Merry Christmas, and plans for 2021

As Christmas approaches we want to thank all who have supported the campaign for a #betterbreathingspace since we launched just over two weeks ago. We hope you all stay safe and have as good a time as possible given the wider circumstances.

We also want to take the opportunity to reflect on the past couple of weeks and provide people with some detail of our plans for 2021.

Since we launched the campaign on 9th December, we have gathered over 140 signatures from debt advisers to our Open Letter to the Economic Secretary, and we have had additional signatures from the actor and activist Michael Sheen and over 70 members of the public. That’s a fantastic response in such a short space of time.

The #betterbreathingspace campaign

But we know that there is much more to do in 2021 if we are to give people in debt a real chance for a better future. We will be picking up on media leads and looking to publish the Open Letter in the middle of January. After which we will be asking our supporters to lobby their MPs and providing template letters for them to use, as well as publishing a Parliamentary Briefing setting out more detail of our concerns about the Government’s current ‘breathing space’ scheme.

It is still possible for us to win changes to the scheme. Either by persuading Parliamentarians to amend the Financial Services Bill which is expected to progress to the House of Lords early in the New Year, or, hopefully, because the Treasury will take account of the strength of feeling from the front-line and amend its current regulations. Technically, only forty days are needed for this. So we must keep up the campaigning right through February and March.

But even if Government won’t listen, and the scheme comes in on 4th May as currently proposed, we will continue to press for change by reporting on the realities from the front-line. And we know that further problems are coming down to that line in the form of the Statutory Debt Repayment plan. Government has said it will consult on the regulations for that scheme once the Financial Services Bill has received Royal Assent, which we expect will be early Spring.

Statutory Debt Repayment Plans

As we currently understand them, the Government’s intentions for the Statutory Debt Repayment Plan will create an incentive for debt advice agencies to place people on long-term debt management plans, with funding made available for the management of these.

At a time when other funding options are constrained, either because of local authority cuts affecting both direct provision and the voluntary sector - or because of the unworkable Money and Pensions Service contracts that many colleagues are operating under - the Statutory Debt Repayment Plan could pave the way for the roll out of a ‘StepChange like’ model for the entire sector.

What’s wrong with Debt Management Plans?

For too long the ‘fair shares’ model has gone largely uncriticised. But as front-line debt advisers see far too often, long-term debt management plans - such as those used by StepChange and Payplan - risk pushing people into long term poverty.

The assessments of a debtor’s disposable income can be pushed to the limit, for example by including income from disability benefits but not taking account of health related additional expenditure. Not all Debt Management Plan providers use the Standard Financial Statement guidelines, but even if they do these are based on such a low living standard that they embed poverty and provide little to no incentive for people to increase their incomes for years to come. Just like Individual Voluntary Arrangements, which share some of the same pitfalls, many fail as a result.

Long-term debt management plans are a form of debt collection, often for debts which have already been written off by originating lenders and sold on at a fraction of their face value on the secondary debt market. Merely freezing interest and collecting debts out in full, over many years, is not a fair solution. People need a ‘fresh start’, and the wider economy needs a way out of its ‘debt overhang’, which threatens to constrain demand and hold back any post Covid recovery.

The Statutory Debt Repayment Plan will also require that debt advisers monitor payments, potentially transforming debt adviser and client relationships for the worse. This is next step to the ‘mid-way review’ provisions of the ‘breathing space’ scheme, which, if it goes ahead, will require debt advisers to monitor the behaviour of debtors on the scheme.

Individual Voluntary Arrangements and Debt Solutions

People can either be kept in debt, or released from it. The Statutory Debt Repayment Plan proposals indicate Government intends to keep debtors in poverty for between seven to ten years. Routes to a faster discharge of debt do exist, but we know that Bankruptcy fees are prohibitive for many, and because the eligibility criteria for Debt Relief Order (‘DRO’) are restrictive, more and more people are being targeted for Individual Voluntary Arrangements or placed on long-term plans than ever before.

Front-line debt advisers have told us how IVA providers manipulate disposable income calculations to ensure that this exceeds the £50 per month limit for a DRO, thereby allowing them to sell the IVA to people desperate for relief. Both the Financial Conduct Authority and the Insolvency Service need to take an in-depth assessment of practices in the sector, and, this time, take robust action to eliminate these malpractices.

Making our voices heard in 2021

Whatever happens with ‘breathing space’ we know that front-line debt advice workers will need to start making their voices heard much more loudly in 2021.

Be it about the reality of working under a Money and Pensions Service contract; in the consultation over the Statutory Debt Repayment Plan, or more generally about the living standards that many debtors are experiencing and the need for more effective debt solutions there is now an urgent need to ‘speak truth to power’.

So we hope that you all have a well-deserved Christmas break, and we look forward to working with you to make sure 2021 is the year when front-line debt advisers engage directly and effectively with policymakers to create a real chance of a better future for people in debt.