Breathing Space — how’s it really going?
By Peter Tutton, Head of Policy, Research and Public Affairs
As people in the debt advice world know, the Breathing Space scheme — the first ever statutory protection for people while they work through debt advice — has been running since May last year. Yet it’s attracted a share of brickbats even from inside the debt advice sector since launch: are they fair?
StepChange has been a strong supporter of the new scheme, which gives 60 days of protection from collections and enforcement action and freezing interest and charges while people get debt advice. We argued the need for it, campaigned to bring in legislation and then worked with government and other stakeholders on implementation.
However, there are also sensible voices expressing reasoned points of criticism, and it’s perfectly legitimate to have a conversation eight months on about how the scheme was introduced, how it is working, how much benefit it is delivering and what should happen next.
I am holding fast as a strong supporter. But I think it is important to say something about how the discussion on the Breathing Space is framed and conducted.
Adviser perspectives on the scheme
A recently published report from the University of Hull looking at housing possession cases during the pandemic asked advisers about their experiences of the Breathing space scheme. Adviser views (gathered in summer 2021) were very mixed, from ‘been a complete godsend…’ to ‘I have not used it as it does not seem to offer any benefit to clients…’ ¹.
Sector blogger Sara Williams, blogging as Debt Camel, also took a negative stance in her review of 2021, arguing that:
- ‘This was originally envisaged as giving people time to resolve their priority debts and develop a plan for their non-priority debts. But under pressure from creditors, it was cut back into a brief 60-day pause, which most creditors used to give anyway.
- The process is cumbersome and bureaucratic for debt advisers and creditors and can only be used once a year…
- It’s only really useful for a tiny minority of people… Most other debt advisers decided to not routinely use it early… but keep it until it is really needed…
- But StepChange acted like it was the best thing ever and put a lot of their clients into it. Even letting clients choose to put themselves into a Breathing Space, without warning them about the potential problems with it… So the numbers have been much lower than expected.’ ²
There are some useful thoughts here from the perspective of a frontline face to face expert debt adviser; but there is also a real danger of generalising from specific experience in a way that only tells a part of the story.
The experience of StepChange is very different. However, there are some issues in common. To explain, I’ll work through the points above in reverse order.
But first some data.
How many people have used Breathing Space so far?
The Insolvency Service recently published statistics showing 45,710 Standard breathing space and 696 Mental Health breathing space registrations between 4th May 2021 and 31st January 2022, a total of 46,406 people entering the Breathing Space scheme ³ .
It is correct that the numbers are lower than predicted in the Treasury’s impact assessment (just over 700,000, based on an overall debt advice caseload of 1.3 million⁴ ). However, in the context of take up of other statutory debt solutions and the significantly reduced debt advice demand during the pandemic, I’d argue that the numbers hold their own for the first year.
Breathing Space numbers in context
By way of comparison and context, the Insolvency Service reports 28,823 Bankruptcies and DROs in England and Wales in 2021, 27,745 if the Creditors’ Petitions are stripped out ⁵. Given the level of debt advice demand in 2021, it could equally be argued that 20,135 Debt Relief Orders (equivalent to 49% of the number of Breathing Space applications) is much lower than we might expect, even after the June eligibility changes.
The point here is that when we felt DROs were not working well enough to support our clients, the debt advice community gathered evidence and argued constructively for the policy to be improved. It was improved, and a forthcoming Insolvency Service review of the debt solutions landscape may present an opportunity for further improvement.
Let me address head on the assertion that StepChange puts a lot of clients into Breathing Space. The facts are that StepChange has processed 31,290 Breathing Space applications up to 31 January 2022. This represents around 68% of the Standard Breathing space registrations over the period; so it would be fair to say that a high proportion of total Breathing Space applications have been made via StepChange.
But, over the course of 2021, only between 7% and 9% of people seeking advice from Stepchange entered the Breathing Space Scheme. This is not ‘a lot’ of our clients; neither is it a ‘tiny minority’. Information about Breathing Space is embedded into our telephone and online debt advice processes that assesses whether Breathing Space is an appropriate choice.
