Our thoughts on HM Treasury’s SDRP Consultation

By Peter Tutton, Head of Policy, Research and Public Affairs

The HM Treasury consultation on proposed Statutory Debt Repayment Plan (SDRP) regulations closed on 5 August. A link to StepChange’s response can be found here.

StepChange remains a vocal supporter of the debt respite scheme — Breathing Space and the SDRP — and the recognition from Government that people in financial difficulty need the support of the scheme’s statutory protections when seeking debt advice or repaying debts.

Our recent briefing evaluating client experiences of the Breathing Space scheme found a huge majority of clients valuing the statutory protections, and clients taking Breathing Space reporting better wellbeing outcomes than non-Breathing Space clients. We want to see people get these benefits from the SDRP scheme, but to do so the rules and administrative requirements will need to work for debt advice providers and, vitally, support people to get on and stay on a SDRP.

Publication of detailed SDRP regulations is a welcome step towards a possible implementation date in summer 2024, and the consultation included some useful policy innovations like quicker paydown of priority debts and the ability to take out a ‘joint’ SDRP. However, our response highlights some key features of the proposed regulations we think are likely to seriously undermine the effectiveness of the scheme.

Aligning SDRP rules more closely to actual client needs

StepChange has been administering voluntary Debt Management Plans (DMPs) for a long time and currently has around 168,000 active DMP clients. Our consultation response highlights data on the actual behaviour of DMP clients that shows the degree of flexibility and support people need to help them stay on their plan. However, the proposed SDRP regulations have provisions on payment breaks and missed payments that are much less flexible than DMPs and look even less flexible than Individual Voluntary Arrangements.

We estimate 57% of the DMP cases we analysed would have required either (or both) a payment break extension or variation(s). This would place these plans at a greater risk of failure under the rules currently proposed for SDRPs compared to the DMP flexibilities we employed to help these clients stay on plan.

Over a quarter (26%) of DMP clients who successfully completed or are still repaying their debts through a DMP would fall foul of the proposed SDRP rule to limit payment breaks to one per 12-month period, risking significant numbers of plans being needlessly cancelled. A further 31% who needed to reduce their payment would be subject to a lengthier and more burdensome variation process under the proposed SDRP rules, with over 40% of these likely requiring multiple variations.

So, we are very concerned that a large number of currently successful DMPs would fail as SDRPs under the rules as they stand. This clearly defeats the object of the SDRP policy to give people repaying their debts more protection and support.

However, this should not be a difficult fix.

Some significant but not unreasonable extension of SDRP flexibilities along current DMP lines would help SDRPs become the go-to debt repayment solution for clients. Our response highlights other important areas where our DMP client experiences suggest the current tight framing of SDRP rules will work against the purpose of the Debt Respite Scheme policy.

Making sure SDRP is workable.

We have previously written about StepChange’s experience of implementing the statutory Breathing Space scheme; where a quick implementation, incomplete systems and some overly burdensome administrative requirements created very large unfunded costs for StepChange.

Our experience of delivering the Debt Payment Programme (DPP) in Scotland shows that client uptake is very sensitive to the administrative burdens on clients and length of time it takes to set up a plan. Clients who fall out of the DPP application process are not necessarily likely to enter another solution and may disengage from debt advice.

So both clients and debt advice providers need the administrative requirements of the SDRP scheme to be efficient and the implementation process effective. However, our reading of the current proposed regulations suggests several requirements that could cause difficulties in practice. For instance, the Regulation 23 requirement on the Secretary of State to cancel the plan application process if a debt advice provider cannot meet certain (Regulation 21) requirements within the tight deadline: some additional flexibility here could prevent possible client detriment. Likewise, the combination of Regulation 35 (creditor in year review application) and Regulation 34 (debt advice provider review duties) could add up to a massive admin load for debt advice providers. Again, this possibility could be avoided with some simple amendments.

The road to implementation from here.

The government’s implied implementation timeline is achievable, but only through a clear and collaborative process bringing together government, debt advice providers and high-volume creditors to map a successful client journey to and through the SDRP scheme. Needless to say that the proposed SDRP electronic system will be absolutely essential to successful delivery at scale. Government must learn from the experience of Breathing Space by ensuring the SDRP electronic system has the necessary functionality, meets the requirements of users (including seamless systems integration) and works from day one.

So, in conclusion, we have some serious concerns about both features of the proposed scheme rules and still-to-be-resolved details of the electronic system that could, if unaddressed, badly undermine the effectiveness and workability of the SDRP scheme. However, this need not be the case. Some sensible revisions to the regulations and a careful collaborative approach to systems development will see a brilliant policy initiative delivering important benefits for people in financial difficulty.

The implementation of Breathing Space was extremely challenging for StepChange, but we were able to address issues and make the scheme more manageable. Now we are seeing Breathing Space delivering good benefits for our clients. There is time to do the same with SDRPs.