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Breathing Space Scheme

Volume 662: debated on Wednesday 19 June 2019

With permission, I will make a statement on supporting people in problem debt. This is an issue close to my heart. As a former member of the all-party parliamentary group on hunger and food poverty, I have seen at first hand the hardship that problem debt can cause. Now that I am in a position to bring about change, I am focused on improving the lives of the most disadvantaged.

Problem debt places a heavy burden on households and can lead to family breakdown, stress and mental health issues. The Government have taken steps to prevent problem debt from occurring and to support those who have fallen into it. We have reformed the regulation of consumer credit and widened access to professional debt advice, and we are helping to build individual financial capability. Today, I can update the House on the Government’s plans to go further, with the introduction of a breathing space scheme and a statutory debt repayment plan. I am grateful for the support of the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Rochester and Strood (Kelly Tolhurst), whose private Member’s Bill and ongoing work have made a key contribution to the scheme becoming Government policy.

For people who are just getting by, even a small income shock can provoke a cycle of debt dependence that can be difficult to escape. If then faced with invasive debt enforcement, it is no wonder that many people in problem debt simply disengage. The first step to countering problem debt is to ensure that consumer credit firms are properly regulated, because loans should not be made to people who cannot afford to repay them. The Government have empowered the Financial Conduct Authority to ensure that firms lend responsibly, protecting consumers from over-borrowing. At Budget 2018, we announced new measures to increase access to affordable credit by helping foster a larger, more vibrant social lending sector.

In parallel, we have put in place support to help people make good financial decisions. The new Money and Pensions Service brings together three existing publicly funded money and pensions guidance services into one new organisation, providing free support and guidance on all aspects of people’s financial lives. Importantly, it also has a statutory duty to develop and co-ordinate a national strategy to improve people’s financial capability. Despite those preventive measures, I recognise that many people still fall into problem debt. For such people, further support is required.

Seeking professional advice is a vital step in moving towards a sustainable debt solution. That is why we have increased public funding for free professional debt advice to almost £56 million this year, delivering 560,000 sessions in England, but more needs to be done. The Money and Pensions Service estimates there are up to 9 million over-indebted people in the UK, but only a fraction of them access free debt advice each year. That is why I can announce today that, following consultation, the Government will deliver on their manifesto commitment to introduce a breathing space scheme for people in problem debt.

The scheme has two parts which, together, will protect debtors from creditor action, help them get professional advice on their debt problems, and help them pay off their debts in a sustainable way. Breathing space will provide debtors with a 60-day period in which interest and charges on their debts are frozen and enforcement action from creditors is paused. Creditors must not start new court action, communications with debtors relating to enforcement of their debt must stop, and benefit reductions to reclaim debt will pause. During the time, debtors will have to seek professional debt advice to find a sustainable solution to their debt problem. These protections will encourage people in problem debt to seek advice earlier and give them the headspace to identify the right debt solution for them.

The statutory debt repayment plan is a new debt solution that will extend the breathing space protections to debtors who commit to fully repaying their debts in a manageable timeline. Importantly, the payment plans will be flexible to changes in debtors’ life circumstances to remain sustainable over the long term. If someone’s disposable income decreases, their payments will go down, and vice versa.

The breathing space scheme will make a real difference to the most vulnerable families across the country, and I recognise the sense of urgency across the House to deliver this policy quickly. I am committed to delivering the scheme swiftly, working closely with key stakeholders to make sure that it works in practice. The Government will lay regulations on the breathing space element of the policy before the end of the year, and we intend to implement it in early 2021. We will continue to develop the statutory debt repayment plan to a longer timetable.

In addition, I am pleased to announce that the Government will go beyond their manifesto commitment in two areas. As many of us hear in our constituencies, people’s experiences of problem debt are changing. As I have seen at first hand, it is wrong to assume that over-indebtedness is simply a product of taking out too much credit. Many people struggle to meet essential bills and can end up owing money to multiple creditors in the public and private sectors. For the policy to be successful, it must properly reflect the issues that debtors are dealing with. I can therefore announce today that the breathing space scheme will cover a broad range of debts—not just financial services debts, but arrears owed to utility companies and to central and local government, including council tax arrears, personal tax debts and benefit overpayments. That broad protection will make the policy effective for debtors and fair to creditors.

The House will recognise the strong links between mental health issues and problem debt. Up to 23,000 people in England each year struggle with problem debt while in hospital due to mental health issues. The breathing space scheme must work for everyone facing problem debt. In particular, it must be open to the most vulnerable in society. To that end, I can confirm that people receiving treatment for mental health crisis can enter breathing space without seeking advice from a debt adviser, which could be a significant barrier for many.

