Rising council tax bills and the use of bankruptcy against council taxpayers who are victims of mistaken assessments are among the major issues and concerns arising in local taxation at the start of 2018.
Following an official announcement before Christmas 2017, council tax bills are set to rise by an average of £100 in 2018 after the Government bowed to calls to relieve pressure on social care services by removing the automatic 2% cap placed on council tax rises. Bills may rise by up to 3% which will take the average Band D property demand from £1,591 to £1,686. This will take effect as an additional 3% social care precept which will appear on bills, with additional sums (estimated at around £12 per household) likely to be added towards increasing policing costs. Relevant amounts for the year will be set by local councils from 1 February, with the first bills going out to taxpayers in March and early April 2018.
At the same time default levels for non-payment remain high in respect of previous financial years. Many local authorities are taking an increasing harsh line on debtors. This is reported from a number of areas, particularly with anyone owning more than one dwelling or involved with the commercial letting or managing property on a small-to-middle scale.
The levying of empty property premiums, the serving of multiple bills on what should be single-bill properties and refusals by councils to award discounts and reliefs are increasingly common. And of increasing concern is the casual way councils are resorting to the severest sanctions against debtors, including bankruptcy and charging orders.
This harder line on enforcement, apparent from 2016, involves instigating bankruptcy proceedings under an obscure provision in the enforcement regulations (Reg. 49 of the Council Tax (Administration & Enforcement) Regulations 1992). In this regard, property owners with equity provide a too-tempting target as they have property and assets that can be realised. In many cases the action is wholly disproportionate and all too often fraught with errors that the taxpayers struggle to correct once the process begins. Bankruptcy procedures are lengthy, complex and, unfortunately as is emerging, can be instigated by mistake or negligence.
The commencement of proceedings swiftly results in the level of alleged debt spiralling with the addition of fees charged by solicitors and insolvency practitioners soon exceeding the original alleged tax liability. When this stage is reached proceedings all too often turn into an exercise aimed at recovering fees rather than the settlement of the actual tax liability (if any is outstanding).
The damaging effects of the unrestricted use of bankruptcy proceedings by billing authorities and the severe personal impact it has on taxpayers is an issue of growing public concern. The topic currently being examined by the BBC current affairs show, Inside Out, with the first of a series being aired on the London edition of the programme (Monday, 15 January 2018 – BBC1 London 7.30 pm).
CTLS TAKES ON COUNCIL TAX BANKRUPTCY CASES
Over autumn and winter 2017-2018 CTLS has been active in advising and assisting an increasing number of taxpayers being wrongly subject to bankruptcy proceedings for council tax brought by local councils.
A number Councils are using bankruptcy proceedings against taxpayers in a heavy-handed fashion, knowing that there is little chance of taxpayers obtaining specialist advice and assistance needed. Bankruptcy proceedings are specialised and technical and mixing them with the already complex field of local taxation is often a recipe for error.
A good example of this was a case one London authority took to the High Court in summer 2017 against the owner of two properties which had been rented out for many years. All the council tax had been but this did not stop the process. With support from CTLS the taxpayer succeeded in showing that an alleged liability of over £12,000 did not exist, and arose from computer errors. Following the involvement of CTLS, both the council tax claimed and the substantial legal costs demanded by insolvency practitioners against the taxpayer were successfully challenged and dismissed by the High Court, the Council finally accepting the claim had been wholly without merit.
Concerns over such mistakes were expressed by Registrar Simmonds as much ten years ago in London Borough of Lambeth v Simon  BIPR 1629 June 6 2007 at paragraph 45:
“I am constrained to record that I (and my brother registrars) have been for some time and remain concerned by the particulars of debt relied upon in petitions by some local authorities. This case only heightens this concern. There are cases where pleaded liability orders are shown not to exist. In other cases they cannot be proved by the production of a sealed order or a statement from the clerk to the magistrates that an order has been made. No credit for payments are shown, thus the integrity of the debt upon which some local authorities’ petitions are based is in question.
Ten years on this observation is more valid than ever. Following the case of Okon v Lewisham London Borough Council EWHC 864 there are the signs that some in the higher courts are beginning to appreciate the difficulties and complexities of mixing insolvency law and council tax and that the magistrates’ court and the county court are often failing to exercise discretion correctly and fail to appreciate the technicalities in determining liability, strict proof and routes of appeal. But even the Court of Appeal has failed to appreciate the difficulties that can afflict taxpayers in this area, as show in the latest decision in Yang v Official Receiver EWCA 1465 on insolvency costs and remedies.