Is Breathing Space doing what it’s meant to for those who take it?
Did our clients who chose Breathing Space need it? On average these clients had nearly £20,000 in debt spread over 9 creditors. So I would suggest that, yes, they needed it; and given that we know (from repeated client survey research) that around half our clients have been worrying about their debts for a year or more before seeking advice, that offer of a guaranteed period of protection when people do get to debt advice is a good thing.
Did our clients who chose Breathing Space benefit from it? So far, our stats tell us that Breathing Space is delivering some of its intended effects. Around 90% of clients contacting StepChange who entered Breathing Space have gone on to complete full debt advice compared to around 25% of clients that did not enter Breathing Space. Breathing space clients are also around two to three times more likely to go on to take up a debt solution than clients that did not enter Breathing Space. This suggests that the Breathing Space protections give people more encouragement to stay engaged with debt advice and get the debt solution they need.
So why is StepChange arranging more Breathing Space applications than anyone else?
Given these positives, the question as to why StepChange has processed a large proportion of all Breathing Space applications so far is a good one. There are a couple of theories circulating.
The Hull University report cites one respondent suggesting that it has something to do with the ‘fair share’ funding model by which StepChange receives a significant proportion of its income. I don’t think so. If Breathing Space was in and of itself a money spinner, then commercial debt advice providers would be all over it, but they’re not. In total contrast — preparing our systems for Breathing Space implementation, and then supporting applications has required a lot of investment in time, planning, systems, training, delivery and evaluation. There was no external funding support to fund the mechanics needed to deliver Breathing Space. Preparing for Breathing Space was an investment by the charity centred on client need; it isn’t a cash cow.
The Hull University report authors comment that ‘It may also be due to their size and resources which makes the administrative burden associated with the scheme more manageable’. This makes more sense. The recent and heated debate on debt advice funding has focused attention on the need for local face to face debt advice, which we surely all agree is an essential component of a well-functioning debt advice eco-system. But so are providers with the ability to innovate and deliver at scale. So the answer to why StepChange has delivered a large proportion of Breathing Space so far, is because we (and seemingly only we) had both the capability and the determination to do it.
Capability and determination makes a difference. If every debt advice provider placed a proportion of clients into Breathing Space similar to StepChange, the 2021 number might look more like 78,000, or 117,000 on an annualised basis (which is at least the same order of magnitude as the HMT impact assessment estimate). The capability of advice providers to deal with the administrative requirements of the scheme is directly connected to the number of people Breathing Space will help.
Has the introduction of Breathing Space been smooth? No.
Respondents to the Hull University advisers survey and other critics describe the Breathing Space process as cumbersome and bureaucratic.
This is also true for StepChange, a large provider connecting to the Breathing space application portal through APIs. The issues StepChange has had will not be exactly the same as other providers, but there are four main issues that created costs and operational angst for us:
- Even with APIs, the application portal didn’t align with our systems on key details like creditor names. There has been a challenging process of rapid learning by doing in a live environment that could perhaps have been avoided by more ‘whole journey’ testing before commencement.
- The scheme was launched without an effective creditor to advice provider portal making information exchange more difficult and often conducted through a variety of creditors’ bespoke systems, requiring a huge amount of manual handling.
- The initial response from creditors buried us under a mountain of often unnecessary queries, often submitted through incorrect routes like the ‘add debt’ or creditor review process that are especially burdensome. At one point we were getting over four creditor queries per application and had over 40 FTE colleagues working flat out to manage this. A combination of engagement with creditors, system changes to add more than mandatory data to applications, and creditors starting to adjust has brought these queries to a manageable (but still resource needy) number for now.
- Aspects of the regulations, such as the add debt process, and the limited ability to cancel Breathing Space once a client had entered a debt solution have also caused problems.
