Citizens Advice is calling for reform of the way local authorities pursue council tax debt, after it found its clients in council tax arrears have just £7 at the end of the month.
Four in 10 people in council tax arrears have no money left at all after covering their living costs, it found.
Nine in 10 also owe money on other household bills, most commonly water and energy costs.
Citizen Advice cited government regulations, which it says forces people into “desperate hardship”.
They push councils to use the courts to recover council tax debts which can add legal costs and bailiff fees to the debt.
The charity added that the rules also mean people become liable for the full annual bill two weeks after a missed payment. This means that missing an average council tax payment of £167 in the first month of the financial year can escalate to a debt of over £2,000 in just nine weeks – almost 300 times the monthly amount available to the average person seeking support from Citizens Advice on council tax arrears.
The system is also failing local councils, it said, noting a 2019 Freedom of Information request it submitted revealed that, for every £1 of debt referred to bailiffs by councils, 27p is recovered.
Last year, the charity helped more than 83,000 people in England with council tax problems, over 40 percent more than the next biggest debt issue.
Dame Gillian Guy, chief executive of Citizens Advice, said: “Government regulations push local authorities to use harsh collection processes. They pile rapidly-escalating debts on people who barely have enough money to get by.
“Many people who need our help with council tax arrears have no more than a few pounds spare every month to repay their debts. An unexpected bill for thousands of pounds, accompanied by legal threats and bailiff action, is terrifying for the person concerned and ineffective for the council trying to recover the debt.
“To protect people from further harm, the government must change the rules to give councils the flexibility to collect council tax fairly and compassionately.”
Responding to the report, Cllr Richard Watts, chair of the Local Government Association’s Resources Board, said: “Councils have a duty to their residents to collect taxes so important services, like caring for older and disabled people, protecting children, fixing roads and collecting bins are not affected. They strive to recover unpaid tax as sympathetically as possible and to provide support to households at risk of financial exclusion or hardship.
“As the Citizens Advice’s report makes clear, this needs to be supported by better guidance and funding. Councils would be in favour of it being made easier for them to recover money without having to use bailiffs, and would support the removal of the requirement for the entire annual sum to become payable if an instalment is missed.”