Six policies the Government should adopt to address problem debt
By James Cleverley, Senior Public Affairs and Campaigns Officer
It’s been a tough few years for household finances. Rising energy bills, high food price inflation and spiralling housing costs mean that many households are struggling to cope, often relying on unsustainable credit just to make ends meet.
That’s why we’re calling on the Government to put everyone struggling financially at the heart of its agenda with six key policy asks:
1. Introduce a statutory regulator for bailiffs
Although enforcement action should only be used a last resort, bailiffs are instructed in around four million cases each year.1 Too often bailiff conduct falls short, with behaviours like threats and harassment. Some vulnerable people feel pressured to pay more than what they can afford.
Unenforced guidelines have been ineffective in rooting out this behaviour. That’s why we are calling for a statutory regulator for the bailiff sector which will improve standards, protect vulnerable people from harm, and take bad enforcement agents off the streets for good.
2. End imprisonment for council tax non-payment in England
Unlike the rest of the UK, people in England can face imprisonment for up to 90 days for not paying their council tax. While the actual number sent to prison is low, and should not apply to people who cannot afford to pay, we know that even just the perceived risk of imprisonment can cause devastating consequences to people’s mental wellbeing and push them into unaffordable repayments which compound their financial problems.2
There has never been a more opportune time to end this archaic sanction. The Government is currently legislating to effectively end short prison sentences in all but the most serious cases (e.g. terrorism), so it stands to reason that imprisonment for council tax nonpayment should also be scrapped.3
3. Commit to supporting the debt advice sector in the Financial Inclusion Strategy
Debt advice is essential to help people trapped in problem debt, but the Financial Conduct Authority estimates that 3.5 million people in financial difficulty did not access debt advice last year.4
This mismatch between need and access comes at a time when debts are getting more complex and harder to deal with. To reach everyone struggling with debt and give them the help they need, the debt advice sector needs more ongoing support.
We want to see a commitment from the Government to ensure the long-term sustainability of the debt advice sector in its Financial Inclusion Strategy, which is due to be launched later this year.
4. End the two-child limit and benefit cap
Households with children have lost the most through tax and benefit changes since 2010 — an estimated £2,200 per year on average.5 As a result, we have seen child poverty increase and families falling into debt just to cover essential costs — one in five (19%) of parents receiving means-tested benefits are experiencing serious problem debt, compared to 8% of all UK adults.6
Scrapping the two-child limit is the most cost-effective way to start to reduce child poverty and would help to reduce the likelihood of families borrowing to make ends meet.7
We welcome the creation of the Child Poverty Taskforce and its upcoming Child Poverty Strategy. The Government should take this opportunity to remove the two-child limit and benefit cap, restoring the link between what children need and the support they receive.
5. Commit to capitalise a national no-interest loan scheme
After the pandemic and cost of living crisis, people’s ability to cope with financial shocks has been seriously undermined — four in ten UK adults say they would have to borrow to meet an unexpected £1,000 bill.8
But currently, financial services are leaving financially vulnerable people excluded from affordable, safe credit options; this forces them into desperation borrowing with risky, high-cost products.
The Government-supported pilot No Interest Loan Scheme (NILS), delivered by Fair4All Finance, demonstrates a possible solution for people with a need for responsible credit who can’t access existing options. Early indications are that access to the NILS is helping people cover unexpected costs and put money aside for a rainy day.
We’re calling for scaled up affordable credit options, including for the Government to commit to capitalise a national No Interest Loan Scheme.
6. Launch a cross-government economic abuse taskforce
StepChange’s Too Close to Home report estimates that 1.6 million people had experienced coerced debt in the last 12 months, where a perpetrator uses coercive behaviours to make a victim-survivor take actions that lead to debt.
Victim-survivors currently face limited support and are typically faced with the burden of repaying coerced debts as well as long-term impacts on their credit rating.
The barriers to economic justice for victim-survivors are complex and interconnected. Therefore, we are calling for a government-led economic abuse taskforce to bring together stakeholders to begin the work of ending coerced debt. We believe that only through a coordinated, cross-government approach can the many hurdles facing victim-survivors of coerced debt be tackled.
As Parliament returns, we look forward to working with the Government across all these asks to ensure that the millions in financial difficulty get the support they need to recover and thrive.
