Exercising discretion when applying to the court for a Council Tax Liability Order

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Dear Lancaster City Council,

The Council Tax (Administration and Enforcement) Regulations 1992 (the "Regulations") confer a duty on the billing authority to exercise discretion under regulation 34(1) when deciding whether to institute a complaint to the Magistrates' court to enforce payment.

Regulation 34(1) as amended by Regulation 15 of SI 1992/3008 states, with the relevant part emphasised, as follows:

"If an amount which has fallen due under paragraph (3) or (4) of regulation 23 (including those paragraphs as applied as mentioned in regulation 28A(2)) is wholly or partly unpaid, or (in a case where a final notice is required under regulation 33) the amount stated in the final notice is wholly or partly unpaid at the expiry of the period of 7 days beginning with the day on which the notice was issued, THE BILLING AUTHORITY MAY, in accordance with paragraph (2), apply to a magistrates' court for an order against the person by whom it is payable."

Regulation 34(2) states as follows:

"The application is to be instituted by making complaint to a justice of the peace, and requesting the issue of a summons directed to that person to appear before the court to show why he has not paid the sum which is outstanding."

The following are examples (but by no means exhaustive) of what are reasonable factors a recovery officer should take into account in exercising discretion to institute a complaint to the Magistrates court under paragraph (2) of regulation 34 of the Regulations:

1. the level of debt outstanding

2. any payments made subsequent to the full amount becoming due and time remaining of the financial year

3. are circumstances indicative of the debt being settled without resorting to enforcement

4. consider if enforcing the debt would unnecessarily subject the taxpayer to additional costs etc. and therefore amount to a penalty (see 3 above)

5. ensure monies have been prioritised to maintaining the in-year debt

6. allocate to the in-year any monies posted to arrears (or sufficient of it) that would if it had not been misallocated prevented the in-year liability also falling in arrears (see 5 above)

7. check for benefit claims or appeals already in the system and refrain from taking enforcement action where such genuine cases are unresolved

Q1. Does Lancaster City Council exercise discretion before proceeding under regulation 34(2) of the Council Tax (Administration and Enforcement) Regulations 1992 to request a summons from a justice of the peace (it may be an automated process)

Q2. If yes to (1) what factors are taken into consideration

Yours faithfully,

Helen Barker

info, Lancaster City Council

2 Attachments

Dear Helen Barker,

I write to confirm receipt of your request for information, which was
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info, Lancaster City Council

2 Attachments

Dear Helen Barker,

Freedom of Information Request - Ref: FOI 3332

Thank you for your request received on 6th May 2020 in which you asked for
from Lancaster City Council

 

Your request has been handled under the Freedom of Information Act 2000
(FOIA).

 

Response

 

 1. Yes
 2. When issuing summonses we cross match identified cases for outstanding
correspondence from taxpayers and review that first, to identify
accounts that should be closed due to liable parties vacating or
balances that might be reduced significantly in order to determine
whether the application for a Liability Order is necessary. Parameters
set within the process allow for balances at specific levels to be
selected for a summons. Our recovery timetable also includes
discretion to send additional final notices to encourage engagement
from those taxpayers who have already had a reminder but not brought
their account up to date

 

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Deputy Data Protection Officer

 

Email: [3][Lancaster City Council request email]

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Lancaster City Council,

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show quoted sections

Dear info,

Thank you for your response.

It does not constitute discretion if a decision of whether to apply it or not depends on being prompted by the customer, parameters being agreed in advance relating to the outstanding monetary value of a customer's account or other information that can be input so the council tax processing system can detect it when running the complaint list. Discretion could only be appropriately applied at a stage when the summons is normally requested, i.e. when all the relevant circumstances are known about the customer's account at that particular time.

The Council's recovery policy indicate that discretion is not exercised at the point where a decision is needed to be made about whether to request a summons. Discretion is applied before a summons is issued, after a summons has been issued but before a liability order is obtained and after a liability order has been obtained, primarily to make payment arrangements which need to be monitored after the debt is secured by a liability order. The actual process of running the complaint list and the summonses is automated for which the defendant incurs substantial and disproportionate costs.

