The other ‘B-word’: Why this is a momentous moment for the debt advice sector
By Phil Andrew, Chief Executive
It might seem hard to remember at the moment, but there are, albeit infrequently, certain public policy issues where all the major political parties agree. Where politicians accept hard-fought arguments from campaigners not just that something must be done, but that the time has come to do it.
And so we see with that other ‘B-word’. The one that isn’t hitting the headlines every day, nor being debated for hours on the floor of the Commons. But which, in its own little way, is brewing away behind the scenes into something hugely significant: breathing space.
StepChange first began campaigning for a new, statutory breathing space and debt repayment plan, back in 2014. The idea? By freezing interest, charges and fees on debts, and stopping further collections and enforcement activity, the schemes would provide people in problem debt with time to seek debt advice and, where possible, to begin repaying their debts.
Years of hard work from us, our partners, Parliamentarians and people in debt saw both the Conservatives and Labour committing in their 2017 manifestos to introducing such schemes.
More work followed on the Financial Guidance and Claims Act, a HM Treasury Call for Evidence and, now, a consultation on the exact design of the schemes — which closes today.
The biggest shift in debt solutions for decades?
This is a big moment for the debt advice sector: breathing space and its accompanying debt repayment plan could deliver the biggest shift in the debt solutions landscape for decades.
For the first time, people who enter into arrangements which will see them repaying their debts in full will get a level of statutory protection that’s previously only been offered for those taking up insolvency solutions.
The government has been clear that one of its central policy aims in introducing the schemes is to encourage more people who could benefit from it to take up debt advice.
And from the proposals in the consultation, this looks like a reasonable assumption: we think it offers the right incentives for people to seek debt advice, by providing a freeze on enforcement action, interest and charges for those who enter breathing space.
It’s hugely welcome that people taking action to deal with their debts will finally get the statutory protection that, to date, has only been voluntary and offered by some, but not all, of people’s creditors.
Minor tweaks could make a big difference
As with anything, the devil is in the detail. This is a huge opportunity to better support people in debt, and it’s incumbent on us all to get it right.
So, as we’ve set out in our consultation response, we think there are some areas which should be tweaked in the design of the final scheme to give the best chance of achieving the government’s policy intentions.
1. Debts owed to local and national government must be included in both the breathing space and statutory debt repayment plans
The consultation suggests they will be, but this should be unambiguous. While we appreciate the need to recover debts to the public purse, neither of the schemes are about people getting out of their responsibilities: they’re about offering people time and space to work out affordable repayments — which will ultimately be a more sustainable way to collect the money owed.
2. There should be no public register of those using the breathing space scheme
A public register could seriously undermine the Government’s policy intention, putting people off entering the scheme. It could also leave people at risk of being targeted by disreputable, exploitative or fraudulent entities.
3. A 60 day breathing space is welcome, but for some people this won’t be long enough
Our data shows that some debt solutions take longer than this to set-up — either due to the processes involved for statutory solutions, or because people need time to gather the relevant information and complete the required paperwork.
This creates a risk of people losing vital protection before they get onto a solution. To mitigate this, we propose debt advice agencies should be able to trigger an extension to the protection period in certain circumstances.
4. The schemes must reflect the reality of people in debt’s lives
For the schemes to have the best chance of succeeding, and to ensure the numbers dropping out of repayment plans are low, we think a little more flexibility should be built into them. This means:
- Dropping the requirement for individuals to meet ongoing liabilities within the breathing space period. Of course, where people can afford to they should. However, in reality, many people will still be adjusting to new budgets in the 60-day period, or indeed may not have budget counselling until sometime through the breathing space period, so it simply isn’t practical.
- Exploring how to build in short-term payment breaks to statutory plans, which can be triggered by debt advisors. The consultation proposes six-month payment breaks, with high thresholds of eligibility. Shorter, easier to access payment breaks and making it easy to vary monthly repayments are likely to be more appropriate, helping people manage fluctuating incomes and unexpected costs — like a boiler breaking down.
A vital part of wider developments
Ultimately, while breathing space and statutory plans are a significant development for the sector, they don’t exist in a vacuum. They need to build on and utilise the existing infrastructure and processes that already exist within debt advice.
The same goes for funding: we need to work through what the impact on capacity and resource will be and ensure this is properly funded, as part of a sustainable wider settlement. There’s a key role here for the new Single Financial Guidance Body, working with HM Treasury.
A major step forward
The government has signalled its intent to lay regulations on the breathing space scheme this year, with statutory debt repayment plans following after.
There’s no doubt that there will be many more newsworthy things to come throughout 2019. But if we keep pushing forward on this, and make the necessary changes, then we can be confident that, whatever else happens, we will have taken a major step forward in improving the support landscape for people in debt.
That will be something we can all be proud of.
You can read our full response to the breathing space consultation on our website.