Debt Advice and Debt Management

Debate between Gordon Banks and Tracey Crouch

Thursday 1st December 2011 Commons Chamber

[Tracey Crouch (Chatham and Aylesford) (Con)]

It is a pleasure to follow the hon. Member for Stockton North (Alex Cunningham). I attended the Backbench Business Committee with him in order to try to secure this debate, and I am grateful to the Committee for enabling us to speak on this important issue.

Debt is not a new phenomenon, but over recent years personal debt levels have risen sharply and have become unmanageable for many. Total UK personal debt stands at £1.5 trillion, UK adults owe an average of £30,000, and the Office for Budget Responsibility predicts that total household debt is set to rise from £55,000 to just over £80,000 by the end of this Parliament. My constituency of Chatham and Aylesford has pockets of severe deprivation and high levels of personal debt, and the number of new personal insolvencies there stood at 275 in 2009 alone. Those figures give a mere snapshot of the levels of debt we face in the UK, but they serve to highlight the importance of getting the debt advice right for those in need.

People can find it difficult to admit that their debts have become unmanageable. Many would rather continue as if there were not a problem with the state of their finances, struggling to make their monthly payments and racking up more debt. Typical symptoms include selectively ignoring bills, taking on more credit cards, and turning to store cards to relieve the pressure temporarily. Of course, that just prolongs the delay before the acceptance of a debt problem and worsens the situation in the meantime. Long gone are the days when bank managers took people aside, as they did with me, and cut up their credit cards, but I think many of us would welcome a return to the days when banks paid a bit more attention to personal accounts.

Although many of the individuals seeking debt advice represent a particularly vulnerable section of society on a low income, unmanageable debt is no longer confined to the least well-off. Data from Experian suggest that the biggest increase in personal insolvencies in 2010 was among middle-class families, who typically have a number of monthly outgoings to meet. Equally worrying is the number of young professionals and middle-income earners who have entered insolvency. To return to the point I made earlier about problems in dealing with debt, it is fair to say that it is such groups in society who struggle the most to admit that there is a problem in the first place.

Aside from not wanting to admit to what they see as a failure on their part, those people might be oblivious to the advice and services open to them and instead go on burying their heads in the sand. One fifth of the people struggling with debt are not sure where to turn for advice, let alone aware of the benefits and drawbacks of debt management plans, the meaning of an individual voluntary arrangement or the criteria for debt relief orders. When they decide to do something about their debts, information and impartial advice are key. Finding someone the right solution and getting them on to a feasible plan is vital to remedying the problem, not least as the repayment of debts owed is in the interest of not only the debtor, but the creditors they owe.

Unfortunately, customers can find themselves signed up to inappropriate repayment plans. Statistics from R3, the insolvency trade body, have revealed that 35% of individuals on a debt management plan were not made aware of alternative ways of consolidating their debts and 12% said that they felt pressurised into the arrangement by the company responsible for administering it. Up to 30% of those now declared bankrupt were previously signed up to a debt management plan. That demonstrates the clear lack of information provided and in some cases the coercion from some sectors of the debt management sector, which serves to prolong the misery for the individual and add to their debt burden.

[Gordon Banks]

I just want briefly to outline an issue in my constituency. One of my constituents was making payments through a payment plan and then found the same debt management company acting for the office of the Accountant in Bankruptcy when they went into bankruptcy. My constituent had no understanding of the basis on which that company was dealing with them at all.

[Tracey Crouch]

The hon. Gentleman makes a fair point. We all see people in our constituencies who have been tied in and there has always been a vested interest in such programmes.