It is apparent from information I have seen that the defendant incurs a £32.00 sum in respect of the council requesting the issue of a summons (an automated procedure). However, that sum actually covers the council's additional expenditure in respect of sending out reminders and officer time engaging with customers who query their accounts at this point. Also the same for final notices (see below) and after a summons has been issued in respect of customers who query their accounts to arrange payment plans which are conditioned in the latter case upon the council obtaining a Liability Order (to secure the debt). A total £61.00 court costs are added comprising summons costs of £32.00 plus a further £29.00 for the Liability Order. The £29.00 sum is added to the £32.00 costs already incurred for the request of the summons in respect of the accounts of all customers who have not paid the total amount outstanding of their liability before the court hearing, whether or not they take advantage of the pre-arranged payment plan. This is to compensate the council for the officer time attributed to making the application for a Liability Order (on day of the hearing).

Before the summons stage (final notice), it is possible for a customer to avoid summons costs, for example, a taxpayer who has lost her right to pay by instalments may have them effectively re-instated if she manages to secure a payment plan. Discretion whether to enter into a payment agreement with a taxpayer is applied again once the council has obtained a liability order (as an alternative to taking recovery action) but of course by that time she would have had the total £61.00 court costs added to the debt and included in the payment plan.

So the costs in reality cover the council's expenditure (additional to the issue of the summons) attributable to before the summons is requested, both after the summons is requested but before the liability order application and after the liability order has been obtained in respect of officer time engaging with customers who agree to enter into payment arrangements. The costs must therefore with absolute certainty cover the general administration of the council tax and enforcement departments.

RELEVANT LEGISLATION AND CASE LAW

I understand that the council must adhere to the Council Tax (Administration and Enforcement) Regulations 1992 and also be mindful of all established case law regarding the area concerned.

I am aware of a number of cases but particularly three which I would like to refer to regarding your response namely R (Nicolson) v Tottenham Magistrates [2015] EWHC 1252 (Admin); Regina v Highgate Justices ex parte Petrou [1954] 1 ALL ER 406 and Williams v East Northamptonshire [2016] EWHC 470 (Admin)

Regina v Highgate Justices ex parte Petrou [1954] 1 ALL ER 406

The council's recovery policy implies that the authority exploits the liability order application process to be used as a means of encouraging a change in behaviour of its customers in its approach to exercising discretion with regard to waiving court costs. The policy advises that after an arrangement to pay has been agreed the costs incurred in obtaining the liability order which are included in the arrangement may in certain circumstances be waived or reduced. However, the Council will consider re-instating the waived liability order costs if it deems that the customer has not made sufficient efforts to clear their outstanding debt subsequent to defaulting on an arrangement.

It is likely that the council would prefer not to have to pursue payment by the various recovery methods permitted by the liability order because it would be more convenient and cause less administration not to and in any event, the chances of the whole amount being recovered would be greater (and quicker) if private contractors were not first having to be paid their enforcement fees. Whether the recovery action and costs are effectively reversed in those eligible cases hinges on how the customer engages with the council after an arrangement has been defaulted on. The council reverses this in some cases but not others which suggests that rather than enforcement being necessary and the most appropriate course of action in every case, the costs of the court application are exploited to act as a penalty.

The law makes no provision for one party wishing to make use of the court to do so in order to inflict a penalty on the other by way of the costs which the court may order against the defendant. The judgment in the Highgate Justices case held that costs should not exceed the proper expenditure incurred and should not be a penalty. If the council requires further powers to enforce the debt, the court's permission must first be obtained, so the costs are incurred as a consequence, rather than the purpose of the application. Local authorities which exploit the judicial procedure to act as a deterrent in a way that penalises the defendant or to act as a threat to encourage prompt payment are doing so for an improper purpose.

Williams v East Northamptonshire [2016] EWHC 470 (Admin)

I note that Preston City Council's website (which presumably applies also to Lancaster) advises that when the application is made to the Magistrates Court for the issue of a summons £61.00 will be added to the account to cover their costs (summons and liability order costs). However, the council's recovery policy states differently implying that only summons costs (£32.00) are added to a taxpayer’s account when a summons is issued.