It has been an active summer for CTLS consultancy and training, with a number of successful council tax talks and seminars over the last few months, with more to follow this autumn. Alan Murdie provided advanced council tax training for the Institute of Money Advisers in Birmingham on 4th July, followed with a specialist course on court and tribunal proceedings delivered at Manchester on 12th. These followed successful seminars at the Institute of Money Advisers spring conference held in Bristol over 15-16 May.
Seminars on council tax issues affecting students were delivered at the National Association of Student Money Advisers National Conference held in Harrogate over 26-28th July. Money Advice Forums are also hosting talks with one at Ealing in London on 5th July and another forthcoming at the Yorkshire and Lincolnshire Money Advice Forum in Leeds on September 27th. Further seminars for advisers are planned with the Institute of Money Advisers on 18th October in Newcastle and 21 November 2017 in Nottingham.
This autumn CTLS will also be taking test cases on multiple exemptions, late billing and bankruptcy liability to the Valuation Tribunal in Leicester, Bradford and London.
The judgment in Sulets v Leicester City Council  Valuation Tribunal for England (7 October)
Since 1992 student halls of residence have been granted exemptions from council tax.
However, what has been considered an automatic exemption and protection from council tax bills is now in doubt. The judgment from the Valuation Tribunal for England (VTE) in Sulets v Leicester City Council  Appeal No: 2465M197400/037C October 7 has rejected an appeal by a charitable student letting agency against the refusal by Leicester Council to grant a Class M exemption to purpose-built student accommodation operating as university halls of residence. Class M is one of 23 exemptions to council tax, three of which relate to dwellings occupied by students.
The decision to deny the exemption seems to have been unilaterally taken by Leicester Council, without any reference to any central government policy or guidance.
Regarding the student rooms, Leicester Council decided each of the 936 single en-suite rooms, situated within three campus-style blocks, were chargeable dwellings.
Effectively each student room was being deemed taxable, like a one-bedroom flat on the private market. Whilst the Council was prepared to give class N exemptions (dwellings occupied only by a student) to each room, it would not give a collective exemption under Class M for them all. Thus, each room could receive a bill whenever there was a change in occupancy and at the end of the academic year, which the owner would have to pay.
This was creating major administrative problems for both the student letting agency Sulets and the owners of the three blocks, as well as generating financial liabilities every time there was a change in occupancy.
Now the Valuation Tribunal has ruled that the Council was technically entitled deny the exemption, applying a narrow definition of ‘dwelling’ or ‘hereditament’ by virtue of section 3 of the Act, s115(1) General Rate Act 1967 and the wording of the exemption.
In the view of the Tribunal, each appeal dwelling in the three blocks was the equivalent of a separate flat, with a separate entrance, and a separate entry on the valuation list as a separate hereditament. Each separate dwelling – each room – therefore could not meet the definition of a hall of residence and be classed as exempt, notwithstanding they were all in the same building. Effectively, the tribunal recognised, it all hinges on the use of one word ‘dwelling’ rather than ‘building’ in interpreting council tax legislation and a particular approach to statutory interpretation in finding the meaning of words in law.
This judgment has serious implications for collective student accommodation currently classed as exempt from council tax as a Halls of Residence.
CTLS enquiries reveal that official policy varies around the country, with both the Valuation Office and local councils taking different approaches to such blocks of collective accommodation in different parts of the UK.
The position varies around the country with no consistent practice (both the Valuation Office and councils are involved with identifying what counts as a taxable dwelling). The result is that in most areas the modern-style en-suite rooms provided collectively for students in hall-like complexes are exempt. But this could change if individual councils choose to follow this ruling.
To an extent what is a qualifying hall will depend on its facts, but crucially the Valuation Tribunal seems to have down-graded the importance of the institution (or a nominated organisation) in selecting the students who occupy rooms.
With no clear definition of a Hall of Residence emerging from the judgment, what is seen as an exempt hall will be potentially affected by a wide range of factors, not all of which will have been considered in the Leicester judgment. Thus, the Leicester judgment should not necessarily be considered a precedent, and it may be able to distinguish the ruling on grounds of mixed fact and law.
Consequently, each case for an exemption in the future will (i) turn on its facts and (ii) individual views of the law taken in a particular area. CTLS is examining the judgment and devising possible routes of appeal.
The current appeal is unlikely to be a one-off challenge. Certainly more can be expected as student union letting agencies and commercial owners wake up to the implications of multiple council tax bills on Halls of Residence previously treated as exempt.