The protections will last the entirety of an individual’s crisis treatment, followed by a further 30 days to allow them to get back on their feet and decide whether they wish to enter the main breathing space scheme or work out another solution for their debts. As mental health issues often recur, there will be no limit to the number of times that an individual can enter via this mechanism. I thank the hon. Member for Liverpool, Riverside (Dame Louise Ellman), the right hon. Member for North Norfolk (Norman Lamb) and my hon. Friend the Member for Plymouth, Moor View (Johnny Mercer) for their dedicated work on this issue, and I thank the Money and Mental Health Policy Institute for raising this important issue.

Millions of people struggle with problem debt and the burdens that it brings. The Government have committed to helping people take control of their finances and get back on a stable financial footing. The breathing space scheme that I have described today will help to fulfil that commitment, and I commend this statement to the House.

I begin by thanking the Minister for his courtesy in giving me advance notice of this statement, which we broadly welcome. There has been a growing consensus for some time about the need for something less dramatic than formal insolvency proceedings which offers hope to people with problem debts that there can be a way out. That is what the breathing space scheme should be—a space to let people get back on their feet, perhaps overcoming a health issue, a period of unemployment or something else that has adversely affected their lives.

There will always be disagreement between the Opposition and the Government on the necessity of the austerity policies that have blighted the country since 2010, but no one can deny that household debt in the UK is large, growing, and problematic for many people. The big change that I have seen in my constituency is that people are using credit not just to buy a car, a new sofa or a washing machine, but to pay their living costs at the end of the month—for food, dinner money, and children’s clothes. The worst is when people, unable to take control of their own affairs, go from one short-term credit product to another, compounding the costs and liabilities they are incurring and sometimes ending up in hock to illegal moneylenders as the only option they have left. One of my constituents in such circumstances ended up suicidal.

We want this policy to work, and my questions for the Minister are in that spirit. First, can he say why a 60-day period has been chosen as optimal? Going back to the need to let people overcome whatever problems they face, I have always felt that the period may need to be longer.

Secondly, will the Minister confirm my understanding that all debts will be covered, including public sector debts like council tax arrears and benefit overpayments? I very much recognise the obliteration of local government finances over the past nine years and, alongside colleagues, I presented a petition to Downing Street this morning on how bad it has been for councils like mine in Tameside. Council tax arrears are one of the biggest causes of the bailiffs being called, and we need such arrears to be included, too.

In addition, will the Minister look specifically at the issue of guarantor loans? Under such loans another person, typically a family member, accepts joint liability for the debt. I had another case of this type from a constituent in Stalybridge just this week. If the breathing space period does not apply to these loans, the burden will simply pass and offer no relief, which would be counterproductive.

Ultimately, this policy will work only if there are sufficient sources of advice and support for people to access during the breathing space period. It is a reality that such services—citizens advice bureaux, local authority and housing association advice centres, and so on—have been put under massive strain over the past few years. So what strategy do the Government have to significantly improve the capacity in this area? Whatever initiatives have been pursued to date, and whatever merit they have, there is no doubt that we need to go further.

Finally, in the famous words of Archbishop Desmond Tutu:

“There comes a point where we need to stop just pulling people out of the river. We need to go upstream and find out why they’re falling in.”

As well as a change of economic policy, we believe it is time to regulate further the interest that can be charged on overdrafts and credit cards, to look at the marketing of credit to vulnerable people, and to ensure there is real and effective financial education in schools.

There is a lot to do. This statement is a move in the right direction, but let us make sure we keep going in that direction.

I thank the hon. Gentleman for his typically positive and constructive remarks, and I will try to address the five key points he raises.

First, the 60-day time period is longer than our manifesto commitment of six weeks and is the product of listening to the consultation responses and to the experience of the mechanism in Scotland. Overall, it is seen as the right solution.

Secondly, the hon. Gentleman asked which debts are included. I tried to set out in my statement that the scheme is extremely broad, covering public sector debts and arrears. He asked about bailiffs and their role. Of course, the Ministry of Justice completed a consultation exercise in February and will respond in due course. There is also Cabinet Office guidance on the fairness of debt collection. He makes a reasonable point.

Thirdly, the hon. Gentleman asked about guarantor loans, which are an emerging new category of high-cost credit. Such matters are regulated by the Financial Conduct Authority, and I had a conversation just this morning with its chairman. I spoke to Andrew Bailey, its chief executive, earlier this week on the need to be vigilant across all emerging forms of high-cost credit, which is under ongoing review.