In any event, I am aware that in the East Northamptonshire case, the judgment went to some lengths to clarify the position with regard to when, i.e. at what stage it was permissible for a billing authority to add summons costs to a customer's account. In essence, what the judgment determined was that it was entirely lawful for the billing authority to inform the customer by stating on the summons the amount of costs it would ask for in the event it proceeded to make the application at court for a Liability Order. Implicit in this is that it is impermissible to add to the customers account at this point the costs claimed by the billing authority because there is only any legal basis to do so once the court has granted the Liability Order. The following in paragraph 28 of the judgment bears this out:

"...I have come to the clear conclusion that the summons is not an abuse of the process or otherwise invalid by reason of the fact that it includes reference to a claim for costs. The heading of the summons makes clear it seeks recovery of the Council Tax only. The complaint is therefore only as to the non payment of the Council Tax. The tax due is the Council Tax which is separately identified both on the first page and on the subsequent page. It is abundantly clear that the subject matter of the summons is therefore the recipient’s liability for the Council Tax...."

NO LEGAL BASIS TO PURSUE LIABILITY ORDER ONCE AN AMOUNT AGREED

The council's recovery policy states that 'if a summons is issued, and then an arrangement to pay is agreed before the Court hearing, the Court will still be asked to grant a Liability Order to protect the Council’s interest. The costs incurred in obtaining the Liability Order will be due in full' (£32.00 summons and £29.00 liability order).

These costs are incurred at a point after the customer has tendered payment. Therefore, the cost attributable to this activity could not lawfully be included in the costs claimed because expenditure may only be recharged that has been incurred by the authority up to the time of the payment or tender and clearly resources called upon by engaging staff in the matter would occur after payment was tendered. Expenditure incurred by the authority after that point falls on the wrong side of line to be referable to the summons and would only be lawfully recharged (if eligible) in respect of those who had not paid or tendered to the authority the aggregate of the outstanding amount and costs before the court hearing because only those customers may be proceeded against further and incur additional costs.

To be clear, it is not just the costs in these circumstances which are artificially inflated by either front loading or being charged where there is no legal basis at all which is a point of contention. The consequences are that for all those cases against whom the council proceeds in order to secure the debt once an amount has been agreed (the payment arrangement), the action is unlawful because regulation 34 of SI 1992/613 provides that the authority shall accept the amount and the application shall not be proceeded with in these circumstances.

Paragraph 34(5) of the regulations, are as follows (with emphasis):

“(5) If, after a summons has been issued in accordance with paragraph (2) but before the application is heard, there is paid or TENDERED to the authority an amount equal to the aggregate of—

(a) the sum specified in the summons as the sum outstanding or so much of it as remains outstanding (as the case may be); and

(b) a sum of an amount equal to the costs reasonably incurred by the authority in connection with the application UP TO THE TIME OF THE payment or TENDER,

the authority shall accept the amount and the application shall not be proceeded with.”

The authority could not defend its actions on the grounds that an arrangement does not constitute payment therefore it is entitled to obtain a liability order to secure the debt because the law does not say that the amount must be paid for the application not to be proceeded with, only that the amount tendered is accepted (the aggregate of the outstanding amount and costs). By agreeing a payment plan which encompasses the outstanding amount and costs (costs which are properly referable to the enforcement process) the authority has accepted the amount and so there is no legal basis to proceed to obtain a liability order from the Magistrates' court.

Notwithstanding the lack of provision to proceed once the aggregate of the outstanding amount and costs has been agreed by the council, even if it were permissible, these costs and any other incurred would have further criteria to meet for the court to be satisfied that they were reasonably incurred.

R (Nicolson) v Tottenham Magistrates [2015] EWHC 1252 (Admin)

The Tottenham case provides in the judgment some general guidance regarding Council Tax Liability Order court costs and give clues (paragraphs 35 and 46) as to what should not be included in the costs and an approach that might be legitimate in respect of averaging the costs.

“It is clear that there must be a sufficient link between the costs in question and the process of obtaining the liability order. It would obviously be impermissible (for example) to include in the costs claimed any element referable to the costs of executing the order after it was obtained, or to the overall administration of council tax in the area concerned.” (Paragraph 35)

"In principle, therefore, provided that the right types of costs and expenses are taken into account, and provided that due consideration is given to the dangers of double-counting, or of artificial inflation of costs, it may be a legitimate approach for a local authority to calculate and aggregate the relevant costs it has incurred in the previous year, and divide that up by the previous (or anticipated) number of summonses over twelve months so as to provide an average figure which could be levied across the board in "standard" cases.." (Paragraph 46)

However, the above does not go so far as to specify what the right types of costs and expenses are, plus the 1992 Council Tax Regulations (and associated guidance) also apply so any provisions in those capable of establishing what are "relevant costs" need taking into account. Crucially, the possibility that the approach of averaging the costs is conditional upon the right types of costs and expenses being taken into account and being mindful of the dangers of artificially inflating the costs.

