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Breathing Space Scheme

Volume 624: debated on Wednesday 29 March 2017

I beg to move,

That this House has considered the Breathing Space scheme to help families in debt.

It is a pleasure to serve under your chairmanship this afternoon, Mr Turner. I am grateful to have secured my first Westminster Hall debate since my election to the House and I am thankful that so many Members have turned up to support me.

As many Members will know, issues of fairness are close to my heart, and in particular, fairness for children and young people. Personal debt problems can have profound consequences on those groups, yet the system we have means that creditors are again and again hassling and hounding families and young people for debts in an aggressive and harmful way. The breathing space scheme would deliver respite from those threats in two ways: through introducing a breathing space so that people in financial difficulties get the help they need to stop their debts from spiralling, and through achieving a safer way for families to make agreed debt repayments with creditors. The scheme is about ensuring that families doing the right thing about their debts are properly protected.

I am delighted that the Government are actively considering whether a breathing space scheme, such as I have proposed in my private Member’s Bill, should be introduced. I want to ensure that families who are repaying their debts have a legal guarantee against poor practices, ultimately protecting the children in those households. People often have debts with multiple creditors. Unfortunately, at the moment, what we see so often is councils reaching for bailiffs instead of looking to work on affordable payment plans, or a bank adding punitive charges to a family’s account, sending their debts out of control.

I am sure my hon. Friend is aware that the Children’s Society data show that 20% of families in council tax debt are visited by bailiffs, and that more than 30% of those families have to cut back on essentials such as food. Does she agree that a breathing space would give those families an opportunity to work with charities such as Fair for You to have planned expenditure for household items, and that Christians Against Poverty offer training courses in budgeting, which would help prevent debt spiralling?

I agree with my right hon. Friend. My Bill and this campaign seek to give people exactly those opportunities to work with charities to come up with a structured payment plan and to give them safety in that period—I completely agree.

I congratulate the hon. Lady on securing this debate and on her private Member’s Bill. In my constituency alone, 3,348 children are living in families with problem debt. Those children are five times more likely to have low wellbeing than those in families who are not in such debt difficulties. Does the hon. Lady hope, like me, that the Minister will take into consideration that family debt problems can have a significant impact on children’s mental health and wellbeing?

I agree. As I outlined at the beginning of my speech, one of the reasons I am behind the campaign is that I have an interest in the wellbeing of children and families. Debt can have a major impact on the young people in those families.

People working on a plan with an independent debt adviser should not be forced into an ever-worsening situation when they are doing their best to recover. The Government have a proud record on moving people into work, and the latest employment figures show that we now have the highest levels of employment that have been recorded. In my constituency of Rochester and Strood, hard-working families are sometimes bringing up their children and getting on with life, paying mortgages or rents on low incomes, sometimes with insecure jobs. However, while we have good news on employment, it is worrying that Bank of England figures show that household debt is at its highest since the financial crash in 2008.

Problem debt is when that debt gets out of control. Sometimes, it is small sums of money that push families into that situation. Credit can be a good thing, helping people smooth their finances and make purchases today to be repaid out of future income. When things are good, that can be managed and provide benefits, yet the rise in personal borrowing has led to mounting concern that households who get into debt need safer ways to manage when they get into difficulties.

According to figures from the Children’s Society, an estimated 2.4 million children live in families in problem debt in England and Wales. In my constituency of Rochester and Strood, more than 2,700 children are living in more than 1,500 families who are suffering with problem debt.

Problem debt often strikes when people experience a sudden change in circumstances, or, more usually, an unexpected income change. For example, if a boiler breaks down or hours are cut at work, parents, and particularly those on low incomes, sometimes find themselves forced to rely on credit to make ends meet. That is the reality for many families in the UK, and we often do not hear about the struggles that working families face. Sometimes the debt is not through any fault of their own. That is backed up by the fact that the vast majority of people seeking help from charities such as StepChange or Citizens Advice have fallen into debt as a result of a job loss, a reduction in income, illness or a relationship breakdown that affects their income and ability to cope.

When problem debt grows, keeping up with repayments can demand ever increasing proportions of monthly income. Families in problem debt are spending, on average, 18% of their income on repayments, and more than 600,000 families are spending more on debt repayments every month than they are on food for themselves and their children. I would argue that, in many cases, that is a temporary financial difficulty that could be resolved with the right help and support, given time.

We know too well the devastating impact that debt can have on people’s lives. Debt makes people ill. Half of the clients seeking debt advice from independent debt charities such as StepChange said that debt-related mental health problems or physical health problems were so bad they needed to get treatment from hospital or from a GP. Debt can also cause families to break up. It can stop people from working and make them much less productive at work.

