Council tax crisis as British households trapped in £7.4billion debt black hole: 'People can't pay!'

Local councils are unable to provide quality services as millions of households find themselves in council tax arrears

Council tax arrears across England have reached an unprecedented £7.4billion, with local authorities facing mounting financial pressure as unpaid bills continue to climb.

Figures released by the Ministry of Housing, Communities and Local Government reveal that outstanding debts grew by £800million in the year ending March 2025.

During the 2025-26 financial year, approximately £2.2billion in council tax went uncollected, representing a 16 per cent jump compared to the previous year.

The growing debt mountain has coincided with significant bill increases, with nine out of ten councils raising charges by the maximum permitted five per cent for 2025-26, pushing average bills to £2,280.

The Labour Government is set to introduce new restrictions on council tax collection practices from next year, following a campaign spearheaded by Martin Lewis, who described existing methods as "vicious".

Under current rules, councils can demand an entire year's payment just 21 days after a single missed instalment. The reformed system will require local authorities to wait 63 days before pursuing outstanding debts.

Additionally, administrative fees for issuing liability orders, which enable councils to take more aggressive action including deploying bailiffs, will be capped at £100. Some councils currently charge up to £153 for these letters.

Research conducted by the Money Advice Trust found that 2.7 million debts were passed to bailiffs during 2022-23, highlighting concerns about confrontational collection tactics.

Helen Undy, the CEO of Martin Lewis's Money and Mental Health Policy Institute, noted: "Research shows that when councils take a more supportive approach to debt collection, they do not see a drop-off in collection rates."

Ms Undy dismissed suggestions that the changes would increase arrears as "illogical and ludicrous", stating: "Aggressive council tax collection is bad for individuals, councils and the economy. The current system is almost designed to put people into arrears."

Shadow housing secretary James Cleverly criticised the Government over rising bills, saying: "It's little wonder people can't pay.

"Hard-working people struggling with the cost of living face bumper tax bills, with the average family in a Band D home staring down the barrel of a cumulative £1,143 increase across this parliament."

Toby Murray, household debt policy and research manager at Debt Justice, welcomed the reforms as a positive first step but urged ministers to go further in supporting struggling households.

John O’Connell, chief executive at the TaxPayers’ Alliance, said: "Weakening collection rules risks making a bad situation even worse.

"Councils should treat struggling households fairly, but delaying enforcement and limiting recovery costs could encourage debts to pile up while responsible taxpayers are left covering the shortfall."

A spokesman for the Ministry of Housing, Communities and Local Government said: "Our reforms are not about lowering or removing what people owe, but instead structuring payments in a way that is fair and reasonable."