RENT OR COUNCIL TAX ? THE TAXPAYER DILEMMA THE PUBLIC ACCOUNTS COMMITTEE SHOULD BE FACING…
A report issued by MPs on the Public Accounts Committee states that local authorities are engaging in increasingly risky commercial ventures that threaten public services and which will leave council taxpayers with hefty bills if they fail.
‘”If commercial decisions go wrong, council tax payers will end up footing the bill and other services will be under threat” warns the Committee in its report.
However, the warning is issued against a backdrop of declining local authority income from government grants and council tax. The dabbling in potential risky investment schemes and banking arrangements reflects the increasingly beleaguered and cash-strapped position that local authorities are actually in.
It is a symptom and not a cause.
Local authority income from local taxes and central government fell 25.2% between 2010-2011 and 2015-2016. A further reduction of 7.8% in real terms is widely anticipated by 2019-20.
Meg Hillier, Committee Chair, stated: “It is alarming that the Department of Communities and local government does not have a firm grasp of the changes happening locally”.
The revenue problems that local authorities face arise from changes to council tax under the Local Government Finance Act 2012 and the abolition of national council tax benefit in 2013. The Ollerenshaw Report issued on 31 March 2016 into local council tax reduction schemes which revealed a 40-50% increase in council tax non-payment since 2013, coinciding exactly with the abolition of council tax benefit.
Added to this come the cuts and caps on other welfare benefits – including the latest cap imposed on 7 November 2016 hitting some 88,000 households across England. This cap reduces the maximum amount in benefits that households receive from £26,000 to £23,000 a year in London and to £20,000 outside the capital.
As with previous caps, the biggest impact is on limiting the amount of housing benefit payable. The November 2016 cap means a national reduction in benefit expenditure of £100 million, but the money being saved is not going back to local authorities.
What does this mean for ground level where the effects of cuts are hitting?
THE CHOICE FACING MANY TAXPAYERS – RENT OR COUNCIL TAX ?
What does this mean at ground zero – where councils operate and council taxpayers actually live and black holes are appearing in the public and private purse?
Inevitably it means a greater squeeze on the ability to make rent and council tax payments, both of which are classed as priority debts in the view of most debt advisers. For many affected this means skipping an instalment in council tax, in order to try and keep a roof over their heads.
However, the picture is more complex. Faced with a cut in overall income, it might be imagined that most tenants opt to pay rent first, but this not the case, as any housing adviser knows. Sometimes people pay council tax first and thus accrue rent arrears, putting their homes at risk of repossession by the landlord.
Whatever happens there are serious knock on effects for the public and private sector. With mounting debts, either of rent or council tax (or both) it is not just individual benefit recipients who are adversely affected. Housing associations, private landlords as well as council taxpayers all go on to bear the brunt of these benefit cuts. When a household is repossessed for rent arrears it leads to homelessness, save for any children and vulnerable adults in a property, who then often have to be housed by the local authority. This incurs yet further costs to the public purse.
Growing levels of default also mean further pressure is placed on local authorities attempting recovery via an already over-loaded court system. All too often the little that is being recovered is absorbed in enforcement costs.
Public Accounts Committee Report ‘Financial Sustainability of Local Authorities’ issued 16 Nov 2016.
Financial Times 18.11.16
National Housing Federation bulletins on benefit caps
It’s not just the United States that has a new President entering office. The Lord Chancellor, the Right Honourable Elizabeth Truss MP, has appointed Gary John Richard Garland as the new President of the Valuation Tribunal for England, replacing Professor Graham Zellick, who retired as the first VTE President in August 2015.
Mr Garland, aged 58, was called to the Bar in 1989, served as an Asylum Support Adjudicator between 2001 and 2003 and has sat at the magistrates’ court where he served as a Deputy District Judge (Magistrates’ Court) from 2005. He will be based in London and will serve as President for a term of four years until September 2020 on a salaried part-time working basis of 60%.
The President oversees the running of the Valuation Tribunal system and is responsible for issuing Practice Directions on the conduct of proceedings. The President also hears cases involving important points of law.
A new appointment process for new lay panel members of valuation tribunals began from 6 October 2016, concentrating upon the Midlands, the North West and South West of England. This follows the withdrawal of paid lower tier tribunal judges from VTE panels in the summer. This was a response to the very small number of appeals by low income taxpayers on local council tax reduction schemes which were reaching the tribunal. Overall the numbers had fallen far below the 14 000 appeals predicted by the Government in 2014. After initial training and sitting with more experienced panel members the new panel members should begin hearing cases in 2017.