The hon. Lady is rightly talking about the consequences of debt. In Sheffield this week, there has been a crackdown on the growth in illegal money lending. It has revealed a world in which physical violence and rape is used to intimidate those who are not paying back money. Does she agree that there is a depth and unpleasantness to the options that are available to people who do not have the opportunities that an initiative such as breathing space would provide?

It was truly terrible to hear of those practices in Sheffield this week. I completely agree: an opportunity to implement a breathing space will allow a regulated, clear way to enable people to go to legal credit agencies and deal with charities, so that they can borrow and deal with debt in a managed way, without having to seek help from organisations such as the hon. Gentleman refers to.

I join others in commending the hon. Lady for securing this debate, for her Bill and for her leadership. The Liberal Democrats are delighted to work with and support her. I also commend the volunteers in my constituency and others who have raised this very important campaign. I am sure the Minister will be very sympathetic, but as a society we need to understand that the costs of debt can be far bigger than we realise. The hon. Lady has mentioned the health costs. When it affects children, holding them back at school and meaning they do not get the qualifications they might otherwise do—that is quite common—it can have a lifelong impact on their earning potential, so the economic costs of debt of this nature are really devastating.

The hon. Gentleman is absolutely right. We can look at these things in silos, but this is actually about the whole of society. Debt is just one factor, and if we look only at debt we sometimes do not recognise or take account of its effects. I completely agree with his point.

As hon. Members said, debt has a profound effect on children. Children in households that are struggling with debt problems are twice as likely to say at school that they are being bullied. Adding up all the social impacts that are endured—the loss of health, the broken families, the loss of production and the hardship—there could be an £8 billion cost to the state and society, which would fall on all of us. Those unthought-of issues have an impact on families. My Bill would enable us to look at those issues further.

I want to dwell for a moment on the damage that problem debt does to families and children living in such households. Unfortunately, the presence of children in households corresponds with a rise in debts. One in five parents said that they have faced problem debts in the past year, compared with one in 10 adults without children. Geographically, families and children are more likely to have debt problems in the north-west, the midlands and Wales, where at least a quarter of households have struggled in the past year. That compares with Scotland, which has a form of breathing space scheme, and where only 10.9% families with children suffer debt problems.

Research from the Children’s Society shows that families trapped in problem debt are also more than twice as likely to argue about money problems, leading to stress on family relationships and causing emotional distress for children. It found that children living in families with problem debt are five times more likely to be at risk of having low wellbeing than those without debt difficulties. More than half of parents in council tax debt polled for research carried out by the charity said that they thought their children suffered anxiety, stress or depression as a result of that debt. The Children’s Society research shows that is not the amount owed by households that directly impacts on children’s wellbeing but the number of creditors to whom they owe money.

StepChange Debt Charity clients typically take between six and 12 months to stabilise their finances. It estimates that, in just six months, a typical StepChange Debt Charity client would have an extra £2,300 added to their debts if creditors applied default interest and charges to all their accounts. John Kirkby, the founder and international director of Christians Against Poverty, said that even three months could be a sufficient period to enable a stabilisation of finances.

The debt trap and the direct impact it has on children in the household brings me to why this scheme is needed. There are two main problems with the current system. First, this House has given people who need to go bankrupt legal protection against spiralling debt problems, but we have simply failed to deliver for people repaying their debts more manageably over time. Our laws have focused on people with the most intractable problems, who need debts written off and the chance of a fresh start. However, there is a cost for families who go down that route—bankruptcy is not free. It is the right solution for many people and undoubtedly meets an important need, but fewer than one in 10 people seeking debt advice enter into an insolvency option. For the majority of families who are likely to recover from a temporary setback and repay their debts in an orderly way, there is no equivalent protection. We all know about the issues associated with bankruptcy. They are often a step too far for those families.

Secondly, the voluntary approach to breathing space fails far too often. We know that creditors agree with the general principle, because it is in industry and Government codes, yet sadly there is a widespread failure to abide by those codes. According to StepChange, between a third and a half of people who contacted creditors for help said they were not given any kind of temporary breathing space. Without such protection, pressure to repay debts at an unaffordable rate and threats of enforcement can leave households cutting back on everyday essentials, or falling even further behind on other bills. The benefits of a breathing space scheme go across the board. Indeed, Martin Lewis of MoneySavingExpert, who spoke at the launch event for my Bill, called it a

“win, win, win—for the creditor, the state, and the individual.”

The evidence is clear: 60% of StepChange clients said that their finances stabilised once further interest, charges and collection actions on their debts were frozen voluntarily. However, not one client who received no such help reported that their finances had got back on a steady footing. That is not all. Many firms that provide that sort of support when their customers have a temporary financial difficulty say that the repayments they receive are higher in the long term.

