A recent report confirmed Councils could be given the power to deduct tax debts directly from employees’ wages which could experts have warned worsen the financial distress of vulnerable individuals.
The trial being led by HMRC is due to start on 8 July and is set to be brought in through 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.
The principles of the trial are an attempt to reduce the use of bailiffs to reclaim unpaid amounts especially as their fees can increase the cost of a missed council tax payment by more than 1,200 per cent.
Will Berrington, a spokesperson for debt advice charity StepChange, stated automatic deductions from wages were likely to prove a “double-edged sword.”
He said: “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.”
He added the scheme represented a conundrum for employers suddenly implicated in reclaiming employees’ unpaid debts while possibly simultaneously championing a financial wellbeing agenda.
“We’ve been tackling the issue of employers’ relationship with the financial security of their employees for a while now,” he said, “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 is expected to 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.