Breathing Space Scheme

Greg Mulholland Excerpts

Wednesday 29th March 2017 Westminster Hall

[Kelly Tolhurst]

It was truly terrible to hear of those practices in Sheffield this week. I completely agree: an opportunity to implement a breathing space will allow a regulated, clear way to enable people to go to legal credit agencies and deal with charities, so that they can borrow and deal with debt in a managed way, without having to seek help from organisations such as the hon. Gentleman refers to.

[Greg Mulholland (Leeds North West) (LD)]

I join others in commending the hon. Lady for securing this debate, for her Bill and for her leadership. The Liberal Democrats are delighted to work with and support her. I also commend the volunteers in my constituency and others who have raised this very important campaign. I am sure the Minister will be very sympathetic, but as a society we need to understand that the costs of debt can be far bigger than we realise. The hon. Lady has mentioned the health costs. When it affects children, holding them back at school and meaning they do not get the qualifications they might otherwise do—that is quite common—it can have a lifelong impact on their earning potential, so the economic costs of debt of this nature are really devastating.

[Kelly Tolhurst]

The hon. Gentleman is absolutely right. We can look at these things in silos, but this is actually about the whole of society. Debt is just one factor, and if we look only at debt we sometimes do not recognise or take account of its effects. I completely agree with his point.

As hon. Members said, debt has a profound effect on children. Children in households that are struggling with debt problems are twice as likely to say at school that they are being bullied. Adding up all the social impacts that are endured—the loss of health, the broken families, the loss of production and the hardship—there could be an £8 billion cost to the state and society, which would fall on all of us. Those unthought-of issues have an impact on families. My Bill would enable us to look at those issues further.

I want to dwell for a moment on the damage that problem debt does to families and children living in such households. Unfortunately, the presence of children in households corresponds with a rise in debts. One in five parents said that they have faced problem debts in the past year, compared with one in 10 adults without children. Geographically, families and children are more likely to have debt problems in the north-west, the midlands and Wales, where at least a quarter of households have struggled in the past year. That compares with Scotland, which has a form of breathing space scheme, and where only 10.9% families with children suffer debt problems.

Research from the Children’s Society shows that families trapped in problem debt are also more than twice as likely to argue about money problems, leading to stress on family relationships and causing emotional distress for children. It found that children living in families with problem debt are five times more likely to be at risk of having low wellbeing than those without debt difficulties. More than half of parents in council tax debt polled for research carried out by the charity said that they thought their children suffered anxiety, stress or depression as a result of that debt. The Children’s Society research shows that is not the amount owed by households that directly impacts on children’s wellbeing but the number of creditors to whom they owe money.

StepChange Debt Charity clients typically take between six and 12 months to stabilise their finances. It estimates that, in just six months, a typical StepChange Debt Charity client would have an extra £2,300 added to their debts if creditors applied default interest and charges to all their accounts. John Kirkby, the founder and international director of Christians Against Poverty, said that even three months could be a sufficient period to enable a stabilisation of finances.

The debt trap and the direct impact it has on children in the household brings me to why this scheme is needed. There are two main problems with the current system. First, this House has given people who need to go bankrupt legal protection against spiralling debt problems, but we have simply failed to deliver for people repaying their debts more manageably over time. Our laws have focused on people with the most intractable problems, who need debts written off and the chance of a fresh start. However, there is a cost for families who go down that route—bankruptcy is not free. It is the right solution for many people and undoubtedly meets an important need, but fewer than one in 10 people seeking debt advice enter into an insolvency option. For the majority of families who are likely to recover from a temporary setback and repay their debts in an orderly way, there is no equivalent protection. We all know about the issues associated with bankruptcy. They are often a step too far for those families.

Secondly, the voluntary approach to breathing space fails far too often. We know that creditors agree with the general principle, because it is in industry and Government codes, yet sadly there is a widespread failure to abide by those codes. According to StepChange, between a third and a half of people who contacted creditors for help said they were not given any kind of temporary breathing space. Without such protection, pressure to repay debts at an unaffordable rate and threats of enforcement can leave households cutting back on everyday essentials, or falling even further behind on other bills. The benefits of a breathing space scheme go across the board. Indeed, Martin Lewis of MoneySavingExpert, who spoke at the launch event for my Bill, called it a

“win, win, win—for the creditor, the state, and the individual.”

The evidence is clear: 60% of StepChange clients said that their finances stabilised once further interest, charges and collection actions on their debts were frozen voluntarily. However, not one client who received no such help reported that their finances had got back on a steady footing. That is not all. Many firms that provide that sort of support when their customers have a temporary financial difficulty say that the repayments they receive are higher in the long term.

We need a scheme on a statutory footing that enables families to recover. That is what breathing space sets out. It will help more families to recover and repay their debts. It will reduce the social cost of debt, which affects us all. Ultimately, breathing space will benefit the wider economy. I want to propose the introduction of such a scheme, with two key protections. The first would provide a guaranteed period of time—breathing space—without additional interest, charges, collections and enforcement action. First, that would stop the spiral of worsening debt while people gain control of their financial situation, for example by moving into new employment or recovering from ill health. Secondly, it would give people who need more time to repay their debts through an agreed affordable payment plan the same statutory protection from further interest, charges, collection and enforcement action that the law currently gives to people who need an insolvency option.

I am delighted that a breathing space scheme has had support from across this House, including from the Work and Pensions Committee, the all-party parliamentary group on debt and personal finance and the many Members who have supported my Bill. It is important to stress that we are not starting on this endeavour from scratch. A comparable scheme—one we seek to improve on—is already in place in Scotland. The debt arrangement scheme has been in place in Scotland since 2004, and in 2015-16 £38 million was repaid through it. Over time, the number of people using the debt arrangement scheme has increased. Crucially, its use has increased as a proportion of the available debt options. At the start of available data in 2009-10, over half—57%—of debt options were bankruptcies. That number has now shifted significantly down to 36% bankruptcies and 22% for the debt arrangement scheme. That means that more people are paying back their debts and are being supported to do so, rather than having their debts written off.

The scheme works for all. It works for creditors, which get back the money owed to them rather than seeing it written off through bankruptcy. It works for the state and services who support families. Most importantly, it works for families and children, who can repay their debts free from enforcement action, rising fees and charges and spiralling interest repayments.

I welcome the Prime Minister’s announcement in January that she will review the unfair practice of charging people with mental health problems up to £150 to fill in crucial debt help forms. I pay tribute to the Money and Mental Health Policy Institute and MPs across the House for campaigning to end that unfair practice, which prevents people with mental health problems from getting the help they so desperately need, but we need to tackle the causes, drivers and consequences of mental ill health in all services.

Addressing the impact of debt on children’s mental health is central to the breathing space scheme. This week, we launched the all-party parliamentary group for young people’s health, which seeks to look at ways in which we can improve the health, and particularly the mental health, of young people, and seek to understand all the reasons for the increase in mental health issues that we see in our young people. Working with families and helping families thrive is a way of improving the health of our young people. As I have outlined, debt is a factor. We now have the ideal opportunity to introduce a comprehensive breathing space scheme to give people in debt a guarantee of protection from the escalating pressure that blights families’ lives and affects the wellbeing of children and families who are trying hard to do their best and work their way through life. I hope we do not miss this opportunity, and I hope the Minister will agree that this is a sensible way forward in improving outcomes for families who are just managing.