In its annual report and accounts for 2010 to 2011, published on Monday, the service reveals that the sum reflects “fees that we no longer expect to be able to recover as a result of the accumulated effects of the credit crunch and the recession.”
The service has been hit hard both by the declining values of assets in insolvency estates and fewer assets held within those estates.
In his introduction to the accounts, Insolvency Service chief executive Stephen Speed says that the 12 months covered in this latest report were "perhaps the most challenging in the service's 21-year history".
The organisation adds that the impact of the write-off to the taxpayer should be seen in the “context of the service’s business since the fees regime came into being in 2004.”
It says that the £81.3m includes £21.3m of fees not yet recovered on cases between APril 2004 and March 2007 which have already more than covered their costs and were therefore in surplus.
The Insolvency Service also said that it is offsetting against the write-off £22.5m of deferred income from surpluses on cases before 2004.
The accounts also state that since April 2004, fee surpluses of £21.8m have been paid to the exchequer for the benefit of the taxpayer.
The Insolvency Service claims that “net of these amounts”, the impact of the bad debt write off on the taxpayer is £15.7m.
But it adds that in 2006, the scope of the case administration fee was widened to include the investigation work carried out by the official receiver. This work had previously been paid for by the taxpayer through the government’s programme budget. The service estimates that this fee change has, since then, saved the taxpayer a cumulative £50m.
The financial funding regime for the service was last reviewed in 2001 and changes were introduced under the Enterprise Act 2002 in April 2004.
Its accounts state that major fluctuations in case numbers since 2004 and difficulties encountered in maintaining the current financial regime, following the recession, has led to the fee changes since April 2010.
The service revealed that it is working with the Department for Business, Innovation and Skills to conduct an internal review, which is due to produce an initial report in early 2011-2012 to inform the service’s financial strategy going forward.