We need a scheme on a statutory footing that enables families to recover. That is what breathing space sets out. It will help more families to recover and repay their debts. It will reduce the social cost of debt, which affects us all. Ultimately, breathing space will benefit the wider economy. I want to propose the introduction of such a scheme, with two key protections. The first would provide a guaranteed period of time—breathing space—without additional interest, charges, collections and enforcement action. First, that would stop the spiral of worsening debt while people gain control of their financial situation, for example by moving into new employment or recovering from ill health. Secondly, it would give people who need more time to repay their debts through an agreed affordable payment plan the same statutory protection from further interest, charges, collection and enforcement action that the law currently gives to people who need an insolvency option.

I am delighted that a breathing space scheme has had support from across this House, including from the Work and Pensions Committee, the all-party parliamentary group on debt and personal finance and the many Members who have supported my Bill. It is important to stress that we are not starting on this endeavour from scratch. A comparable scheme—one we seek to improve on—is already in place in Scotland. The debt arrangement scheme has been in place in Scotland since 2004, and in 2015-16 £38 million was repaid through it. Over time, the number of people using the debt arrangement scheme has increased. Crucially, its use has increased as a proportion of the available debt options. At the start of available data in 2009-10, over half—57%—of debt options were bankruptcies. That number has now shifted significantly down to 36% bankruptcies and 22% for the debt arrangement scheme. That means that more people are paying back their debts and are being supported to do so, rather than having their debts written off.

The scheme works for all. It works for creditors, which get back the money owed to them rather than seeing it written off through bankruptcy. It works for the state and services who support families. Most importantly, it works for families and children, who can repay their debts free from enforcement action, rising fees and charges and spiralling interest repayments.

I welcome the Prime Minister’s announcement in January that she will review the unfair practice of charging people with mental health problems up to £150 to fill in crucial debt help forms. I pay tribute to the Money and Mental Health Policy Institute and MPs across the House for campaigning to end that unfair practice, which prevents people with mental health problems from getting the help they so desperately need, but we need to tackle the causes, drivers and consequences of mental ill health in all services.

Addressing the impact of debt on children’s mental health is central to the breathing space scheme. This week, we launched the all-party parliamentary group for young people’s health, which seeks to look at ways in which we can improve the health, and particularly the mental health, of young people, and seek to understand all the reasons for the increase in mental health issues that we see in our young people. Working with families and helping families thrive is a way of improving the health of our young people. As I have outlined, debt is a factor. We now have the ideal opportunity to introduce a comprehensive breathing space scheme to give people in debt a guarantee of protection from the escalating pressure that blights families’ lives and affects the wellbeing of children and families who are trying hard to do their best and work their way through life. I hope we do not miss this opportunity, and I hope the Minister will agree that this is a sensible way forward in improving outcomes for families who are just managing.

Order. Three Back Benchers have caught my eye. I will call the Scottish National party Front Bencher at 5.10 pm, the official Opposition at 5.15 pm and the Minister at 5.20 pm.

It is a pleasure to serve under your chairmanship, Mr Turner. I congratulate the hon. Member for Rochester and Strood (Kelly Tolhurst) on obtaining the debate.

I will not go over the figures, because we have heard many times about the problems and the numbers of people in debt. Most of us have taken out credit and it is not a problem until it becomes debt—unaffordable debt. As I know from my previous role at Citizens Advice, that often happens because of a bump in the road, whether it is a reduction in hours of work, illness or a relationship breakdown. The problems are often temporary, but people need time to recover. Moreover, they need space to recover from the illnesses, mental health issues and stress that can be caused, and which are contributed to by threats from creditors and pressure to repay debt at unaffordable rates. I therefore support a statutory breathing space.

I will not go into all the reasons for such a scheme or for the debt payment programme in Scotland, but I will stress that a breathing space is a temporary measure. A breathing space is not permanent and it is only available when people are working to get back in control of their debt, with assistance, and as long as they engage with a provider of regulated debt advice. I will, however, spend some time on how long the breathing space should be.

R3, the Association of Business Recovery Professionals, has said that 28 days is sufficient for a breathing space. Frankly, when I worked on debt problems I never even got a response from a creditor within 28 days. People would come in; I would write to their creditors, who would then respond to me with how much they owed; I would get people back in and they would give me their income and expenditure; and I would write to the creditors again with an offer—28 days is a completely unacceptable amount of time for all that.

