Two London boroughs have been chastised by the Local Government and Social Care Ombudsman for mistakes in pursuing business rate debts.
In separate reports the ombudsman found both Haringey and Islington councils at fault for the processes and judgment they applied to secure unpaid national non-domestic rates (NNDR) from individuals.
In the case of Haringey, an investigation found that the council had started bankruptcy proceedings against a former borough businesswoman in a bid to recover £57,368 in unpaid rates because it overestimated the value of her home and believed she could pay.
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The ombudsman’s report said Haringey’s decision to proceed hinged on a flawed desk-based valuation of the equity she held in a shared-ownership property, which had used a significantly bigger neighbouring house as a comparator – a detail officers had failed to properly establish.
The report said that the real value of the woman’s equity was less than one-third of the amount the borough was seeking, and that Haringey’s own policies would not have supported a decision to start bankruptcy proceedings on that basis
Haringey was told to scrap the bankruptcy move and pay a total of £3,000 in compensation for its failings, which were described as a “significant injustice” that had caused the woman “considerable distress” and had put her at risk of losing her home.
The council was also told to pay the woman a further £400 for a Data Protection Act breach made in the course of its investigations.
In the case of Islington, the ombudsman said the borough had pursued a different woman for NNDR debts going back to the early 2000s –16 years after it had lost touch with her, a timescale considered to be “excessive and poor administrative practice”.
The ombudsman said the council had effectively not tried to find the woman between 2001 and 2017 and that she had been unable to properly challenge its demands for NNDR when Islington re-established contact because she no-longer had evidence to support her case.
Islington reimbursed a payment of £1,038.20 made by the woman – which represented a fraction of the original, disputed, amount sought – and agreed to pay her £100 to “acknowledge the avoidable time, trouble and frustration caused”.
The ombudsman’s report urged Islington to review its council tax and business rates collection policy to ensure the council was able to consider the fairness of pursuing historical debt when so much time had passed that demands cannot effectively be challenged.
Ombudsman Michael King said councils had every right to pursue people who did not pay tax or business rates, but had to do so without undue delay.
“Any decision to pursue an historic debt should be based on sound evidence it is fair, appropriate and reasonable to do so,” he said.
“To take someone to court for bankruptcy is a very serious matter and, in the Haringey case, the council based its decision on a flawed assessment. This has had significant financial and emotional consequences for the woman.”
Haringey said it accepted it had made a miscalculation in its property valuation and that it had agreed to offset the £3,400 payment against the debts owed. It said a decision on whether to annul the bankruptcy would be made later this year.
“We want to be clear that we would only ever pursue bankruptcy orders as a last resort and understand that this can cause distress,” a spokesperson said.
“However, the debtor still owes the council a substantial sum of money which we have been unable to recover over a number of years. We have been – and will continue to be – in communication with the debtor about finding a way forward.”
An Islington council spokesperson said: “We accept the ombudsman’s findings and have agreed to write off the debt, to reimburse money paid by the individual and to make a payment in acknowledgement of the case. We are also reviewing our council tax and business rate collection policies to take the findings into account.”
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