Will it all be worth it in the end? Yes.
Going forward, we would urge the Government to use the opportunity afforded by Statutory Debt Repayment Plan implementation to see where the legislation and the technology can be improved to reduce the administrative burden on advice providers.
A view raised by some (but not all) of the advisers in the Hull University study was that the client benefits delivered by the scheme are insufficient compared to the work it creates (with one respondent saying they were, ‘not so sure it is worth the paperwork’). This is a long way from StepChange’s experience, but I do see the point.
The Breathing Space scheme is delivering good outcomes to financially vulnerable people now; but Debt Camel’s reference to the scheme’s ‘brief 60 day pause’ articulates the potential for the policy to do so much more. The key question for the debt advice sector now is how we frame this argument in a constructive way. The first part of this is about bottoming out some clear thoughts on the breathing space protections.
The Government’s policy intent is unequivocal in establishing in statute a principle that people in financial difficulty need some protection from spiralling debt, collections and enforcement action as a necessary condition of their recovery. This Breathing Space principle looks, smells and sounds exactly like a core debt advice principle to me. A principle that had no guaranteed expression for our clients in England and Wales outside of insolvency remedies before the Financial Guidance and Claims Act set out the Breathing Space protections.
Advisers critical of the scheme have made the point that ‘most’ creditors ‘usually’ give similar forbearance on a voluntary basis. Yet our recent report Falling behind to keep up⁶ highlights how people in financial difficulty approaching their creditors for help often face a lack of certainty, consistency and focus on client outcomes that drives them to more harmful coping strategies. Forthcoming analysis from our debt advice outcomes project finds over one in five clients saying they had received letters or phone calls from creditors asking for higher debt repayments between advice and three months after advice⁷.
So ‘most’ and ‘usually’ don’t cut it, not when we have already have a commitment from Government on legally guaranteed protections.
But what could be improved, and is improvement achievable?
That is not to say that the current 60 day period is long enough. Our original policy work on what became the Breathing Space and Statutory Debt Repayment Plan schemes focused on people seeking debt advice after a temporary income shock like unemployment or illness. Advising on the right long term debt solution is difficult before incomes have had a chance to recover, and that will generally take more than 60 days (we argued for up to 12 months, and note that in Scotland the debt moratorium has been temporarily extended to 6 months in response to the pandemic).
As a sector, we should focus our energy collectively on building improvements to the scheme and protection it offers. The reality here is that Government, and HM Treasury in particular, has ‘stuck its neck out’ to try and improve the protections available to people in financial difficulty; protections that also apply to public sector debt and enforcement of these by bailiffs. Is it surprising that public and private sector creditors had reservations about a longer period of protections before understanding the impact?
Tactically, we can collectively do better than simply complaining about the imperfections of a scheme which is already delivering statutory protections that didn’t previously exist. It’s more productive, and more pragmatic, to accept that there can be different experiences across the sector, and think how we can work constructively to build a compelling case for ongoing improvement. A hypothesis that the Breathing Space protections might be extended to meet a greater range of client needs, and the Scheme be adapted to be more user friendly for a wider range of advice providers, should not be toxic to policymakers if they are persuaded that this would help people in financial difficulty.
Footnotes
[1] Whitehouse L and Liosi S (2022). Assessing the Court System’s Response to the COVID-19 Pandemic in Housing Possession Cases in England and Wales. University of Hull.
[2] https://debtcamel.co.uk/2021-review/
[3] The Insolvency Service (2022). Commentary — Monthly Insolvency Statistics January 2022
[4] HMT Breathing Space Impact Assessment, para 8.2. https://www.legislation.gov.uk/ukia/2020/81/pdfs/ukia_20200081_en.pdf
[5] The Insolvency Service (2022). Commentary — Monthly Insolvency Statistics December 2021
[6] StepChange (2022). Falling behind to keep up: The credit safety net and problem debt.
[7] StepChange (forthcoming). Client outcomes during Covid 19.