Twelve months is a reasonable period, and six months would be a minimum. Often I got a letter within six months, but people’s incomes and circumstances change and so we had to write back. The Financial Conduct Authority’s rules already guarantee 30 days from the lending firms it regulates, and that period is extendable by another 30 days. The R3 proposal would extend that to other creditors, but 28 days is simply not enough.

The R3 proposal is the exact opposite of giving people the space and time they need to get back on their feet. It does not even give time for the necessary paperwork, let alone give people in difficulties the time they need to concentrate on their debt and to take in the fact that they are getting to grips with it and a solution is in sight. For those recovering from illness—if they have had a cancer diagnosis, for example—going through a relationship problem or trying to find a new job, things do not happen within 28 days, I am afraid. The R3 proposal is diametrically opposed to what debt advice agencies say is necessary. People need a chance to recover. Twelve months is reasonable.

The breathing space is not for everyone. It is not a catch-all or a get-out for people in debt. It needs to be conditional on a full assessment of their circumstances and needs by a regulated debt advice provider. I cannot stress the word “regulated” enough. Continued engagement with the process is necessary by the individual in debt.

The breathing space is not simply a way of putting off paying, and it needs continued engagement. Were the debt advice provider immediately able to recommend another statutory debt remedy such as bankruptcy, an individual voluntary arrangement or a debt relief order as the best option, people would not be advised to enter the breathing space scheme, other than for temporary protection while an application was going through. It is not a way for people to get out of paying.

In 2015, the Government accepted the recommendation of an independent review of the future of the Money Advice Service. They said that they would look at introducing a breathing space. The consultation was expected to be opened and completed before Christmas 2015, but I am still waiting for the consultation document and the terms of reference. I ask the Minister when that consultation will come through. I have my response ready—it is there and ready to go.

Can we have the statutory consultation? Can we help people who are in debt and have had a bump in the road? Let us help them to smooth it out a bit. Let us help the creditors get their money, let us help people in debt to pay off their debt and let us help the state as well as the families, because the state is dealing with the mental health problems and paying for the prescriptions of people with depression. Let us help those people deal with the root cause of their problems, which is being in debt.

It is a pleasure to serve under your chairmanship, Mr Turner.

I congratulate my hon. Friend the Member for Rochester and Strood (Kelly Tolhurst) on securing this important debate, in which I am able to speak on behalf of the heartbreaking number of children in families who have fallen into problem debt in Eastbourne and Willingdon, which is estimated to be about 4,000. I am also thinking about the national picture, in which 2 million or more children are caught in the same situation.

There is no statutory scheme to support families in temporary difficulty who are seeking to repay their debts. The Children’s Society and StepChange have called for the breathing space so ably championed by my hon. Friend, and they have identified in it a practical and pragmatic way forward to help such families.

Debt reaches far into every aspect of life. More than half of the 500,000 people who sought help with debt last year were also seeking mental health support from their GP. StepChange estimated that the cost of problem debt to the state and to society, on top of the personal and human costs, is about £8 billion.

Speaking as a teacher, I would simply add that no matter how contemporary the curriculum, how handsome the funding or how stellar the school building, children who live under stress simply struggle to learn, recall and fulfil their potential. Debt reaches right into the heart of everything we want to see for our children in their education. With 2 million children involved, that is hugely concerning.

A breathing space would protect those vulnerable children living in families in problem debt by giving the families the time and space to come to an affordable and safe repayment plan. Between a third and half of those who contacted their creditors for help said that creditors had not given them any kind of temporary space. Without such protection, households trying to deal with their debts are often thrown into worse and cumulatively more damaging financial difficulties.

My hon. Friend’s words still ring true for me—“win, win, win”—because her Bill ultimately would be just that for all parties, because they all stand to benefit, including creditors. A breathing space scheme is not about writing off debt; it is simply about allowing people the time to pay back the money owed. The credit companies get their money back, families get out of the debt trap and children can have their childhood back. The Minister understands those concerns, and good work is already going on in the area, so I look forward to his comments and to learning more about some of that work, because the Government share the value of wanting to support those who find themselves in problem debt.

It is an honour to serve under your chairmanship, Mr Turner.

I, too, thank the hon. Member for Rochester and Strood (Kelly Tolhurst) for securing this important debate on a serious issue. I can see the devastating effects of debt simply from my constituency casework. Blackburn, unfortunately, has more than 5,000 children living in families with debt problems. I have seen cases where a relatively small debt of a couple of hundred pounds has escalated to well over £1,000 in a very short time through court costs and bailiff costs, and I have seen sad cases where people have actually lost their homes.

