Covid-19: Household Debt

John Glen Excerpts

Thursday 8th July 2021 Westminster Hall

[The Economic Secretary to the Treasury (John Glen)]

It is a pleasure to serve under your chairmanship, Mr Bone. I congratulate the hon. Member for Makerfield (Yvonne Fovargue) and my hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard) on securing this debate. I know that both Members care a great deal about the question of how best to protect the personal finances of the most vulnerable. They have made many valuable contributions in Parliament on this matter, including through the hon. Lady’s role as chair of the all-party parliamentary group on debt and personal finance and my hon. Friend’s Local Welfare Assistance Provision (Review) Bill, which has been mentioned today.

I thank all Members who have contributed this afternoon for their deeply thoughtful and considered speeches, especially my hon. Friend the Member for South West Bedfordshire (Andrew Selous). Our thinking may diverge in some areas, but I believe that there is a great degree of commonality between us. We have a shared desire to tackle problem debt and a shared understanding that this complex issue cannot be wished away with quick fixes, much as we might like it to be. We also have a shared recognition that we must tackle this issue strategically. As a number of Members highlighted this afternoon, the covid-19 pandemic has meant that action in this area is required now more than ever before.

The Government have responded to the crisis with one of the most comprehensive economic plans in the world. I reject the assertion that that somehow means that there is a degree of complacency: that is not the case. With the furlough scheme, the self-employed income support schemes and substantial welfare support, including the £20 universal credit uplift, a suspension of the universal credit minimum floor and an increase to local housing allowance rates, the Government have sought to make a range of interventions across society. I believe that that plan is working.

We also recognise that even when the economy bounces back, and there are very encouraging signs in that direction, there will still be people living in fear of a knock from a debt collector or another payment demand. That is why we have introduced the numerous policies that have been mentioned this afternoon. I would like to respond to Members’ points about the policies that we have introduced to help people escape debt. As has been highlighted today, we are maintaining record levels of funding for free debt advice in England through the Money and Pensions Service this year, with a budget of £96.4 million. I recognise that there is still some uncertainty about the nature of that demand as people’s situations become clearer, but that includes funding for the Money Adviser Network pilots, which simplify access to debt advice. I am pleased to say that more than 40 different creditor organisations are now signed up, including HM Revenue and Customs.

I recognise hon. Members’ concerns about the complexity of tax debts, but consumers referred via the network will first have a conversation with an HMRC adviser, which should minimise the risk of misunderstanding over what is owed. The Money and Pensions Service budget also includes funding for the administration of debt relief orders. A number of colleagues have raised that this afternoon. We know that DROs can be an important solution for some, which is why we worked closely with the Insolvency Service to raise the monetary eligibility limits for DROs from the end of last month, a step that will help more people take advantage of this valuable option.

I recognise that some Members would like the Government to review the £90 DRO fee, as the Woolard review recommended earlier this year. I acknowledge those concerns but the Government believe that further changes to DROs should not be considered in isolation. A number of Members have made the point that we need joined-up solutions, so we will undertake a wider consultation on the personal insolvency framework. We will in due course launch a call for evidence to help us gain a deeper understanding of the situation.

I want to talk about Breathing Space. The steps we have taken are significant, because we recognise that the barrage of letters, calls and bills can be overwhelming, leaving borrowers unable to tackle what they owe. We launched the Breathing Space scheme on 4 May, just two months ago, whereby lenders agree to hold off fees and payment requests for 60 days. That relieves the pressures on borrowers and gives them time to tackle their finances with the support of a qualified debt adviser.

I will address the point, made by several Members, about whether 60 days is long enough. We believe that that period finds the right balance between debt advice, clients’ interests and their creditors’ rights. It has only been there for two months. However, we should also recognise that greater flexibility is built into the system for those experiencing mental health crises, reflecting the nature of the treatment and the challenges that might arise in supporting those clients. We will use a similar model of respite from bills and demands for our statutory debt repayment plan, which is currently being developed to work alongside the Breathing Space scheme. Under the plan, people struggling with problem debt will enter into formal agreements with creditors to repay their debts over a more manageable timeframe. Our aim is to lay legislation at the end of next year and introduce the scheme thereafter in 2024.

As my hon. Friend the Member for Blackpool North and Cleveleys so aptly put it, debt should not mean destitution. Income that could be spent on essential items, such as cookers or washing machines, or that could build savings, should not be swallowed up by sky-high interest rates. Fair and affordable credit should be available to all those who need it. I will turn to our work in this area. As has been highlighted, at the Budget we announced plans to provide up to £3.8 million to work on a pilot for no-interest loan schemes. I care passionately about this area, and I think it could make a real difference to many vulnerable people’s lives.

I note my hon. Friend’s comments about a cut and paste from Australia. He is right that we can learn a lot from the equivalent Australian scheme, especially in terms of partnership. Their scheme has been so successful because hundreds of socially minded organisations have played their part alongside the Government. We hope to follow that model and develop a scheme that is sustainable and properly supports vulnerable customers. I hear the urgency around that, and indeed I spoke to my officials just yesterday about securing an update on it in the coming days. Our next step is to appoint a delivery organisation with suitable expertise. Further details will be announced soon.

My hon. Friend is also correct to point out that greater market diversity is critical if we are to achieve our goals in this area. That is why we have used a significant part of the £96 million dormant assets scheme—money that would otherwise have remained idle—to boost financial inclusion. We have also committed to legislate to enable credit unions in Great Britain to offer a wider range of products and services; my hon. Friend the Member for Barrow and Furness (Simon Fell) mentioned his involvement in a credit union. There are, I think, 411 credit unions across the country, of wide and varying expertise. We have worked closely with the Association of British Credit Unions Ltd, one of the significant trade bodies for credit unions, to develop that approach. While legislation will play an important part in widening access to affordable credit, innovation is also key, as some Members picked up on. That is why, in this year’s Budget, we announced a number of actions in response to the independent Ron Kalifa review into FinTech, including measures to make it easier for firms to attract staff and develop new concepts.

I will make a final point on two other issues that I know are of real interest to contributors this afternoon. First, it is true that buy-now, pay-later agreements can be a helpful way of managing finance, but we need to make sure that consumers are protected. As we indicated during the passage of the Financial Services Act 2021 earlier this year, we will bring buy-now, pay-later under regulation, as the Woolard review recommended. However, any future regulation must be proportionate so as not to fundamentally damage those products that are innovative and low cost. There is a distinction between smoothing lumpy expenditures and multiple, unsustainable deferred payments. We must get that right, but I recognise the urgency around it.

I appreciate the positive words about our recent “access to cash” consultation. I assure Members that the Treasury is working closely with the private sector—indeed, I had meetings just this morning—to ensure that we get that right, and that cash services are provided for people in an environment where the use of cash is diminishing significantly.

I reiterate the acknowledgment that there is a real desire to provide urgent help to those who are dealing with significant debts. I share that strength of feeling, as I hope my track record in this role demonstrates. It is vital that these policies improve the lives of as many people as possible, so I welcome the range of speeches this afternoon and the constructive spirit that was relayed in many of them. I look forward to further collaboration to deepen and improve our interventions in this area.