Fourthly, the hon. Gentleman asked about capacity and capability in the area of debt advice. I envisage that the creation of the Money and Pensions Service as a new single entity will bring much better co-ordination of the available advice. As I mentioned, the Government spent £56 million last year, and 85,000 more people were seen than in the previous year. We are looking at how that advice can become consistently of a higher standard.

Finally, the hon. Gentleman asked about the long-term causes and the regulation and marketing of high-cost credit products. Following the recent issues at London Capital & Finance, I directed the FCA to examine what happened, and I have asked my officials in the Treasury to conduct a separate review of how regulation works. We have to continue being vigilant on this evolving space, and the increased digitalisation of the availability of high-cost credit means that the regulation and oversight needs to keep pace.

I hope that answers the hon. Gentleman’s questions.

I welcome this statement and the Government going beyond their original manifesto commitment. It gives me a chance to thank my citizens advice bureau, which has done fantastic work on debt rescheduling during my 22 years as an MP.

Does the Minister welcome the Church of England’s initiative to teach financial literacy in its primary schools, and would he encourage rolling out such an approach to prevention more widely?

I welcome my right hon. Friend’s observations on the Church of England’s interventions on financial literacy. The ongoing challenge is to develop national consistency in the delivery of financial education and advice. A number of initiatives are under way, one of which is trying to get financial services providers, particularly the banks, to work in a more co-ordinated way. I am happy to endorse the work of the Church of England, which has been a significant partner in improving financial literacy across the country.

I am pleased that the UK Government have decided to put this in place and have set out the mechanism for doing so. In Scotland we have the debt arrangement scheme, which was launched in 2004 and significantly reformed in 2011, and a breathing space is built into that scheme.

Over £200 million of debt has been repaid since the reforms in Scotland, and 6,000 people completed a direct payment plan between 2011 and 2018, so I am pleased to see in the consultation responses published today that the Government have looked at how the system works in Scotland and have learned lessons. It is clear that, where the Scottish system has the powers to do so, we have the ability to trailblaze and lead the way.

In 2016, because of the debt arrangement scheme in Scotland, we had the lowest proportion of over-indebted people of any part of the UK. As austerity continues, we continue to see increases in the number of people suffering under the burden of debt. In 2017 there were 2.4 million children living in families with problem debt in England and Wales. StepChange, the debt charity, has said that 60% of those in problem debt fell into it because of an unexpected life event, and not because of poor money management—something external happened that changed their life, meaning they could no longer manage their debt.

I am concerned about why it will take the Government so long to implement the changes. Surely, as they already deal with a similar system in Scotland, most creditors should be able to take on the changes fairly quickly and roll them out over a wider group of people. Could this be done any quicker than 2021, which is the date I have seen in the papers?

I thank the hon. Lady for her observations, and she is right that the Government have carefully listened to and observed the experience in Scotland. She asks about the timeline, and I have done everything I can to move this forward as quickly as possible. The challenge is to bring the sector along at the same pace and to ensure that we have complete commitment and sign-up to the process so that it will be a success. I am pleased that the chief executive officer of StepChange has said that he is particularly pleased to see the Government’s confirmation that debts owed to the Government will be included in the scheme. We are working very carefully, and this is the timeline to which we have to work.

I thank the Minister for the proposals, which will help some of the most vulnerable and their families and, I believe, save lives. Will he clarify which stakeholders he will engage with to ensure effective implementation, and will they include debt advice charities such as Christians Against Poverty, which does such excellent work in this field?

My hon. Friend is right to draw attention to the excellent work of Christians Against Poverty, which is indeed a key stakeholder. We engage widely with the sector, including the Money and Mental Health Policy Institute, StepChange, the Money Advice Trust and the charity National Debtline—it really is a collaborative effort—and I am pleased with their response to where we have got to.

Debt ruins lives. Debt harms health. Debt damages relationship. Debt holds back children. In extreme circumstances, debt kills. When the Financial Guidance and Claims Act 2018—it established the Money and Pensions Service—was being taken through the House, the Government made a commitment to move on a breathing space scheme. Today’s announcement is therefore welcome, particularly the action being taken to defend the interests of those suffering mental ill health. In welcoming today’s announcement, I urge the Government to ensure that the new arrangements are properly resourced and that there is a sense of urgency in their implementation, because the sooner they are put in place, relieving that terrible burden that afflicts so many people in our country, the better.

