Â£5bn unpaid council tax is enough to build 300 schools Ministers say councils should do better in collecting their taxes Council tax payers 'could have been spared from bill increases' Â£1.21bn of council tax and business rates unpaid in last financial yearÂ Audit Commission report says Â£3.34bn is still owed from earlier years Nearly Â£5billion in council tax and business rates is owed to town halls which have failed to collect their dues, an inquiry found yesterday. It said that the Â£4.55billion that has gone unpaid is enough to build 300 secondary schools and that the failure to get the money will mean a â€˜substantialâ€™ impact on public services. Ministers said councils should do better in collecting their taxes and that the money lost could have been used to spare council tax payers from increases to their bills next year. Money owed by households: The biggest shortfall is over council tax, for which collection rates have dropped The report by the Audit Commission said that Â£1.21billion of council tax and business rates went unpaid in the financial year that ended in March, and Â£3.34billion is still owed from earlier years. The biggest shortfall is over council tax, for which collection rates dropped last year. Councils lost Â£730million because council tax went unpaid last year, and the total missing is now Â£2.53billion. A reason for the falling proportion of council tax collected, the report said, lies in Coalition reforms which mean benefit claimants no longer have their local taxes paid automatically by Council Tax Benefit. Beginning last year, councils took over paying council tax support to welfare claimants, and some give more help more generously than others. Broadly, councils which are less generous with the new tax support payments found it more difficult to collect council tax. However the council tax collection rates were notably lower in some authorities than others. Lowest of all were the largely Labour-controlled metropolitan councils, which mainly run large cities in the midlands and the the north. One, unnamed, council is more than Â£100million behind in its council tax collection. Changes: The report said a reason for the falling proportion of council tax collected lies in Coalition reforms. Prime Minister David Cameron and Deputy PM Nick Clegg are seen at their first joint press conference in 2010 Audit Commission chairman Jeremy Newman said: â€˜Around one third of councilsâ€™ income comes from council tax and business rates. â€˜While collection rates are high, at 97.0 and 97.9 per cent for council tax and business rates respectively, when we consider such large sums of taxpayersâ€™ money, even a small percentage shift can produce substantial changes in the income councils have to deliver their services. â€˜With Â£4.55 billion uncollected and individual council tax arrears ranging from Â£11.1million to Â£105.2million, there has to be room for improvement for many councils.â€™ Tory Local Government Minister Kris Hopkins said: â€˜Improving tax collection rates and reducing arrears are a key way of making sensible savings to help keep overall council tax bills down and protect frontline services. Every penny of tax that is not collected means a higher tax bill for the law-abiding citizen who does pay on time Kris Hopkins, Tory Local Government Minister â€˜Every penny of tax that is not collected means a higher tax bill for the law-abiding citizen who does pay on time. â€˜It is important that councils are sympathetic to those in genuine hardship, are proportionate in enforcement and do not overuse bailiffs, and we have published guidance for councils to stop unjustified, aggressive collection practices. â€˜However, there is a significant potential source of income which councils across the country could use to support frontline services or freeze council tax bills next year.â€™ An average benchmark Band D council tax bill this year is Â£1,468, more than Â£100 a month for a family. Typically bills are lower â€" because most homes in the north of England fall below the Band D category â€" but the average household bill is still Â£1,045. Nevertheless council tax is considered an easy tax to collect because it is charged on properties which cannot run away and usually have someone living in them who is responsible for paying. Education: The report said the Â£4.55billion that has gone unpaid is enough to build 300 secondary schools The Commissionâ€™s report said that despite this councils wrote off Â£195million in council tax last year because they decided it would be too expensive to collect. The write-off contributed to pushing up the amount of missing council tax by six per cent to Â£2.53billion. The Local Government Association which represents councils blamed the abolition of Council Tax Benefit for the shortfall. The Exchequer would be billions of pounds better off each year if central governmentâ€™s collection rates matched those of councils David Sparks, Local Government Association chairman LGA chairman David Sparks said: â€˜These figures confirm that council tax and business rates have among the highest collection rates of any tax. â€˜The Exchequer would be billions of pounds better off each year if central governmentâ€™s collection rates matched those of councils. â€˜The slight increase in unpaid council tax will come as little surprise to those in local government, who warned that this would be a consequence of government cutting funding for council tax support. â€˜This cut has left local authorities with little option but to reduce discounts for people on low incomes, some of whom have found it a struggle to pay. â€˜The high collection rates for local taxes could be improved still further if government gave local areas more control over them. â€˜If councils were able to set council tax discounts locally, we could ensure they are targeted at those who need them most.â€™ Council tax bills have been tightly controlled since the Coalition came to power. Authorities that want to push their bills up by more than two per cent are required to get the backing of voters in a local referendum.