District council writes off £1.35m of uncollectable debt

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council's issue with uncollectable debt

A small district council in Lincolnshire has written off £1.35m deemed as ‘uncollectable’ by officials.

South Holland District Council (SHDC) took the steps after debt collection efforts failed results in debts not being paid.

The uncollectable debt relates to a number of different financial matters – including council tax, business rates, sundry debts and overpayment of housing benefit. These events are spread out over a 15-year period.

As the authority collects debt on behalf of a number of different services, SHDC’s personal loss totals £578,000.

Uncollectable debt ‘reasons’

While writing off some debts is inevitable due to matters such as insolvency and deaths, almost £1.2 million (87%) of this total equates to one unnamed large business rate payer that went into administration.

It is understood this business became subject to formal insolvency action during the 2020/21 financial year, with the resulting bad debt relating to the 2019/20 and 2020/21 financial years.

Debt relating to business rates relates as far back as 2014/15 while the earliest financial year contained within the report dates back as far as 2007/8, and relates to personal debt collection for council tax owed by an individual who has died.

Impressive collection rates

While Councillor Paul Redgate, portfolio holder for Finance, Commercialisation, UKSPF and Levelling Up, described the financial hit from uncollectable debt as ‘frustrating and disappointing’, the authority can still boast an impressive collection rate.

The collectable debt over the 2022-23 financial year equated to £87 million and, in comparison, the amount written off was 0.67% of this figure, leaving SHDC with a collection rate of more than 99%.

“It’s frustrating and disappointing but we can’t control how businesses operate,” Coun Redgate said.

“What we need to do is set out good practice and collect monies as we can do and also ensure that, if there are any problems, businesses get in contact as early as possible.

“We’ve got to make sure we’re prudent financially.

“At a time where money is tight, we are all getting tighter budgets, but we also need to make sure we position ourselves in the right way and address challenges.”

It is understood SHDC’s collection rate is consistent with national picture although there are fears that, in the current economic climate, insolvency may increase.

A report on the uncollectable debt write off will be discussed by councillors at cabinet on September 12.

They are not the first local authority to hit the news with debt recently.

Birmingham City Council bankrupt

Birmingham City Council has effectively declared bankruptcy after being hit with a £760m bill to settle equal pay claims.

The Labour run council said it had issued a section 114 notice, confirming that all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately.

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