Our hot take: What did the Budget deliver for people in debt?
By Grace Brownfield, Senior Public Policy Advocate
Unsurprisingly, lots of talk ahead of the Budget focused on Brexit. Yet among that, there was clear calls for the Chancellor to use the Budget to tackle some key domestic issues and provide better support for those struggling financially.
When it came to it, Philip Hammond’s third budget contained a package of measures to help people in problem debt, and to reduce the risks of people falling into difficulty in the first place. We’ll be doing more analysis over the coming days, but for now, here’s our quick take on what it all means.
1. Breathing Space scheme comes to life
StepChange, along with charities and Parliamentarians from all parties, have long campaigned for a Breathing Space scheme, and a new Statutory Debt Management Plan, to be introduced. This would give people protection from interest, charges and enforcement while they seek debt advice, and while repaying their debts.
Although the government confirmed their intention to bring in such a scheme earlier this year, as with anything the devil was in the detail. Today we got a sense of that detail, with Treasury publishing their proposal for how the scheme will work.
Ahead of the Budget, we set out what we wanted to see in the design of the Breathing Space scheme. We’ll be taking a more detailed look at the consultation over the next week, but in the meantime, the headlines are…
Nearly all debts that someone owes will be covered by the scheme — including, crucially, the majority of debts to local and national government. This is something we, along with many others — including the Treasury Select Committee — called for. But there are some exemptions, like social fund loans and fines imposed by a court, and we’ll be considering what impact this might have on the effectiveness of the scheme.
Positively, the scheme will offer protection against both further interest and charges; and protection against most types of enforcement action, but not all — again, one we’ll be looking at in more detail.
On the length of protection, the government consultation suggests this will be 60 days — which is a welcome improvement on the six weeks proposed in the Conservative’s 2017 manifesto.
We know it can take time for people to move onto a longer-term debt solution, such as a repayment plan, after seeking debt advice, and the scheme needs to reflect this.
We still believe it’s important that there’s some flexibility for the protection period to be extended where needed, to ensure there is no gap in protection. We’ll be continuing to make the case to the Treasury about why this is needed.
As ever, the consultation is detailed and there’s much more to it than we can cover here — we’ll be working hard over the next three months (the time frame for the consultation) to influence the final scheme so it works as effectively as possible for people in problem debt.
2. A no-interest loan scheme for people struggling to access affordable credit
We continue to see the impact of people not being able to access appropriate and affordable credit, with too many people still having to turn to high-cost lenders. That’s why we’ve been calling for the government to set-up of a no-interest loan scheme in the UK — and so we were pleased that the Chancellor announced that the Treasury will be looking further at this. Specifically, ‘early next year’ they will commission a feasibility study to help to design a pilot of the scheme.
Of course, we’d like to see things moving quickly to get any scheme up and running. And the scheme won’t be able to help everyone. There will be many people for whom borrowing, even at no-cost, is not appropriate and we will continue to make the case for grants and other help to be available in these instances.
However, the fact that the Treasury are looking at this is a welcome recognition that more needs to be done to help those who can’t access credit in an affordable way.
3. Creative proposals on savings and affordable lending
Continuing the focus on tackling the harm caused by high cost credit, the Chancellor had two further initiatives tucked up his sleeve.
Firstly, the Treasury have committed to working with credit unions to pilot a new prize-linked saving scheme. Our previous research suggested that prize linked savings could play a role in addressing the lack of savings among UK households, so it’s welcome to see the government exploring this.
Secondly, there will be a £2 million fund for technology firms to ‘help support social and community lenders’ — another sign that the government is increasingly looking to creative, technological approaches when it comes to tackling problem debt.
As always, the devil is in the detail and there’s always much more to do — but this seems like a welcome step forward.
We’ll continue to campaign for improvements to help our clients and all those in problem debt. But for now, the Budget seems to have delivered some interesting proposals when it comes to problem debt and we stand ready to help make sure that they work in practice.
For further information and Budget analysis, keep an eye on our blog, our Policy and Research pages, and Twitter account @StepChange.