The volume of uncollected government debt is dominated by a £15.1bn black hole of overdue taxes and tax credits which remain uncollected by HMRC despite efforts to hire private debt collectors and attempts to write off long-standing debts.
In a report on public debt, the Public Accounts Committee (PAC) has told the Treasury and Cabinet Office that it needs to take ‘urgent action’ to develop a cross-government approach to debt management if they are to recover the £22bn currently owed to different departments.
PAC’s report, Managing debt owed to central government, is critical of the government’s failure to collect ‘a staggering’ £22bn, of which most (£15.1bn) is owed to HMRC.
Although total government debt has reduced by £5.5bn in the last four years, this is mostly as a result of reductions in HMRC’s balance which included writing off or deciding not to pursue £3.5bn of tax credits debts and other debts it considers ‘uncollectable’.
Debt has been increasing over the past six years in all departments except for HMRC.
PAC chair Margaret Hodge said the government’s treatment of debt ‘has been characterised by neglect and periodic large write-offs’. The report identified problems with large volumes of old debts, with 61% of HMRC’s debt and 88% of DWP’s debt over 180 days old at 31 March 2013.
Although around £1.2bn of debt was passed to private debt collectors on a payment by results basis in 2012-13, PAC claimed the government was not able to show it understood the benefits and risks of using these agencies and expressed concerns about the risks of vulnerable debtors being pursued inappropriately.
The report stated: ‘Strategic management of debt is hampered by the centre not collecting figures for debt across all departments and quangos, and by the Treasury not monitoring departmental debt forecasts, effectiveness of debt collection agencies, or reviewing the risks of debt when considering new policies’.
PAC called for the Treasury to produce ‘a comprehensive and effective strategy for managing debt, and related guidance, without further delay’. The committee said key performance indicators for debt management should be applied across government, with departments and agencies required to report performance in this area to their boards and in their annual reports and accounts.
