘warehouse' debt can be recovered using improved data analysis and collection strategies.  This can provide an in-year ‘windfall' of £1m to £2m for a typical authority and provide pump-priming funds for wider collections improvement.

Consolidate collection operations. Review and bring together the debt collection operations into a single, focused team.  This allows streamlined processes and the
development of a single view of the customer (debtor).

Utilise expert support. This means working with an expert partner that can provide access to industry-wide data on debtors and specialist support in determining which collection strategies will provide the best outcomes.

Know your limits. Develop strong, centralised internal collections processes, but have a recognised point at which debt is passed on to external specialists under the auspices of a well-analysed and managed allocation regime combined with a ‘sensitive' approach.

The level of money owed to local authorities across the UK that will never be collected is substantial, but there is much that can be done to increase income and reduce debt write-off for councils who are prepared to take the initiative and address their collections challenges in a different way.  Some of those lost millions may not be gone forever.

Paul Eastwood is director of Edge Public Solutions