Nope not a wind up as I challenged it , there is a law within the Civic Act that gives the right. However they cannot approach the Council you live in as it goes against the freedom of information act. They can request if they can contact your council.
I'm giving away too much information here

. The Councils would be having puppies with all the information given to me but if you know your rights you can get anything

Here is a copy of a report where this Council voted to do this:-
6 Council Tax Arrears
It has been agreed in the past that a consistent and deliberate failure to pay a
public tax may be relevant in considering the fitness of an applicant for a
licence. This is on the basis that such an attitude may imply an irresponsibility
which is not consistent with the obligation of a licensee to observe conditions
attached to a licence. Accordingly, Financial Services are notified of
applications for licences to allow them to draw appropriate cases to the
attention of the Committee as they see fit. Where there has been persistent
arrears of Council Tax or Business Rates which appears to go beyond an
inability to pay then the Committee will address that issue with such
applicants in the process of determining whether they are fit and proper
persons. This policy will not apply to general debts owed to the Council.
These would normally not be regarded as relevant to the fitness of an
applicant.