Although I welcome the options that have been put forward and hope the Minister will support them, I am concerned that they do not go far enough. A wider approach is required. The proposals are a good starting point, but there needs to be a recognition that, in the last few years, the price of food has escalated and council tax precepts for police and adult social care have added to the burden for very poor families. In addition to implementing the scheme and providing respite for families suffering from debt problems, the Government must do more to offer security for people, both in and out of work, who suffer from poverty. Families on low incomes need far more certainty. Current policies attack low-income families and just add to their huge burden.

As I said, I agree wholeheartedly with the proposals, and I share the concerns of the Children’s Society about the long-term effects of growing up with problem debt. My hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) mentioned young people’s mental health. Debt stigmatises and isolates families and can reduce young people’s chances of developing into confident human beings who can contribute. It is devastating. I have worked with many families whose children’s confidence has gone because the family has ended up in debt—often, as several hon. Members said, through no fault of their own. If someone suddenly loses their job or is taken ill—there are terrible diseases that can render people totally unable to work—a happy family that has had a secure life for 10 years can suddenly be faced with the devastating need to deal not only with the illness that has hit the family but with the impact of losing their income. Often, those families just do not know where to turn. It is important they have support and breathing space to help them try to get their lives back on track.

We must also recognise the high level of insolvency, particularly among small businesses, which can leave people with debt from money that they invested in their business. People can suddenly be left with no business but a huge debt.

I back the scheme but, as I said, I do not believe it goes far enough. I welcome it as a starting point, but I would like some reassurance from the Minister that he will consider the wider impact of political decisions on low-income families, particularly in places such as Blackburn.

I commend my hon. Friend the Member for Rochester and Strood (Kelly Tolhurst) for her initiative in bringing forward these proposals. She is clearly at the forefront of this worthwhile campaign, and she is ably supported by hon. Members from across the House, in particular by my hon. Friend the Member for Eastbourne (Caroline Ansell), who made a powerful speech.

Debt is a terrible problem among households. Like the hon. Member for Makerfield (Yvonne Fovargue), I was a debt adviser in a citizens advice bureau some years ago. Far too many families in Kettering have their lives blighted by taking on too much household debt.

Part of the problem is the language we use to describe these issues. At its most fundamental, it comes down to the word “credit”. Everyone thinks that credit is a good thing, and creditors like to use that word because it attracts people to take out their products, but let us call it what it is—it is not credit; it is debt. They are not credit cards; they are indebtedness cards, or debt cards. People love to have a credit card but, for hundreds of thousands of our fellow citizens, a credit card is a passport to a life of misery. They get themselves completely out of their depth when it comes to managing financial products and, as hon. Members so ably described, their lives and the lives of their children are blighted in so many ways as a result.

R3, which was mentioned, did a survey in February and found that just over two fifths—41%—of British adults are worried about their current debt and that 40% say that they often or sometimes struggle to get to payday. Those figures are true for people in the Kettering constituency, and the proposals of my hon. Friend the Member for Rochester and Strood would really help to address that.

There is also a woeful lack of financial education at school. If we are struggling now to manage household budgets, things will be even worse for future generations.

I would like to encourage my hon. Friend with the information that the Church of England’s schools—even the primary schools—have rolled out a programme of teaching financial literacy so that the next generation of children will be better equipped to cope with money and the pressure that is put on them at a tender age to borrow money.

Thank God for the Church of England—that’s all I can say. I hope that that scheme, which my right hon. Friend is right to highlight, is rolled out across the country into non-Church schools, too. We need to take advantage of best practice, and it sounds to me like the Church of England is doing that. There must be lenders out there that are examples of best practice and already give their customers breathing space, but we have not heard mention of them today. I would like to see their names up in lights as examples for others to follow. I close by commending my hon. Friend the Member for Rochester and Strood for her sterling efforts on the issue.

It is a pleasure to serve under your chairmanship, Mr Turner. I do not imagine that I will take six minutes, but we will see—I sometimes wander off track.

I really appreciate the hon. Member for Rochester and Strood (Kelly Tolhurst) securing this important debate. It is key that we continue to discuss this issue and keep the pressure on until solid action is taken, so I appreciate being able to talk about it.

Several Members mentioned the percentages involved and the effects of debt on families. We do not talk enough in this House about the low savings that many families have. A quarter of families have less than £95 in savings because they are just not able or do not have the financial knowledge to save. If someone has only £95 in savings and their washing machine breaks down or their children need new shoes, their only option is to go into debt to fix those things, which are necessary. A lot of families just do not have an option; they have to rely on debt. It is not something that people get into intentionally to get nice shiny new sofas; it is a way that people finance their daily lives. I would like us to get out of that cycle, but that is where we are, and we need to help people whose debt becomes unmanageable.

