Breathing Space Scheme: Consultation Response

Lord Sharkey Excerpts

Wednesday 19th June 2019 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I declare my previous interest as a former chair of StepChange, the debt charity. I thank the Minister for repeating this Statement, and I am very happy to hear what he had to say. I have campaigned for both these changes in policy for a number of years, and it is astonishing to hear them being announced today. What on earth will I do with my time?

The Minister will recall the discussions we had during the passage of the Financial Guidance and Claims Bill when he was the co-pilot, as he described it. We worked closely with the Government to try to get a breathing space scheme into scope. We did not succeed then, and the worry was that although these two measures were in the Conservative Party manifesto, they might, like so many other good and necessary policies in recent years, fall under the Brexit behemoth, but here we are. I welcome the excellent progress made on this issue.

I was interested to hear that the Minister making the announcement in the other place revealed that this is an issue close to his heart. I think everyone who has seen at first hand the hardship that problem debt can cause realises that it places a heavy burden on households and can lead to family breakdown, stress and mental health issues. It was good to hear the Government accept that it is wrong to assume that overindebtedness is simply a product of feckless people taking out too much credit. Many hard-working families struggle to meet essential bills and can end up owing money to multiple creditors in the public and private sectors. My experience in StepChange was that the majority of the 500,000 or so people who contacted the charity each year had successfully managed their finances for many years before illness or another unexpected factor tipped them into unmanageable debt, which they desperately wanted to repay.

With this announcement today, the Government have taken a significant step which will do a huge amount to encourage people to seek the free professional advice they need timeously when problem debt occurs. The combination of the breathing space and the statutory debt recovery scheme will support those who have the capacity to repay their debts but lack the knowledge and expertise to deal with their multiple creditors. It will allow them to do so in a way that will repay much more to creditors and in a shorter time. This system has worked for many years in Scotland, and it is good to see that pioneering approach being extended to England and Wales, and hopefully to Northern Ireland in due course.

The detail of the government response has only just gone up on the website and there is a lot to take in, but I would like to make a few points. I worry that the breathing space period of 60 days may not be long enough in practice, and I am sure that this will be something we will need to come back to, but I think the best thing is to begin with that length and review it in the light of experience. It is good that the protections include the freezing of further default interest, charges and enforcement action once somebody has taken the first step of seeking debt advice. We are delighted that government debt will be included in both schemes. In particular, this should give some protection to many people against the rather aggressive action that is sometimes taken by bailiffs collecting council tax arrears.

The introduction of a special version of the breathing space for people experiencing a mental health crisis is most welcome. It is good that there is not going to be a public register, with all that that might bring in terms of unsolicited approaches to those on it from unscrupulous third parties. I think the Government have taken the right decision about a private register. We are sad that we will not see the breathing space scheme until 2020 and will not see the statutory debt management recovery scheme until 2021 or later, but I hope that HMT will do what it can to expedite both schemes. We certainly stand ready to help if that is required.

I have some reservations about the suggested level of the statutory fair share element in the SDRP. The current scheme agreed with large creditors is much higher than the 9% suggested in the Treasury’s response. However, I am aware that there is a broader discussion on comprehensive debt advice funding being worked on by the new Money and Pensions Service.

I will conclude by discussing two other issues. Unmanageable personal debt is a by-product of many factors, but most are linked to the health of the economy. Lack of affordable credit, slow wage growth, growth in zero-hours contracts and changes brought in by the gig economy all play a part. In addition, it is incontestable that the introduction of universal credit is causing strain and stress here. While this new policy is welcome—and it is—other issues need to be addressed. Does the Minister agree?

Finally, while it is true that the Government have acted to correct abuses in the consumer credit market, high-interest loans are still being made to people who cannot afford to repay them. Banks are not averse to making punitive charges for temporary overdrafts. Guarantor loans are a current concern, and it is a matter of considerable regret that the Government have not taken action to outlaw logbook loans. In relation to the latter, will the Minister agree to meet me to discuss how we might progress the Law Commission draft Bill on goods mortgages, which would inter alia have the effect of repealing the Victorian legislation that gives rise to these bans?

[Lord Sharkey (LD)]

My Lords, I thank the Minister for repeating the Statement. We on these Benches very much welcome the introduction of the breathing space and the statutory debt repayment schemes, although we do have a few questions about execution.

To debtors, this reform may seem to have been quite a long time coming: I can recall discussions in Parliament in 2015, as well as outside long before that. The proposal was, of course, included in the Conservative Party’s 2017 manifesto. Many people and organisations have played a part in getting us to this stage. I particularly want to mention StepChange and the noble Lord, Lord Stevenson of Balmacara. The critical point in getting the Government to do something arose during the passage through this House of what is now the Financial Guidance and Claims Act 2018. The amendment to the Bill by the noble Lord, Lord Stevenson, about breathing space now appears as Section 6 of the Act. This section encouraged and enabled the Government to do what they have announced today.

