Independent Debt Advice

Debate between Andy Slaughter and Nia Griffith

Tuesday 8th February 2011 Westminster Hall

[Nia Griffith (Llanelli) (Lab)]

It is a great pleasure to serve under your chairmanship, Mrs Riordan.

I begin by congratulating my hon. Friend the Member for Makerfield (Yvonne Fovargue) on securing this debate on the very serious subject of debt advice, and on the important work that she herself has carried out to highlight the devastating effects that debt, and worrying about debt, can have on people’s lives. I will not repeat the excellent comments made by hon. Members who have outlined the problem clearly.

The number of people seeking debt advice is increasing, and the statistics are alarming. In 2009-10, the CAB dealt with some 2 million debt issues. The main non- fee-charging advice agencies offering debt advice are the CAB, National Debtline, Consumer Credit Counselling Service and Payplan. The CAB and National Debtline receive no money from the credit industry, whereas the CCCS and Payplan do. Of the four agencies, only the CAB offers an intensive, personal counselling service on debt.

Citizens advice bureaux, as we know, are generally staffed by volunteers, most of whom are generalist advisers, with some paid specialist advisers. Specialist advisers deal with the most complex cases, but they also supervise volunteers who undertake simpler casework in the specialist’s area of expertise. In the majority of cases, when a specialist adviser is made redundant, the bureau concerned generally no longer offers an advocacy service in that advice area. The bureau cannot expect volunteers to carry on without that back-up. The CAB is a highly professional organisation that recognises the considerable risks of people proffering advice that they are not qualified to give. Without the back-up of specialist advisers, they know that they have to limit the advice they can offer to clients.

In many cases that may mean that generalist advisers can only give the client access to information about the options and procedures that he or she might pursue. Providing information for a client to follow is a path used by bureaux when a client considers themselves sufficiently articulate, literate and confident to proceed on their own. However, most debt advice clients who approach the bureau for advice feel unable to communicate effectively with their creditors. They need the advocacy that specialist advisers provide.

Bureaux do not offer debt advice in isolation. The client also benefits from benefit, housing and employment advice. At the CAB they know that they are not just dealing with a debt problem; they are dealing with a human being. A person has their own unique set of circumstances: work circumstances such as losing their job or being put on reduced working hours, or retirement or giving up work to care for a family member; or personal circumstances such as relationship breakdown, dependent children and so on. People may not initially present as debt cases, but it may become apparent in talking through their other problems that they have an underlying debt problem.

Citizens advice bureaux have a highly trained network of volunteers who understand what they are and are not qualified to advise on. They know that if a client has complex debt problems that they are not qualified to advise on, they can arrange for them to see the appropriately qualified member of the team. CABs have led the way in using volunteers but making sure that they have proper training, and that they are backed up by qualified teams. In that way, they are able to make the most of their volunteers and to offer real value for money.

As Dame Elizabeth Hoodless, who is retiring after 36 years in charge of Community Service Volunteers, said:

“We know we need to save money, but there are other ways of saving money without destroying the volunteer army.”

She used the example of libraries and pointed out that people may want to help in a library but do not want to run it. The same is true of the CAB: volunteers are happy to come along and carry out clearly defined duties for which they have been trained, but they know that they can be more effective because they can call on a team of professionals when they recognise that a problem is beyond their competence. They certainly do not want to run the business.

We all appreciate the idea of a one-stop shop; we yearn to simplify matters, and we recognise that people often find themselves in a Catch-22 situation and have to deal with several different agencies. One of the vital features of CABs is their ability to deal with the whole range of problems that a client may have. That is why taking away any one of their streams of funding will have such a serious knock-on effect.

Let us look at the overall funding of the CABs. First, there is huge input from local councils, which provide some 43% of the total income of CABs. We all know that councils are facing severe difficulties in planning their budgets for the next few years and that in order to protect their statutory services, they will look at all options, including cuts to funding for CABs and similar organisations in their area.

Then there are the cuts in legal aid. A cut of one sixth of the legal aid budget will mean that some £350 million out of £2 billion will be cut. That, too, will have a serious effect on CABs because of the franchise work that some bureaux do. It is completely incomprehensible that legal aid will be available for debt work only when a person’s home is at immediate risk. One does not need to be a specialist adviser to recognise that early intervention is far preferable, much cheaper and more effective.

[Mr Slaughter]

My hon. Friend is absolutely right. In my constituency, three of the four advice agencies have lost all their local government funding, and if the Green Paper goes through, they will lose 90% of their Legal Services Commission funding. Even services that the Government say they will protect will not be available because the advice centres will have closed, and areas such as my constituency will be advice deserts. There simply will not be any advice available to anyone in most parts of the country.

[Nia Griffith]

My hon. Friend vividly highlights a serious problem; that is exactly what will happen.

There will be cuts to advice on education, employment, family, housing, immigration and welfare benefits. Those cuts will have a direct impact on funding for CABs and their ability to provide a comprehensive service, but they will also have a direct impact on clients’ debt problems. If clients are unable to fight for the welfare benefits or extra provision for a special needs child to which they are entitled, they may be faced with a worsening debt problem.

Given the cuts to legal aid and to CABs through the withdrawal of the financial inclusion fund and local government funding, CABs will struggle, and many will close. The Government’s Office for Civil Society has a transition fund that will apparently provide grant funding to bridge any gap, at least in the short term, but it applies only to England, and it applies only to organisations with an income of between £50,000 and £10 million, which excludes some CABs. Can the Minister clarify whether any of the transition fund will be used for debt advice and, if so, how much?

What are the alternatives to organisations such as the CAB? How else can debt advice be delivered? Are the Government expecting the Consumer Credit Counselling Service and Payplan to deal with all the additional workload of clients who will no longer be able to go to a CAB? Those organisations receive funding from the credit industry, and although Payplan has considerably expanded its services in recent years, it is simply unrealistic to expect it to be able to expand quickly enough to deal with an additional 2 million cases a year. Moreover, it deals with debt; it does not deal with the full range of clients’ problems, which are often inextricably linked to their debt problems.

We have to ask the Government what alternative they propose. Is it debt management companies? The record and practice of many such companies gives rise to serious concern. In September 2010, the Office of Fair Trading told 129 debt management firms that they faced losing their consumer credit licences unless immediate action was taken to comply with its debt management guidance. The OFT found misleading advertising; in particular, firms fail to disclose that a fee is retained by the business. In fact, firms misrepresent debt management services as being free when they are not. That is serious, as clients already have enough difficulties without being exploited still further.