StepChange responds on Breathing Space
Steps needed to ensure new protections work as intended
29 January, 2019
StepChange Debt Charity today responds to HM Treasury’s consultation on debt “Breathing Space” and a new defined statutory debt repayment plan (SDRP). For the first time, people who enter into arrangements that will see them paying back their debts in full will get a level of statutory protection that has previously only been in place for those taking insolvency-based approaches.
This is good news, but there are important details that need refinement if the schemes are to be effective.
Phil Andrew, CEO of StepChange Debt Charity, says:
"The principle of extending statutory protection to those seeking to repay their debts is enormously welcome. The refinements we suggest are designed to be constructive, to ensure that the policy intentions are met in practice, and that the maximum number of people can be helped. We look forward to working with Government and the rest of the advice sector on the rollout of these exciting new protections as soon as the practicalities allow."
In particular, StepChange believes that:
- It is absolutely vital that debts owed to Government (as well as to private creditors and utility providers) are included in both the Breathing Space and the SDRP.
If they are not, there is a real risk that schemes will fail more often. People often respond to unaffordable payment demands and threats of enforcement by unrealistic attempts at juggling or borrowing to pay, which causes more problems. So, unless all of a person’s debts are included, this risk remains - and is especially concerning given that government debt collection practices lag behind those in the regulated private sector. On a separate but connected point, deductions from benefits to repay debt should stop during the Breathing Space period for the scheme to be effective.
- Any central register of those using Breathing Space or SDRPs must operate on a closed rather than a public basis.
If it is public, many people who would potentially benefit from the protections may refuse to use it. A public register also puts people at real risk of being targeted by disreputable, exploitative or fraudulent entities.
- It is right that debt advice should act as the “gateway” to accessing Breathing Space, providing a clear incentive for people to take advice.
It is important to make use of existing infrastructure and processes where possible, to ensure value-for-money and a proportionate impact on the new costs that debt advice agencies will incur. For example, aspects such as the proposed requirement to undertake a pro-active 30-day check that a client is complying will be costly and are unlikely to provide additional value. If debt advice charities have to absorb such costs, they will detract from the ability to provide other services.
- It is important that the Government recognises that the 60-day period proposed for Breathing Space will not be long enough to set up a debt solution for some people, even where a solution is identified and being put in place. People risk “falling out” of protection between Breathing Space ending and a solution being in place.
A good way of mitigating this risk would be to enable the debt advice “gatekeeper” organisation to be able to trigger an extension to the protection period in these circumstances.
- More generally, we think that both Breathing Space and the new SDRP will have the best chance of meeting their policy objectives, and reducing the drop-out rate, if a little more flexibility can be built into them.
For example, the 10-year maximum “appropriate timeframe” for an SDRP should be a guide, rather than a firm cut-off; the requirement to meet ongoing liabilities within the Breathing Space period should be less rigid if individual circumstances suggest this is appropriate; and some flexibility to allow occasional short payment breaks at the discretion of the debt adviser in appropriate circumstances would reduce plan failure rates.
- The charity’s final point relates to funding. StepChange thinks the principle that creditors who benefit from receiving payments under SDRPs should make a compulsory funding contribution is reasonable. It stands in contrast to the voluntary contribution system that currently exists on debt management plans. However, the suggested 8% contribution figure needs further consideration, alongside a more holistic view of debt advice sector funding.
At 8%, even if applied across all creditors, StepChange Debt Charity estimates the income it would receive in total would be less than it currently receives under voluntary contributions. More generally, the funding of the debt advice sector needs reviewing in the round. At the moment, funding generally supports solutions rather than advice, and is patchy across different solutions and poorly aligned to the actual costs of delivery. It would be helpful to pause the decision on SDRP contributions until a more rational funding system is reached across the debt advice sector as a whole.
Notes to editors
1. StepChange CEO Phil Andrew’s blog on the consultation is available here.
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