English Council Tax Arrears Reach Record £7.4 Billion Ahead of Debt Collection Rule Changes

Council tax arrears owed to local authorities in England climbed to a record £7.4 billion during the 2025-26 financial year, according to new data from the Ministry of Housing, Communities and Local Government (MHCLG), as local governments prepare for significant changes to debt collection rules that will take effect next year.

The figures highlight growing financial pressure on both households and local authorities. They also come as the UK government moves forward with reforms intended to give taxpayers more time before councils can escalate collection efforts, a change that has drawn mixed reactions from industry stakeholders, taxpayer advocates and consumer groups.

Council Tax Arrears Continue to Rise

According to MHCLG data, the outstanding balance of unpaid council tax owed to English councils increased by approximately £800 million over the past year, reaching £7.4 billion by the end of March.

The department reported an in-year collection rate of 95.6%, leaving roughly £2 billion of 2025-26 council tax uncollected by the end of March, a deterioration from the previous year.

The increase coincided with widespread council tax increases across England. Roughly 90% of local authorities raised council tax by the maximum permitted 5% during 2025-26, bringing the average annual bill to £2,280. The average bill for 2026-27 has since increased to £2,392, with second-home owners in some jurisdictions facing substantially higher bills because of council tax premiums introduced in 2025.

New Collection Rules Take Effect Next Year

Beginning with the 2027-28 council tax year, English councils will face new restrictions on how quickly they can pursue unpaid council tax.

Among the changes:

• Councils will have to wait 63 days after a missed payment before escalating collection activity, compared with the current 21-day timeline.
• Administrative fees for obtaining liability orders will be capped at £100. Some councils currently charge up to £153.
• The reforms are intended to provide additional time for residents to address missed payments and seek debt advice before enforcement action begins.

The reforms follow a campaign led by consumer finance expert Martin Lewis, who criticized existing council tax enforcement practices as overly aggressive.

Debate Continues Over Impact on Collections

The proposed changes have prompted differing views over whether they will improve repayment outcomes or increase outstanding debt.

Mike Warburton, tax editor for The Telegraph, said the extended timelines could create an incentive for some taxpayers to delay payment, while emphasizing the need to balance support for financially vulnerable households with fairness for compliant taxpayers.

John O’Connell, chief executive of the TaxPayers’ Alliance, similarly argued that delaying enforcement and limiting recovery costs could result in larger unpaid balances and increase financial pressure on councils.

Consumer advocates dispute that conclusion.

Helen Undy, chief executive of the Money and Mental Health Policy Institute, said research indicates councils that adopt more supportive collection practices generally do not experience lower collection rates. She argued that allowing residents additional time to resolve payment issues could ultimately improve repayment outcomes.

Toby Murray of Debt Justice described the government’s reforms as a positive first step while arguing that additional changes are needed to address growing council tax debt.

Bailiff Use Remains Under Scrutiny

Council enforcement practices have remained a significant policy issue in recent years.

Research cited by the Money Advice Trust found that approximately 2.7 million debts were referred to enforcement agents, commonly known as bailiffs, during the 2022-23 financial year.

Liability orders obtained through the courts can permit councils to pursue more aggressive recovery actions, including enforcement agent referrals and other collection measures.

The government’s upcoming reforms seek to slow that escalation process while maintaining councils’ ability to recover unpaid taxes.

Government Defends the Reforms

The Ministry of Housing, Communities and Local Government rejected claims that the reforms would encourage nonpayment.

A department spokesperson said the changes are intended to improve payment structures rather than reduce taxpayer obligations, adding that the reforms are designed to help residents manage their bills while ensuring they continue to pay what they owe.