I am extremely grateful to the hon. Gentleman for his comments. He played a significant role in the passage of the legislation that led to today’s announcement. He urges me once again on the timeframe, and I can assure him that my Treasury officials are working as rapidly as possible, but we must also ensure that it actually works. One of the questions he asked me previously, about what is included in the scheme and the range of public sector debts, has been a significant driver in those conversations. I acknowledge and take on board his comments.

I absolutely welcome the breathing space scheme, which will help people facing debts that they cannot repay. I join other Members in thanking citizens advice bureaux and organisations such as the Trussell Trust that help to signpost people to better debt advice. It has told me that young people, in particular, can get enormously concerned about their mobile phones being cut off, because if they lose their phones they lose their communications and any hope of finding work, for example. Will the Minister confirm that this will cover a wide range of debts and mean that people need not worry about losing their homes or their communications while their debts are sorted out?

I am extremely grateful to my hon. Friend for those observations and for mentioning the Trussell Trust, which is headquartered in my constituency and has done a lot of work in this area. The principles underpinning the scheme are based on the Insolvency Service’s system and include all debts covered by the system. There are a small number of exceptions—for example, deductions for child maintenance payments—but we have designed this so that it is meaningful. It is not about a holiday from ongoing payments; it is about dealing with arrears and debt. The expectation is that when people join the scheme they will continue to pay for everyday expenses as they occur.

Is the Minister aware of Debt Hacker, a free online tool that I launched here in the House of Commons? It is run by activists and uses FCA rules that are poorly understood by the general public to help consumers to get back their £50—or however much it is—from companies that use extortion to get money out of others. Is he also aware, given his broader role in the Treasury, of the fact that it is mainly NHS and public sector workers who are in this debt trap, because wages have not kept up with housing, energy and other costs?

The hon. Lady raises two points. I was not familiar with the Debt Hacker app, but I will seek it out because it sounds like a very worthwhile initiative. I respectfully say to her that in the fourth quarter of 2018 debt as a percentage of household income was 139%, whereas 10 years previously it was 160%. I recognise that households are experiencing strain, but it is not quite as dire as she makes out.

Loan sharks are the unacceptable face of capitalism, but this is a complex area and the Government should proceed with caution. Confidence in the market, and in capitalism more generally, depends crucially on the payment of debt. I very much hope that the Government will consult widely with the industry, particularly with credit card companies, and consider piloting, because there are unintended consequences of Governments, in their dying days, trying to virtue-signal and regulate more but actually doing more damage than good. Therefore, please may we have piloting and widespread consultation?

I am grateful to my right hon. Friend for his observations. This is not virtue-signalling; it is delivering on a manifesto commitment with the sectors involved, carefully and methodically. We rightly have a robust regulator with powers to deal with exploitative credit providers. As I indicated earlier, we are not complacent. I observe his concerns about ensuring that we implement this appropriately and with the wide assent of the industry.

I welcome the breathing space scheme, which will certainly be helpful in Blaenau Gwent, because we discovered that Wonga lent £1 million a year to our borough’s residents. I suspect that a 60-day period will not be enough. The fact is that although citizens advice bureaux are great, we have insufficient guidance and support in our borough. I think that 90 days might be necessary, or perhaps even more, so I ask the Minister to think carefully about that possibility.

We certainly keep all matters under review, but the 60-day period has not come from nowhere; it has come from deep engagement with the sector. As Joanna Elson, the chief executive of the Money Advice Trust, has said,

“this new scheme could well be a game-changer in our efforts to tackle problem debt as a society.”

I recognise that there are a range of views, but we have looked at what is out there and considered the Scottish experience, and we believe that this is the right policy response.

Order. Unless I am much mistaken, the hon. Member for Harborough (Neil O'Brien) is in danger of being rather a naughty man. I am advised that he beetled into the Chamber halfway through the response from the Opposition Front-Bench spokesman—[Interruption.] I was advised that he came through the double doors. I do not know whether he toddled out for some reason and then came back. If he is telling me —[Interruption.] The hon. Member for Bexhill and Battle (Huw Merriman) is chuntering from a sedentary position, and gesticulating as well, and in a manner not altogether helpful at this juncture to the Chair. If the hon. Member for Harborough says to me explicitly that he was here at the very start of the statement, I am happy to indulge him. Otherwise, I would say that he should count his lucky stars, because after all he did get in at Prime Minister’s questions, so he has had a jolly good day.

I take your advice, Mr Speaker. You think I was not here at the very start, and you are surely correct, so I will sit down.

Well, it is merely a question of remaining seated. After that Socratic dialogue, we will leave it for now. The hon. Gentleman can bank his PMQ. Very well done.