Government guidance from 1993 and 2013 both provide within them that "the Court may wish to be satisfied that the amount claimed by way of costs in any individual case is no more than that reasonably incurred by the authority". They do so because the court is obliged to hear individually anyone wishing to raise a defence and regulation 35(1) of the Regulations provides that a single liability order may deal with one person and one amount.

The streamlining of the process, i.e. by hearing cases of all the defendants in a bulk application who decline the invitation to defend themselves would if the law was properly applied be met with a forfeiture of costs income because only expenditure which is common to every defendant may lawfully be included in a standard sum. For example, even if expenditure attributable to engaging with customers agreeing payment arrangements was not impermissible for the reasons discussed, they would not otherwise be deemed "relevant costs" to be included in the calculation because the expenditure is not common to every defendant but also because it would be impermissible to include in the costs any element referable to the overall administration of council tax in the area concerned (para 35, Tottenham judgment).

Expanding further on the concept of "reasonably incurred". If the costs are to be recharged lawfully to the customer it must have been reasonable for the council to have incurred them. Any expenditure recharged to the customer in respect of costs has not been reasonably incurred which is attributable to activity carried out by the council above what is necessary to secure the court order. Obtaining the order is merely a formality and it functions simply as the vehicle empowering the council to make use of a range of enforcement measures to pursue monies owed should it be necessary once it is in place, so with that in mind and that applications are made en masse, then the vast majority of costs typically claimed by local authorities are not necessary in a process which amounts to no more than seeking permission from the court.

Expenditure attributable to work carried out, which is clearly by its nature referable to the overall administration (in the area of council tax concerned) would not by virtue of it coinciding with when the complaint is in progress be sufficient to link it to the actual process of obtaining the liability order. This is separable from any that is permissible to be included in the costs claimed and would need omitting from the calculation because it would not be reasonable to expect those paying them to subsidise general administration or to be exploited as a means of funding revenues/recovery staff - and - because it is not common to every defendant.

BREAKDOWN OF COSTS

There are a couple of issues regarding the council's breakdown relevant to the currently applied costs that require looking at. It is assumed that the costs charged are the same as Preston City Council's and the breakdown (2018/19 calculation) takes the same form because the service is shared with Preston. In summary, a total £608,165 is the amount which the council deems it is entitled to for taking its customers to court to obtain a Liability Order. This represents 54% of the full cost of the Council Tax service in respect of the tax year on which the data is based. The figure is arrived at by aggregating portions of various budget items (presumably arbitrarily) for example, Supplies and Services (50%), Contact Centre (50%), Recharges (50%) and adding to this a figure attributed to Staff Costs, which takes into account the pay of Revenues/Council Tax Managers, Revenues/Recovery Team Leaders, Revenues Officers and an Apprentice, plus pension costs, Admin, Management and Benefit Section recharges. The final element is the £3.00 fee paid to HMCTS (now £0.50) in respect of each application (10,411 summonses x £3.00 = £31,233).

All elements of the costs are split evenly between the cost of issuing a summons and obtaining a liability order except for the £3.00 HMCTS fee which is attributed entirely to the summons. The individual costs charged are therefore £32.00 for the summons and £29.00 for the liability order. Unless the expenditure incurred just happens to be exactly the same for each process then the 50:50 split will have been for convenience and unlikely to be properly referable to the enforcement process. There is insufficient relevant information for the court to be satisfied how these figures have been arrived at. The full cost of the Council Tax service is stated to be £1.126 million which presumably covers the total cost of running the council tax and enforcement departments (who knows). If so, with 54% (£0.61 million) of the total amount attributable to taking customers to court it is evident that the split has been applied disproportionately in order to subsidise significantly the funding of the those departments. Also the summons cost will have included in it expenditure attributable to work carried out from when the summons is issued up until the court hearing. However, the Council Tax regulations (SI 1992/613) refer to this as a sum equal to the costs reasonably incurred by the authority in connection with the application up to the time of the payment (or tender). Though in practice, that amounts to the cost of issuing the summons because the council incurs no more expenditure once that has been done in respect of those who pay their outstanding liability before the hearing whether they do so straightaway or leave it until immediately before the court hearing. At the same time it is hardly credible that £272,654 which represents the cost attributable to the court hearing is incurred because the resources required in terms of officer time can not amount to more than a few hours each time a hearing takes place which is typically one a month.

