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Public Financial Guidance consultation

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How the Government can help promote free debt advice

The UK faces a debt advice gap. With an estimated 8.2m people in debt and 2.6m in severe problem debt*, only 1.7m are currently accessing debt advice. What’s more, the great majority of current debt advice is free to client, provided by the charitable sector.

With this in mind, it is important the Government does not make any changes which are likely to diminish the current supply of debt advice. Instead, the Government should seek to close the debt advice gap by promoting more free debt advice. Given the advice gap, a rational level of funding is higher than we see now.  

Financing free debt advice

Free debt advice is best financed by statutory funding (as now through the Financial Conduct Authority (FCA) levy) and voluntary giving (also as now, directly from a range of sources). A mixture of both is most likely to strike the right balance of efficiency, effectiveness, innovation, reach and responsiveness to change.

Extra funding could be secured via FCA or additional new levies, acknowledging the existing contribution made by creditor organisations. But moves towards additional statutory levies need to carefully avoid the risk that voluntary funding could withdraw from the sector. There is also scope for the sector to raise additional voluntary funding, especially where we can prove we can improve efficiency and effectiveness, and collaborate to serve clients better.

The Money Advice Service and co-ordinating debt advice

The current statutory arrangements for co-ordinating debt advice are centred on the Money Advice Service (MAS). We enjoy a good working relationship with MAS, although we could also work well with any alternative arrangements coming out of the review.  Either way, we think the statutory remit for co-ordinating debt advice is due for reform.

We don’t think there is a need for a role in standard-setting, which is a job for FCA, and we don’t think there is any need for the statutory body to be interposed between the source of advice and people in need, e.g. through a role as a “hub”.

We think the statutory body could help ensure clarity between statutory and voluntary funding for debt advice by allocating the latter in ways that clearly supplement the former and does not duplicate it. We think it could hold the Government accountable for properly conducting debt impact assessments to ensure that policies which could increase demand for debt advice are mitigated.

The role of local Government in debt advice

We think central and local Government should do more to support free debt advice, reflecting their role as a creditor in giving rise to problem debt, and the benefits which accrue to them from helping people via debt advice.  As well as funding, Government could adopt policies which would reduce the incidence and impact of problem debt, and so reduce demand for advice at source.

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*severe problem debt: people reporting carrying out three or more of the six objective danger signs of financial difficulty in the last 12 months

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What's the definition of 'severe problem debt'?

People reporting carrying out three or more of the six objective signs of financial difficulty in the last 12 months are classed as being in 'severe problem debt'.

The key signs that people are in financial difficulty and on the edge of tipping into problem debt are:

  • using credit to keep up with essential bills
  • using credit to keep up with existing credit commitments
  • using credit to last until payday
  • making minimum payments on a credit card for longer than three months
  • falling behind on essential bills
  • regularly facing late payment charges

These six objective signs are taken from Working households’ experiences of debt problems by Sharon Collard, Andrea Finney and Sara Davies, Personal Finance Research Centre, University of Bristol (November 2012).

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Helping you become debt free...

“I wish to thank your staff for all the great help they gave me when I was in so much debt.
They were a pillar of support to me.” (Leslie, Essex)

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.

*This is the average rating of our service based on the StepChange reviews on Feefo by DMP and DRO clients three months into their solution.

© StepChange Debt Charity 2016