Council tax shake-up: less monthly pain, same yearly bill

The council tax system has long punished people for slipping up, turning one missed payment into a demand for the full year’s bill. That’s now set to change, with households given more time to pay and bills spread over 12 months instead of 10. It’s a sensible shift that should ease monthly pressure for many families—and, by extension, offer some relief to local businesses. But while the reforms smooth the edges, they don’t tackle the core problem: the rising cost itself.

Council Tax rules are out of date. Take for example the nightmare for anyone who misses one payment. They’re then expected to pay their entire bill for the year, in full, two weeks later. Unless you’re a wilful ‘won’t payer’ that’s impossible. People miss a payment because they are grappling with the rising cost of living and on what planet might it then be remotely possible to pay the complete bill.

The government has confirmed that from next year, households will be given two months to settle their bill before being asked to pay the full bill and they will be able to spread their annual council tax bill over 12 months rather than 10 months as at the moment. For many that reduction in the monthly bill will be a lifesaver even though the reduction is small and the overall bill is the same.

Photo by Janka Jonas on Unsplash

These are important change for households struggling with council tax bills and may also help thousands of micro businesses for whom household and business finances are interchangeable.

Craig Simmons of the consultancy firm Ethicoll, (specialists helping organisations identify better ways to resolve customer debt problems), says: “Smoothing out of council tax payments from 10 monthly instalments to 12 can increase affordability for households and free up a little bit of money each month to alleviate the cost of living pressures. It could even have a positive knock-on impact on small local businesses as it helps with the family budget. While the detail of how Councils approach this will be key, it’s a welcome step forward and could cascade the benefit into local areas and communities.”

Households able to reduce their monthly outgoings may also marginally benefit small businesses. Even a small decrease in essential monthly outgoings and a corresponding small increase in disposable income can mean more money making its way into increased footfall and spend with local businesses.

For local businesses, struggling households mean struggling high streets. If customers are stretched, they spend less and that feeds directly into reduced footfall, lower turnover and tighter margins for small firms. This change to the council tax rules could alleviate that a little.

If you are running a business and your household is struggling to pay bills like council tax the temptation is to use business funds to clear the household debt. That could leave you in difficulty paying your business bills such as supplier invoices, or material costs. On the other hand, if the business is struggling to pay bills on time, dipping into the household fund to keep the business on track can leave you short on money for food, school shoes or energy, and cause the problems with your council tax payments. Any smoothing out of the council tax over 12 months instead of 10 may be enough to help avoid some of these pitfalls.

However, it won’t move the dial significantly. This reform focuses on how council tax is collected, not on the underlying cost. The real pressure point, for both households and local economies, is how high council tax has become relative to incomes.

There is also a wider question around local authority funding. Councils facing financial pressure will still need to recover costs somehow, and Council Tax is earmarked to pay for local services like rubbish collection. That means that any shortfall in the revenue owed to the local authority finds its way back into local economies through higher charges, reduced services or indirect impacts on services such as business support.

These reforms may help households manage payments, but they’re unlikely to materially improve the trading environment for local businesses. And without stronger local economies, the problem doesn’t go away. It just shifts.

More detail on the council tax changes:

Councils will be legally required to work with residents on a sustainable repayment plan rather than jumping straight to enforcement.

At the minute if people can’t pay, within just three more weeks enforcement action is often started with ‘admin costs’ added, and letters from enforcement agents dropping onto the doormat. The government is planning to cap administration fees by capping the cost councils can charge for a liability order at £100.

The reforms will also tackle the “stigma” surrounding discounts for those with mental health conditions. The Severely Mentally Impaired (SMI) discount will be renamed to Significant Cognitive Impairment to make it easier for those with dementia or strokes to claim help.

A new standardised application form will be launched across all councils to end the confusing “postcode lottery” that currently stops people from getting up to 100% off their bills.

The Government’s aim is to cut through the complexity of the outdated and confusing council tax system and make sure the most vulnerable people can get the support they need.

Most changes come into effect next year.

The government has warned that “proportionate action” will still be taken against those who simply refuse to pay.

Five changes to council tax billing:

• More time to pay: Instead of being chased for a full year’s debt after just three weeks, you will now have 63 days (roughly two months) to settle a missed payment before councils can demand the entire annual sum.

• A cap on court costs: Councils often add hefty “admin fees” when taking residents to court over unpaid bills, but these will now be capped at £100 to prevent debts from spiralling out of control.

• 12-month bills by default: Most bills are currently split over 10 months, but payments will now be automatically spread over 12 months to make the monthly cost lower and more manageable for families.

• Ending the “SMI” stigma: The “Severely Mentally Impaired” discount is being renamed to “Significant Cognitive Impairment” to make it less offensive and easier for people with conditions like dementia or Parkinson’s to apply.

• Standardised help: A single application form will be introduced across all of England for mental impairment discounts, replacing the confusing “postcode lottery” .