The lack of reduction-related appeals undoubtedly reflects the complexity and technicalities of local schemes (which replaced council tax benefit in 2013) which are a major challenge for many advisers and puts appealing simply beyond the majority of would-be claimants without specialist legal support. Yet the VTE provides the only effective route of challenge to adverse decisions and its workload is likely to increase over winter 2016/2017 in respect of other decisions with a shrinking tax base.
NEW CHANGES TO COUNCIL TAX BILLS REFLECT CARE FUNDING PROBLEMS IN ENGLANDIt is doubtless somewhat inconvenient that just as councils have worked out their latest local reduction schemes, and are calculating their bills for 2017-2018, the Government has ordered alterations to the contents and format of council tax bills in England and Wales.
The Council Tax (Demand Notices) (England) (Amendment) Regulations 2017 SI 13 amend the existing regulations on demand notices. Bills must provide additional information about expenditure on adult social care functions to be presented along with notices in the financial year beginning in 2017 and in subsequent financial years.
SOCIAL CARE FUNDING PROBLEMS
Taxpayers are to be made aware that bills are widely expected to be higher in 2017/18, reflecting the growing shortfalls in funding social care. Originally, rules required local authorities to call referendums in England wherever council tax rises exceeded 2% or more. This led to a fashion for 1.99% rises in bills by many authorities.
However, shortfalls in social care budgets have forced the Government to relax these rules. Now the 151 social care authorities in England can increase council tax by a further 3%. The Secretary of State for Communities and Local Government made an offer to adult social care authorities with functions under the Care Act 2014 (i.e. county councils in England, district councils and London borough council) allowing them to be able to charge an additional “precept” on their council tax for future financial years without holding a referendum. This means an additional 3% may be added on, allowing total rises of up to 5% this year without triggering any referendums. However, this unlikely to be sufficient to cover care funding shortfalls.
On 20th February 2016, the Chairman of the Local Government Association Lord Porter said services supporting the most vulnerable people in our communities are at “breaking point” meaning councils are increasingly unable to turn down the chance to turn down any opportunity to raise funds.
He stated: “But extra council tax income will not bring in anywhere near enough money to alleviate the growing pressure on social care both now and in the future.”
The situation reflects the rise in council tax default which has arisen through welfare cuts and the removal of council tax benefit in 2013. Unfortunately, it seems the Government has yet to fully admit or recognise this connection.
CHANGES TO BILLS IN WALES
Changes have also been made to bills have been made by the Welsh Assembly which came into force on 15 February 2017.
The Council Tax (Demand Notices) (Wales) (Amendment) Regulations 2017 SI (W) 40 relate to decisions to charge higher premiums on empty dwellings.
The information to be supplied with council tax bills must also be amended to include information about any premium (this will typically come in the explanatory notes).
The new regulations alter Schedules 1 and 2 of the Council Tax (Demand Notices) (Wales) Regulations 1993 require demand notices to include a statement of the number of days that the council believes a premium applies. This will be helpful to property owners challenging local authority decisions.
Where the authority believes a premium applies, a demand notice must include a statement of the amount of the premium and the reason for it. The notice must also carry an explanation for the taxpayer of the duty to notify changes and the possible consequences of failing to comply with that duty.
Council Tax (Demand Notices) (England) (Amendment) Regulations 2017 SI 13 in force from 10 February 2017 amending SI No.3038 of 2011
Council Tax (Demand Notices) (Wales) (Amendment) Regulations 2017 SI (W) 40
Council Tax (Administration and Enforcement) (Amendment) (Wales) Regulations 2017 (SI 2017/41)
Public Finance 20 February 2017 – http://www.publicfinance.co.uk/news/2017/02/upcoming-council-tax-rises-not-enough-stem-social-care-crisis-lga-warns?
CTLS at Institute of Money Advisers Conference 15-16 May 2017
Alan Murdie, director of CTLS, hosted a workshop ‘Cuts, Computers and Council Tax: Responding to a Changing Environment’ for delegates attending the Institute of Money Advisers Annual Conference held at Bristol over 15-16th May 2017. The conference brought together over two hundred professionals working in money advice and the wider advice and financial sectors, on the theme of Quality and Sustainability in Money Advice.
The workshop looked at the impact that increased computerisation has had upon the recovery of local taxes and individual taxpayers, its links with the growth in debt and at ways in which advice organisations can best respond to rising levels of default. Reflecting concerns over the increasing numbers of people seeking wider financial advice, partly as a result of more severe enforcement measures, the Conference also announced the launch of a public campaign concerning imprisonment for council tax debts and the need for local authorities to pursue other more sustainable remedies.