Insolvency accountants who chase up small council tax arrears of a few hundred pounds charge up to £600 an hour, it emerged yesterday.

The huge fees were disclosed after concern that thousands of vulnerable people are forced into bankruptcy because town halls are using draconian tactics to retrieve council tax debts.

Some householders who owe less than £2,000 in arrears are suddenly faced with a bill of up to £50,000 and forced to sell their homes because of the exorbitant fees which kick in after bankruptcy.

The latest figures, obtained through the Freedom of Information Act and published in The Times yesterday, show that up to 5,000 householders were pursued for bankruptcy last year and at least 1,000 were made bankrupt.

Giles Hindle, insolvency and corporate recovery partner with Beachcroft, the law firm, said that once a householder was declared bankrupt the Official Receiver appointed an insolvency practitioner from firms such as KPMG, PriceWaterhouseCoopers, Deloitte and other well-known accountants.

The practitioner was then required to try to find the arrears and any other debts occurred by the householder by selling assets, including any equity in the home. Mr Hindle said the process could be lengthy and expensive and debtors, who had to pick up the final bill, were unaware that often they were piling on costs by obstructing the accountants.

“Insolvency practitioners charge between £200 and £600 an hour once bankruptcy proceedings have started. Where a home needs to be sold the costs go up and accelerate if the householder tries to stop or delay a sale. Where this happens lawyers are also brought in,” said Mr Hindle.

“If a case continues for several years it is easy to reach figures such as £40,000 to £50,000 in fees. Even where a debtor co-operates all the way the figure can be £4,000. Often the debtor ratchets up charges simply by putting their head in the sand.”

Vince Cable, deputy leader of the Liberal Democrats, called on the Government urgently to review the process. “This is a nice little earner for big accountancy companies who are clearly profiting enormously from individuals in distress,” said Mr Cable. “There seems to be no justification whatever for these astronomical fees for what appears to be routine work and there is a clear case for the Government to intervene either by involving the competition authorities or by opening up the business to a wider range of providers.”

Citizens Advice is also concerned about the high fees that have triggered house sales for several clients. The organisation has conducted research showing that using bankruptcy proceedings is also expensive for councils. “If someone is forced to sell their home for failing to pay a bill of a few hundred pounds, the council might be required to house them at a much higher cost,” said a spokesman.

Councils defended their use of bankruptcy proceedings and bailiffs to collect council tax arrears. Sheffield, the Liberal Democrat-led council, is one of the worst offenders in chasing arrears, with the frequent use of bailiffs and bankruptcy petitions. Last year the council, then led by Labour, filed 143 households for bankruptcy and sent bailiffs into homes to collect arrears 19,365 times.

“We have to be careful to strike a balance between collecting the council tax that is owed and being understanding with people who are in financial difficulties,” said Simon Clement-Jones, Sheffield Cabinet member for finance and customer service. “We will be looking at the council's policies to make sure we do have the right balance at a time when more and more people are under financial pressure.”

Southwark council, in London, used bailiffs 16,000 times and pursued 27 bankruptcies. Mike Lynch, Southwark Council's client manager, said: “Southwark has a poor base in terms of collection and with the recession we have been looking to be more efficient in the way we collect council tax, and bankruptcy is being more widely used by local authorities as a means of recovering arrears.”


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