Turning to the schemes themselves, we are pleased that the Government have in most cases followed the advice they were given in the consultation—which seemed to be a model of its kind, unlike some of the other consultations that the Minister and I have had to discuss in this Chamber. We believe that the eligibility criteria for the breathing space scheme are broadly right, although we have doubts about the restriction to only once in 12 months. We encourage the Government to think again about this and—as they say they are minded to—to include provision for joint debts to qualify for inclusion in the scheme.

We are also happy to see that local and central government debts are to be included in the new scheme and very pleased to see the inclusion of small sole-trader debts, which we think is a vital element. We especially welcome the unlimited extension and repeated entry to the scheme for those in mental health crisis.

The Government’s very helpful consultation and policy response paper does qualify the inclusion of universal credit advances and third-party deductions from universal credit. The document is very vague about the timing of their eventual inclusion. I ask the Minister to give the House a little more detail and encourage him to speed up the process of including these two elements.

When it comes to which ongoing bills should be paid during the breathing space, I think that the Government have it about right in giving debt advice agencies the discretion over whether to remove people who do not keep up specified ongoing payments from the scheme.

Debt and debt repayment continue to be severe problems for millions of people in this country. As the Minister noted, the Money and Pensions Service has estimated that around 9 million people are overburdened with debt. We also now know that real incomes have started to fall again.

The Government’s proposals are a significant step forward in addressing problem debt, and we welcome them. However, we are disappointed with the timetable for the introduction of these measures. Early 2021 seems a very long way off—probably an intolerably long way off if you have unmanageable debt. All the Government’s proposed measures can be introduced by SI. Parliament is not currently overpressed with business. Why can we not use some of that time to bring forward the implementation date?

[Lord Young of Cookham]

I thank both noble Lords for their generous welcome to the announcement, in particular the noble Lord, Lord Stevenson. I remember the forceful case he made during the passage of the Financial Guidance and Claims Bill, drawing on his experience in StepChange, which drew on research showing that schemes such as this stop people getting into a cycle of debt and end up with the creditors getting more than they would, had such a scheme not been available. As the noble Lord, Lord Sharkey, said, his amendments to the Bill enable us to make progress. As he said, I was a co-pilot with my noble friend Lord Freud on the Bill—the two intellectuals Freud and Young took that Bill through the House.

I take the point from the noble Lord, Lord Stevenson, about 60 days possibly being not long enough. He will know that that is more than the six weeks pledged in our manifesto and more than the six weeks available in Scotland. We believe we have that right. I agree entirely with what he said about the Insolvency Service’s register being private and not public. I take his point, which was also made by the noble Lord, Lord Sharkey, about trying to speed things up.

I take the point that the 9% top slice that the agencies will get is less than the 13% currently available, but by contrast this is guaranteed in a way the 13% might not be. Also, we believe it will be on a much broader base. Of course we will keep the revenue stream under regular review, but we think we have it about right.

On loans, the FCA has announced a tough new package of measures on high-cost credit. It has the powers to introduce caps, but perhaps I can make more inquiries about that specific point. I have no hesitation in agreeing to a meeting with the noble Lord, Lord Stevenson, which I welcome. Perhaps it would make sense to involve the Economic Secretary to the Treasury, who has prime policy responsibility for the subject matter.

I am grateful to the noble Lord, Lord Sharkey, for his welcome of the scheme. The once-only ability to go into the breathing space does not apply to those with mental health problems. We wanted the first time to have a sustainable, long-term solution to the debt problems and there was an anxiety about the possibility of abuse if people could go on applying. We will look at that. He has a valid point about joint debts. Likewise, often a small trader’s personal finances are inextricably involved with the business. It makes sense to have eligibility for small traders up to the VAT limit.

On universal credit, any overpayments will be stopped immediately, although there is an IT issue that prevents the same process being applied to other payments. Perhaps I could write to the noble Lord, but the objective is to address those IT problems as soon as possible.

Finally, the noble Lord mentioned the timetable. This was raised in the other place. He might have followed the exchanges. The Economic Secretary said that he had had discussions with his officials to try to drive the timetable through as quickly as possible. There are some IT issues about making sure the public sector interface with the Insolvency Service can react to people entering and leaving the breathing space. We want to get it right, but I will certainly tell the Economic Secretary that both noble Lords expressed anxiety about the timetable and asked whether it could possibly be accelerated.