Central government is losing up to £8bn a year because of unpaid debts, according to an official report that signals a sharpened focus by ministers on recouping money in an era of austerity.

The figure encompasses the sum the government has had to write off – a large part now irrecoverable as a result of insolvencies – and the interest it has to pay on the stock of debt it holds.

Francis Maude, minister for the Cabinet Office, said that while those in hardship would be offered help, “let this be a warning to those that deliberately avoid payment – they should be prepared for a tough approach”.

The main categories are tax debt, unpaid fines and repayments of overpaid benefits and tax credits.

Mr Maude said it was “mind-boggling” that a report on the state of debt across government had never previously been carried out.

Although the report was only “an early, interim” exercise, it showed “that we need a quicker, more empathetic and accurate system to prevent so much debt accruing in the first place”, he added.

The report highlights a successful pilot in which benefit claimants who owed money to HM Revenue & Customs agreed voluntarily to repay the debt gradually from their benefits. The welfare reform bill going through parliament will make it easier to extend the approach because the bill lifts some restrictions on data sharing between departments.

The government also intends to explore the use of “nudge”-type techniques to change behaviour, following the discovery that when HMRC sent letters reminding people about the importance to their local services of paying tax on time, those letters were 15 per cent more likely to yield payments than other letters.

Get alerts on Francis Maude when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article