For the court to properly consider the breakdown it would be necessary for it to contain sufficient information as to how the figure was arrived at, and what costs it represents. It would also need to contain enough information to satisfy the court that the costs were incurred in obtaining the order and not for carrying out general council tax administration. That would, for a start, require verifying what costs the starting figure of £1.126 million actually represents and for it to be justified why 54% of it is attributable to the amount the law allows to be recovered from its customers for taking them to court (itemising the activities).

The council's recovery policy suggests that the costs include expenditure attributable to work done outside the process of applying for and obtaining a liability order as it states that they "[pay] for the costs and overheads of recovery action". That then would include the issue and preparation of reminders and the final notice (and officer time engaging with customers as a result) which is incurred by the council before a decision has been made to pursue a complaint to the court. The Tottenham judgment (para 43) defines the point when this decision is made to be when the process of enforcement gets underway (only then can costs be incurred in connection with the application). This element would be impermissible because the decision to actually pursue a complaint can not be taken by the council until either the Statutory reminder or Final Notice has failed to obtain payment.

The court also needs to be able to verify that the number of accounts with summonses issued and liability orders granted are accurate and haven't been estimated on the low side to artificially inflate the costs. This information is normally available for all councils in the Revenue Collection Statistics, collected and published by the Chartered Institute of Public Finance & Accountancy (CIPFA), but relies on the local authority submitting the data in its returns. The last time Preston City Council submitted this data relates to the 2011-12 CIPFA return and has for some reason omitted to do so in all subsequent years to date (as is the practice of many other councils).

Clearly the calculation does not contain sufficient information to satisfy the court that the costs are reasonably incurred (though suggests the opposite), but it is quite obvious that in the majority of cases the court simply rubber stamps the orders without questioning them. It is hardly credible that the Magistrates would be mindful of the regulations, guidance and case law relevant to costs which is what the majority of councils must rely on to succeed in getting council tax administration funded from the costs recharged to customers for the formality of summonsing them to court.

It is generally accepted by billing authorities that defences against the issue of a Liability Order at the court hearing which are considered to be valid are restricted to no more than a handful. However, there are eight obvious additional defences that would be valid if no discretion is exercised prior to requesting the issue of a summons, expenditure incurred by the council outside the process of applying for and obtaining a liability order is included in those costs and a decision to charge costs can depend on whether the council wants them to act as a penalty. They would be that;

1. the billing authority has not (does not) comply with regulation 34(1) of the Council Tax (Administration and Enforcement) Regulations 1992;

2. expenditure amounting to £32.00 was not incurred by the council in respect of instituting the complaint;

3. the costs have been inflated to subsidise customers who opt to make payment in line with the pre-arranged payment plans;

4. the costs in respect of instituting the summons include expenditure which is incurred by the council after that action;

5. decisions whether to apply/waive court costs/reinstate enforcement which hinge on how the customer engages with the council after an arrangement has been defaulted on is evidence that the enforcement process is exploited for an improper purpose, i.e. to encourage behaviour (a penalty), see Regina v Highgate Justices ex parte Petrou);

6. the costs have been inflated to subsidise expenditure incurred by the council in respect of potential applications to the court but which are not made by virtue of negotiations that have taken place to reinstate instalments;

7. the costs in general have been inflated to subsidise expenditure incurred by the council in respect of officer time monitoring arrangements and/or engaging with customers after the process of applying for and obtaining the liability order has ended; and

8. the costs in general have been inflated to fund the running of the council tax and enforcement departments and/or the overall administration of council tax in the area concerned.

I would appreciate the council confirming that the response to my request is "No" to (Q1) and therefore "N/A" in respect of (Q2).

Yours sincerely,

Helen Barker