It's thought potentially, many millions of pounds may have been overcharged by Councils in the pursuit of Council Tax recovery since its introduction in 1992.
It has long been speculated that Councils profit from taking householders to court for being late with Council Tax payments.
Local Authorities are charged a fraction of the amount passed on to residents in costs. Each Liability Order applied for costs councils £3 according to the Magistrates' Courts fee schedule. Struggling householders are then charged many multiples of this, for example, one London Borough Council imposes £125 costs for making late payments for Council Tax, but for Business rates, this increases to £220 for an identical process.
Further irregularities are highlighted where costs – predetermined by councils – are imposed in advance of the hearing. According to law, an award of costs are at the discretion of Magistrates' courts on hearing the complaint.
Another Council in the South of England reveals in a document reviewing court costs that where previously it was necessary to seek approval from the Court to ensure costs being levied were reasonable, this was no longer required and "confirmed that it is for the Council to decide on an appropriate level".
One authority in the North East admits court costs are determined in-house. A Freedom of Information request uncovered a letter sent to the Magistrates' court advising that the "Council has taken the decision to increase the court costs which it charges to tax payers for the non payment of Council Tax".
The same council revealed that it aimed to cover the entire budget for running its Council Tax department from court penalties, and with £0.88 million costs raised it had not made a bad attempt. It claimed its annual budget for all activity associated with recovery of Council Tax amounted to around £1.13 million, this compared with a figure of £1.04 million as the cost for council tax administration including staff costs, contact centre costs, enforcement, other running costs and central recharges.
The law doesn't allow for profits, only reasonable cost incurred for the administration involved, but councils increase costs as a "deterrent" element or to coerce payment. The same council documented that "the extra cost is seen as a way of encouraging prompt payment", and as a bonus would raise additional income of £38k a year. There is nothing in legislation to support an increase in costs on this basis.
According to statistics obtained from the Chartered Institute of Public Finance and Accountancy (CIPFA), court costs for Council Tax and Business rates in England and Wales raised more than £179 million in 2010-11. Based on these figures and indexing inflation – since 1992 (the introduction of Council Tax) the best part of £3,500 million may have been overcharged by councils in a bid to finance Council Tax administration.