The increased price of food was mentioned, and I think that that will come more to bear. We have seen rather high food inflation, particularly in the first part of this year, and that will really impact family budgets. The other thing about families is that children really are pretty expensive. On top of everything else—clothing and things like that—childcare costs are massive, especially when children are young. When you are having to work less because you have just had children, it is a very difficult time for families to manage their finances. For me, that is key point at which families should get the most support, rather than the little support they seem to get in some of these situations.

The hon. Lady mentioned the debt arrangement scheme in Scotland. As was said, that has been in place since 2004 and we have seen really big benefits from it. Scotland now has the lowest proportion of over-indebted individuals in the UK, which is probably a good measure to judge the scheme on. In advance of the debate, I looked up debt arrangement schemes. It struck me that a huge number of people who provide advice said, “If you are really struggling with debt, it’s very likely that a debt arrangement scheme will be the best type of scheme for you if you live in Scotland.” It seems to be held up as the go-to one. The quote from Martin Lewis about it being a “win-win-win” was mentioned by a number of Members. The people who are owed money get their money, which is key. That is why we have managed to get them on board and to bring in that regulated scheme.

In relation to the point made by the hon. Member for Makerfield (Yvonne Fovargue) on the length of time, in Scotland, it is six weeks, rather than 28 days. She might not think that is long enough, but that is what we use. If she were to be looking at the Scottish scheme and thinking about importing it to England and Wales, it might be good to look at whether six weeks has worked.

The debt arrangement scheme we have in Scotland has provided protection from enforcement by creditors across the time the money is being paid. People pay back the money over four or five years, instead of the one or two years in which they would have been expected to pay it back. It has also provided them with protection from bankruptcy; they do not have to go bankrupt. Yes, their names are placed on a register and stay on there for six years, but that does not have all the issues associated with bankruptcy. For us it has been hugely positive to have that scheme. I am sure the Minister will look at what has been done in Scotland and the effect that it has had. I am not saying in any way that it is perfect, but it has had a positive impact and changed the lives of families in Scotland.

I congratulate the hon. Member for Rochester and Strood (Kelly Tolhurst) on securing this debate, which is critical to many individuals and families. I also recognise her commendable work in initiating and progressing the Families with Children and Young People in Debt (Respite) Bill, which has the potential to form part of a much needed solution to the escalating levels of personal debt.

As several hon. Members have already outlined, we face a growing crisis with the levels of unsecured household debt. In January, the TUC released analysis that showed that it reached record levels in 2016, according to data provided directly by the Office for National Statistics. Total unsecured debt, which does not include mortgages, reached a record level of £349 billion during the third quarter of 2016. Unsecured debt per household increased to an average of nearly £13,000 in that quarter, which was an increase of more than £1,000 on the previous year and according to the TUC was the largest annual increase since 1997. As a share of household income, that represents an average of 27.5%, the highest figure for eight years.

It is clear to Opposition Members that the Government’s policies have created a perfect storm for those conditions to worsen. Weak wage growth has left many households struggling to get by as the cost of living continues to increase and the poorest continue to bear the brunt of Government cuts. It is therefore hardly surprising that personal borrowing has increased to fill the gap. As we have heard, sometimes people have no other option as a means of putting food on the table.

As we have said previously, the Government need to reassess their policy programme urgently, with specific consideration for the impact it has on the most vulnerable in society. However, in the interim, some sort of remedial approach is needed to give a helping hand to people who find themselves in a vicious circle of debt.

There is currently too great a gap between struggling with debt repayments and formal bankruptcy proceedings. Insolvency proceedings are typically suitable for only a small number of unmanageable personal debt cases. In particular, as my hon. Friends the Members for Makerfield (Yvonne Fovargue) and for Blackburn (Kate Hollern) said, a single event can often serve as the trigger for a spiral into debt problems. That is typically a change in circumstances such as family breakdown, redundancy or bereavement. The individual suffering from such problems can often be back in employment or have support from the welfare system arranged in a period of six months to a year, but at present the challenge of having to deal with the initial personal problems alongside that mounting debt can have an adverse effect on getting back into employment and cause serious mental health issues, which slows the process down. Those factors combined demonstrate that a breathing space scheme would help to alleviate the pressure on individuals while they get back on their feet.

Does the hon. Gentleman agree that schemes such as the debt arrangement scheme that my hon. Friend the Member for Aberdeen North (Kirsty Blackman) spoke of are hugely important in alleviating the stresses and strains that impact on not only the family members who are dealing with the debt but the children themselves? If we do not put steps in place to try to deal with that, the impact on the children could be long standing; it could have a lasting effect on their life chances.