Financial difficulties are considered an adverse childhood experience. Facing problem debt in the family as a child can perpetuate cycles of poor mental health, low achievement, poor employment opportunities, prison, drug addiction and so on. I am very pleased that the hon. Member for Lewisham, Deptford (Vicky Foxcroft) earlier drew attention to ACEs. Will the Minister assure me that the breathing space scheme will include advisers being trained in adverse childhood experiences and trauma, so that the problems of financial hardships are not perpetuated into the next generation?

The hon. Lady makes a very reasonable point about the nature of the training for debt advisers. I cannot give her a specific commitment on that, because there are so many partners involved, but I will look into it and see what can be done to advance that very reasonable observation about the quality of advice given.

I welcome the proposals, although it has taken us since 2017 to get to this point and it is going to take another two years to get the first part operational. I am glad the Minister is moving swiftly and not dragging his feet.

Two problems for people who get into debt, particularly over tax credits or benefit clawback, are the interest charges that are applied as they try to repay and the management fees charged on top by debt-recovery agencies, which mean that the debt increasingly expands. The Minister could have a direct input on both those things; why does he not put a ceiling on those charges, rather than simply using a freeze?

The hon. Gentleman makes an interesting point, but that is not an area for which I have direct responsibility. Reclaimed overpayments—for example, from universal credit—will be included in the scheme. I cannot comment on things that are outside my control, but I hear his point about doing this as quickly as possible.

The announcement of the scheme is brilliant news and I welcome the statement enormously, and particularly the parts on the inclusion of Government debt in the scheme. I also welcome the fact that the Government have recognised the effect that debt has on people’s lives and their ability to get out of debt. However, I urge the Minister to look into the Government’s own policies—I suspect he knows what I am coming to. The five-week universal credit wait is a big issue. Advance payments are not the solution because they themselves are a debt and are putting vulnerable people further into debt. As I have said many times, the advance payment for the most vulnerable should be a grant, not a loan. As it is, we are handing out advance payments to around 60% of claimants. We are handing out the money anyway, so it is not going to cost us anything. It is just a cash-flow situation.

The Work and Pensions Committee has recently heard moving and horrendous testimonies from women who have been forced into sex work because they cannot make ends meet. We heard stories of women going into a brothel for around three days, working 20 hours out of 24 and coming out with £150 of earnings, and that gives them a roof over their heads as well. As our Prime Minister leaves office, I cannot believe that is the legacy she wants to leave behind. Please will the Minister look into this issue? It is also a Government debt.

I acknowledge the hon. Lady’s deep interest in and work on this topic over several years. She has raised points to which it is difficult for me to respond because they are outwith my responsibilities. As she will know, in the Budget we announced a £1.7 billion package of additional financial support for universal credit. I acknowledge that the hon. Lady disagrees with one element, but that additional support did involve the reduction of the maximum deduction from the standard allowance, from 40% to 30%. I cannot speak for a policy area for which I do not have responsibility. I am delivering a breathing space scheme that covers a wide range of debts and reaches deep into public sector debts, which I was keen for it to do from the outset.

As I set out in a recent Westminster Hall debate, the amounts being deducted from universal credit are a significant part of the reasons people fall into problem debt. I agree that a lot of that is down to Department for Work and Pensions policy, but I have seen many examples of people whose tax credit overpayments are being deducted from their universal credit, and of people being told that they have overpayments dating from 2006 or 2011, when they were supposed to have been written off. The average of £1,200 being deducted from people’s universal credit is contributing to their not having enough to get by or to pay their bills. Will the Minister and the Treasury please look into this issue as a matter of urgency and allow people to appeal against such deductions?

The hon. Lady will know that, as I said in response to the previous question, that is an issue of the administration of benefits and is the responsibility of the DWP. I will certainly make her observations clear to my colleagues in Government. Universal credit over- payments will be included from day one. I will make sure that I fully address the hon. Lady’s points and write to her on the detail.

I very much welcome the statement and the action that will be taken from today, because research shows that each year more than 100,000 people who are in debt attempt suicide. The scheme has to be helpful in giving them the support they need and improving mental health. One suicide crisis period, particularly for young men, is early adulthood; will the Minister liaise with colleagues to ensure that financial education and support is available not only in schools but in colleges and universities?

The hon. Lady makes a sensible point about the need for appropriate financial education at all levels. It needs to start early and endure through adolescence and into early adulthood. Several initiatives are under way to try to improve the quality of financial advice. The setting up of the Money and Pensions Service and its broader remit in this area is one part of that, but there are other partners, including our banks, through UK Finance, which is keen to do more. I very much take on board the hon. Lady’s observations.