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StepChange Debt Charity and Martin Lewis call for Government to ensure those in debt crisis get ‘breathing space’ to buy food

3 February 2016

StepChange Debt Charity and Martin Lewis, founder of MoneySavingExpert.com, have today jointly called on the Government to fix the patchwork of rules and voluntary schemes for people struggling with temporary debt problems in England and Wales.

The call comes alongside new findings which highlight the extreme pressures felt by people in financial difficulty, including the one in five who have been unable to afford food after making unsecured debt repayments1.

The charity and the leading consumer advocate, Martin Lewis, are calling on the Government, in its forthcoming review of the legal framework for debt administration2, to consult on proposals for a comprehensive ‘breathing space’ scheme.

Such a scheme would see people who seek advice for debt problems given a period of six months to a year in which interest and charges are frozen and enforcement action halted, in order to give that person time get advice to recover their finances. And where people can repay their debts at an affordable rate and within a reasonable time, these protections should continue. These protections would only be accessible when recommended by a regulated debt advice agency.

 

Going without food and heating to pay debts

Specially commissioned research by StepChange Debt Charity, with a sample of 1,000 people who’ve shown signs of financial difficulties in the last 12 months, showed that after making unsecured debt repayments:

  • 20% said they had been left unable to afford food
  • 15% said they could not afford to heat their home
  • 12% said they did not have enough money left for electricity

Those on the panel who identified themselves as having financial difficulties were also asked what would provide the biggest help to regain control of their finances:

  • 35% said a freeze on interest and charges
  • 30% said creditors accepting reduced payments / affordable payment plan
  • 11% said a halt to enforcement action

Martin Lewis, founder of MoneySavingExpert.com, said:

“The inability to heat your home and feed your family is an easily prevented nightmare – if we bring in a widespread breathing space scheme. It won’t just help people financially, but also reduce the damaging mental-health consequences that are often a symptom of serious debt pressures.

“While some creditors already freeze interest and charges for people who are struggling, it only takes one creditor to not provide breathing space to stop those in financial difficulty sorting their finances. It’s time for the Government to step in.

“By freezing the costs for people who are trying to repay, and allowing them time to get their finances back on track, it could also help lenders increase the amount they actually recover in the long run.”

Mike O’Connor, Chief Executive of StepChange Debt Charity, said

“Our research shows the desperate position that many people with financial difficulties face and how the pressure to repay debts at an unaffordable rate and threats of enforcement can leave them forgoing even the basics like food and heating.

“When people who are struggling with debt get advice, take action to deal with the problem and do their best to repay their debts, they deserve help and support which allows them and their families to get back on their feet.

“The absence of statutory protections for people in temporary financial difficulty is a serious public policy failure. Scotland has shown the way with the development of the Debt Administration Scheme and that version of this scheme can and does work.”

A patchwork of protections and voluntary schemes

For many people their debt problems have been caused by an ‘income shock’ such as job loss, illness or relationship breakdown. People can and do recover from these temporary shocks, but without sufficient support and protection these problems can spiral out of control and become entrenched and unmanageable.

The charity says that there is currently no consistent approach by creditors on how they treat people in debt who ask for assistance. A patchwork of voluntary schemes and guidance and a lack of consistency across the financial sector means that some people will get help in the form of a freeze on interest and charges and the acceptance of affordable repayments, but others will not. When support isn’t forthcoming it often leads people to take on further borrowing to pay back existing debts, deepening their existing financial problems.

While statutory protections for people with intractable debt problems are available via the insolvency process through options including bankruptcy, Individual Voluntary Arrangements (IVA) and Debt Relief Orders (DRO), analysis of the charity’s clients shows that insolvency options were suitable for only around one in five of the people it advised3.

An urgent need for better support

Better protections and support for people in debt are urgently needed. Recent research by StepChange Debt Charity showed that 2.6 million in the UK are in severe problem debt4. The economic case for action to limit the impact of problem debt is clear, it costs society £8.3bn5.

Notes to editors:

  1. In conjunction with YouGov, StepChange Debt Charity built a unique panel of 1,000 people who displayed between one and six objective signs of financial difficulty. These signs were identified in research conducted for StepChange Debt Charity by the Personal Finance Research at Bristol University. The following are considered to be signs of financial difficulty: making minimum repayments on credit commitments for three months or more; falling behind on essential bills, using credit to pay essential bills; using credit to keep up with credit commitments; using credit to make it through to payday; getting hit with overdraft or late payment charges on a regular basis.
  2. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 1,000 adults showing signs of financial difficulty. Fieldwork was undertaken between 13th - 21st January 2016. The survey was carried out online.
  3. In response to the Review of the Money Advice Service the previous Government announced that HM Treasury and the Insolvency Service would review the ‘legal framework for debt administration’.
  4. Safe Harbours – a report by StepChange Debt Charity (January 2015)
  5. Navigating the New Normal – a report by StepChange Debt Charity (December 2015)
  6. Cutting the cost of problem debt – a report by StepChange Debt Charity (October 2014)

StepChange Debt Charity news contact

All media enquiries should be directed to:

Edward Ware (Edward.ware@stepchange.org) 0207 391 4595

Out of hours - 07985 404153

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Foundation for Credit Counselling Wade House, Merrion Centre, Leeds, LS2 8NG trading as StepChange Debt Charity and StepChange Debt Charity Scotland. A registered charity no.1016630 and SC046263. It is a limited company registered in England and Wales (company no:2757055). Authorised and regulated by the Financial Conduct Authority.

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© StepChange Debt Charity 2016