I endorse those remarks in terms of what the objectives of such a scheme should be. We believe that, for it to be as effective as possible, the Government must undertake some further exploration of the technical details. In current versions of the scheme under way elsewhere, I understand that public sector debts such as council tax debt are excluded as well as self-assessment fines, benefit overpayments and so on. Those debts can often cause the most serious stress to individuals, so it is important to include those obligations alongside consumer credit.

Does my hon. Friend agree that, as recent research from StepChange has shown, local authorities and Government agencies are worse than payday lenders in how they enforce debts?

I am afraid that is my experience. I want to stress that that has been a serious problem for my constituents. In preparing for the debate I recalled that in recent months in my surgeries there have been three individuals who have all been pushed into dire financial situations specifically by the recovery of benefit overpayments, including one situation in which someone had to borrow money from family to feed their children. I have also found one of the fastest growing problems is council tax arrears, which affected 36% of the clients helped by the charity StepChange in my constituency in 2015, up from 20% of its client base in 2012.

As per previous announcements confirmed in the spring 2017 Budget, the Government intend to shift collection of certain overpaid tax credits from Her Majesty’s Revenue and Customs to the Department for Work and Pensions, with its enhanced collection programme projected to collect £520 million by 2022. The recovery of that sum is likely to have a substantial impact on the individuals concerned in the next few years, so a breathing space scheme that includes that type of debt would be enormously helpful in alleviating some of that pressure.

I wonder whether my hon. Friend would echo the concerns raised by my hon. Friend the Member for Makerfield (Yvonne Fovargue) that the Government have indicated some sympathy for the proposals but seem to be kicking the issue into the long grass. If the Minister says nothing else in his response, will my hon. Friend share my hope that he will give a commitment of a date for when a review could be undertaken and completed?

I agree entirely with my hon. Friend, and in my closing remarks I will ask for exactly that commitment.

There needs to be clarity over how participation in a debt arrangement scheme will impact on an individual’s credit rating. The rationale behind avoiding bankruptcy is partly down to the future impact of that on an individual’s borrowing capacity and financial position, particularly when their financial affairs may stabilise in a matter of months. Individuals struggling with debt in the short term may be hesitant to enter into a scheme if they feel that would damage their long-term ability to secure finance or if it would serve as a black mark on their credit history, should they wish to obtain a mortgage in future.

The key priority now is to see some progress and movement. The Government initially promised to put forward the review of the scheme—[Interruption]

Order. I understand that there may be more than one consecutive Division in the House. Please could all Members return here as soon as possible after the final Division so that we can conclude the sitting? If there is only one Division, Members should return immediately after that.

Sitting suspended for Divisions in the House.

On resuming

Before the sitting was suspended, I had begun to reach my conclusion. The key priority now is to see progress and movement on this issue. The Government initially promised to have a review of the scheme by December 2015, as we have heard today, but we are still waiting for that. Since then, according to the debt charity, StepChange, 1.3 million people have sought debt advice from the major debt advice charities. That shows the urgency of the situation and the real need for the scheme.

In a December 2015 report, StepChange also estimated that problem debt was costing the economy £8.3 billion, through knock-on effects such as lost productivity and the strain on health services. I ask the Minister to agree about the importance of minimising the harm caused by personal problem debt, the costs of which evidently affect all parts of the country. Will he also commit to a timeline for producing a detailed proposal for a breathing space scheme?

The issue of growing personal debt will not go away. Indeed, evidence shows that it is getting worse. The Government need to respond to this debate by promising clear and comprehensive action on how that can be tackled. Opposition Members believe that, although the scheme would not be a total solution for the public, it would be an excellent starting point.

It is a pleasure to serve under your chairmanship this afternoon, Mr Turner. I congratulate my hon. Friend the Member for Rochester and Strood (Kelly Tolhurst) on securing this important debate. There have been many thoughtful contributions and I am particularly pleased that they are on the record.

We all share an interest in helping people who have fallen into serious debt. We have heard some very distressing stories from hon. Members today. Debt can have a devastating impact on the lives of people in our communities, and people can fall into debt at really hard times in their life. Whether it follows the death of a loved one, a separation, or being made redundant, they are difficult times, so we must do what we can to help people who are in that situation to get back on their feet. That is all part and parcel of making a society and an economy that works for everyone. It is important that financial services work for everyone, too.

We have done some really good things to help, particularly on the role of the consumer credit market. The Financial Conduct Authority, which we set up in 2013, now regulates the market to give people much more protection. For instance, firms must provide forbearance—a period of respite—if their customers are unable to make their repayments. They must treat customers fairly and lend money responsibly. Crucially, they must lend money only to those whose affordability checks have proved that they can afford to repay it.

