Breathing Space: A breath of fresh air

By Phil Andrew, Chief Executive

The government has today published confirmation of how the new “Breathing Space” scheme and statutory debt repayment plans (SDRPs) will work, and we’re delighted to see that so many of the things we’ve campaigned on for so long are actually going to happen.

While there’s still a lot of detail to work through, Breathing Space and SDRPs represent a fundamental and positive shift in the policy approach to people in financial difficulties.

It is hugely significant to see government moving to a pragmatic approach which will help to destigmatise debt, and focus on realistic mechanisms to help individuals escape it.

We’re not quite there yet though. Breathing Space will not come in until 2021, and statutory debt repayment plans to follow, probably in 2022.

The inclusion of government debts

We’re particularly pleased to see the government beginning to get their house in order by confirming that public sector debt will be included in the scheme, as too often we see council tax and other public sector debt being those that are handled in the heaviest-handed of ways.

The inclusion of these debts makes it much more likely that the scheme will work as intended, and should help to provide significant new protection from some of the most severe debt collection practices that people in debt often face from local authorities and government departments.

No public register for breathing space

While the role of the Insolvency Service in administering the scheme is practical (despite the fact that the scheme is not an insolvency-based approach), we’re relieved that the government has listened to concerns and has decided not to implement a public register of people using the scheme.

This is the right decision, meaning that people will not be at risk of cynical or manipulative behaviour by unscrupulous firms preying on their details, and people will rightly have their privacy respected.

Delivering breathing space

There are still numerous logistical details that need to be carefully worked through to make sure delivering Breathing Space is effective and efficient in practice, reflecting the realities of how debt advice works and how people access it.

In particular, in these digitally-savvy days, it’s quite possible to undertake full, comprehensive and bespoke debt advice online, rather than via voice conversation. The mechanics of accessing and monitoring use of Breathing Space will need to reflect this.

We look forward to helping ensure that the final form of the scheme design works as smoothly as possible in practice.

Funding free debt advice

At the risk of sounding a caveat on a scheme that we’re very pleased with overall, one consequence that does need to be addressed in parallel is the funding of debt advice. The funding proposal for the statutory debt repayment plans that are being introduced is for creditors to pay a compulsory 10% of the money they receive to fund their administration, 9% of which would go to the debt advice organisation advising the client.

For us, though, this would result in an effective funding cut compared with current “fair share” funding mechanisms, even taking account of the fact that the funding will be on a compulsory basis, and for a wider range of creditors.

We don’t believe that’s actually the government’s intent, but it certainly emphasises the high priority of the work being done with the government and the Money and Pensions Service to address wider structural funding weaknesses in the debt advice sector, so that the overall framework of funding for debt advice and solutions is put onto a sustainable and reliable footing for the long term.

Work is already underway and StepChange is committed to working closely and constructively, along with the wider sector, to ensure that access to free, non-commercial debt advice is protected in line with the rising need for it.

In the meantime, I’d simply urge the government not to allow the rollout of a good scheme like Breathing Space and SDRPs to result in a funding hiatus, even by accident, as we look to double the number of people we help. This is not to detract from all the positives, but it’s important to flag that debt advice funding is currently built on foundations that do need some rebuilding to be fit for the future.

Overall, the government deserves great credit for listening and introducing these genuinely ground-breaking reforms for people repaying debt. Up to now, people repaying debt without seeking insolvency have effectively been treated at the whim of individual creditors. Breathing Space and statutory debt repayment plans will change all that for the better, introducing consistency and protection.

The details announced today are sensible, and we look forward to working on the detail to help deliver a scheme that succeeds in helping more people to address and resolve their debt problems.

For more information on the need for ‘breathing space’ for people struggling with debt, read our Breathing Space policy page.