Council’s will be registered with the Information Commissioner to process “personal” data for the purposes of administration and collection of local taxation. The question is – do you need telephone numbers to administer and collect council tax? if the answer is no then holding telephone numbers could be deemed “excessive” and in breach of the data protection principles.
However, these days there could be a general expectation of customers that councils would hold their phone number and ring them about account problems (I’ve lost count of the number of times customers have said “why didn’t you ring me …” when they have been sent a reminder or summons).
This is probably one of the areas where your in-house legal team may wish to make a decision.
One other thing to bear in mind is that breaches of the Data Protection Act are enforceable against the individual (i.e. council tax officer) and not the Council….