Those measures have had a real effect. Since the introduction of the payday loan price cap, the number of payday loans has fallen by more than 50%, from 4.2 million in 2014 to 1.8 million just a year later. Regulation alone is not the answer, so we are taking direct action to support people who are struggling with their debts, such as through the Money Advice Service, which last year funded more than 380,000 free advice sessions for people in debt. We have also been resourcing our illegal money lending teams to tackle those who seek to exploit and abuse vulnerable people. We are helping to ensure that there is a genuine alternative to ruthless illegal lenders with our support for the credit union sector, which includes £38 million of funding for the credit union expansion project.

We have been exploring carefully whether we could introduce a breathing space scheme to give people time to find a way to deal with their debts. I thank all those debt advice charities and creditors that have given their time and expertise to help us to look into this. It is clear that such a scheme has the potential to help people to get their finances back on track. We are looking at it carefully. I am pleased to say that we entirely support its principles of better debt management and lower problem debt.

However, we have also found that introducing such a scheme could mean costs to the public purse and could have an impact on local authority finances. With the national debt nearing 90% of GDP over the next few years, and while we are still forecast to borrow more than £50 billion this year, we have to assess any new spending proposals carefully. That is why we will continue to look into the various options for implementing a scheme such as this, and will consider closely its costs and benefits.

The Government are committed to tackling illegal money lending, which the hon. Member for Sheffield Central (Paul Blomfield) mentioned. In last year’s autumn statement, we announced that all funds from convicted loan sharks would be used to scale up credit union incentives.

My right hon. Friend the Member for Meriden (Dame Caroline Spelman) mentioned council tax debt. It is important that councils, which are best placed to make judgments about collecting council tax, act proportionately and fairly, and take into account the impact of non-collection on the broader population.

My hon. Friend the Member for Rochester and Strood made a number of very important points during her speech. The Government agree that it is important to ensure that people in financial debt get the help they need. That is why, for example, we are creating a new single financial guidance body. We are keen to address the impacts of debt, including on mental health, and we are working closely with the Money and Mental Health Policy Institute to review practices.

I thank the hon. Member for Makerfield (Yvonne Fovargue). Clearly, she has personal experience of this important area. My hon. Friends the Members for Eastbourne (Caroline Ansell) and for Kettering (Mr Hollobone), and the hon. Members for Blackburn (Kate Hollern), for Aberdeen North (Kirsty Blackman) and for Stalybridge and Hyde (Jonathan Reynolds), made thoughtful contributions. I thank them for being strong voices not only for their constituents, but for the vulnerable people we are discussing.

As I said, we have been carefully exploring the option of introducing a breathing space scheme, working closely with the debt advice and credit sectors. So far, the work has demonstrated that a period of statutory protection from creditors has the potential to give indebted customers the chance to get their finances back on track by giving them time to seek debt advice and move into existing debt solutions. Officials have found that a breathing space could stop consumer paralysis in the face of multiple creditor letters and enforcement action. It could encourage more people to come forward for debt advice earlier.

We will continue to look into the various options for implementing such a scheme and will consider closely its costs and benefits. We are looking carefully at what is happening in Scotland. When we are in a position to consult further, we will do so. I understand that many people, including those struggling with debt, would like to see such a scheme sooner rather than later.

In short, we have to do all we can to ensure we are helping people to get out of debt. We have done a lot already. My hon Friend the Member for Kettering mentioned financial education. He may be pleased when reading Hansard to learn that I had a meeting last week with the all-party parliamentary group on financial education for young people—indeed, I am in the process of writing to the Secretary of State for Education on this matter. The hon. Member for Blackburn (Kate Hollern) mentioned financial shocks. We are providing £45 million of levy funding a year via the Money Advice Service to fund, for example, the 380,000 free-to-client debt advice sessions that I mentioned had taken place last year. We are also working with the Financial Conduct Authority to ensure that the lending sector is better regulated.

We have been looking closely at the idea of a breathing space and will continue to explore its potential. I will do my best to work with my hon. Friend the Member for Rochester and Strood, and indeed anyone and everyone else who has an interest, because this is important and I would like as many people as possible to be involved as we move forward.

We will keep examining all the ways in which people in serious debt can be protected and supported as they get their finances under control. We want them to build happier, more secure futures for themselves and their families. I understand that the costs of debt are bigger than just the financial costs—for some, they have a lifelong impact. I want an economy that works for everyone, and will be doing all I can to move this forward.

I thank all Members for their contributions and for supporting my debate today, and thank the Minister for his positive comments.

Motion lapsed, and sitting adjourned without Question put (Standing Order No. 10(14)).