Breathing Space Scheme: Consultation Response — House of Lords, 2019-06-19
Topic: Domestic Commerce
George Young (Conservative, Centre-right): My Lords, with the leave of the House, I shall now repeat a Statement made today in the other place by my honourable friend the Economic Secretary to the Treasury. The Statement is as follows: "With permission, I should like to make a Statement to the House 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 very 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 and a statutory debt repayment plan. I am very grateful for the support of my honourable friend for Rochester and Strood, whose Private Member’s Bill and ongoing work has made a key contribution to this 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; 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 overborrowing. At Budget 2018, the Government 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 these preventive measures, I recognise that many still fall into problem debt. For these 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 that there are up to 9 million overindebted people in the UK, but only a fraction access free debt advice each year. That is why I can announce today, following consultation, how the Government will deliver their manifesto commitment to introduce a breathing space scheme for people in problem debt The scheme has two parts that, 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 claim debt will pause. During this 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 head space to identify the right debt solution for them The statutory debt repayment plan is a new debt solution that extends the breathing space protections to debtors who commit to fully repaying their debts to a manageable timeline. Importantly, these payment plans will be flexible to changes in debtors’ life circumstances in order to remain sustainable over the long term. If their 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. So 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 intend to implement it as soon as possible 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 have heard in our constituencies, people’s experience of problem debt is changing. As I have seen at first hand, it is wrong to assume that overindebtedness 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 this policy to be successful it must properly reflect the issues that debtors are dealing with, so I can 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. Council tax arrears, personal tax debts and benefit overpayments will be included, among others. This broad protection will make the policy effective for debtors and fair to creditors The House will recognise also the strong links between mental health issues and problem debt. Sadly, up to 23,000 people in England each year struggle with problem debt while in hospital because of 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 in mental health crisis can enter Breathing Space without seeking advice from a debt adviser, which could be a significant barrier for many. These 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. Given that mental health issues are often recurring, there will be no limit to the number of times an individual can enter via this mechanism I thank the honourable Members for Liverpool Wavertree and North Norfolk, and my honourable friend the Member for Plymouth Moor View for their dedicated work on this issue, and the Money and Mental Health Policy Institute for raising this important issue Millions of people struggle with problem debt and the burdens it brings. The Government have committed to helping these people take control of their finances and get back on a stable financial footing. The Breathing Space scheme that I have described today will fulfil this commitment. I commend it to the House" My Lords, that concludes the Statement.