Breathing Space Scheme

Jonathan Reynolds Excerpts

Wednesday 29th March 2017 Westminster Hall

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I congratulate the hon. Member for Rochester and Strood (Kelly Tolhurst) on securing this debate, which is critical to many individuals and families. I also recognise her commendable work in initiating and progressing the Families with Children and Young People in Debt (Respite) Bill, which has the potential to form part of a much needed solution to the escalating levels of personal debt.

As several hon. Members have already outlined, we face a growing crisis with the levels of unsecured household debt. In January, the TUC released analysis that showed that it reached record levels in 2016, according to data provided directly by the Office for National Statistics. Total unsecured debt, which does not include mortgages, reached a record level of £349 billion during the third quarter of 2016. Unsecured debt per household increased to an average of nearly £13,000 in that quarter, which was an increase of more than £1,000 on the previous year and according to the TUC was the largest annual increase since 1997. As a share of household income, that represents an average of 27.5%, the highest figure for eight years.

It is clear to Opposition Members that the Government’s policies have created a perfect storm for those conditions to worsen. Weak wage growth has left many households struggling to get by as the cost of living continues to increase and the poorest continue to bear the brunt of Government cuts. It is therefore hardly surprising that personal borrowing has increased to fill the gap. As we have heard, sometimes people have no other option as a means of putting food on the table.

As we have said previously, the Government need to reassess their policy programme urgently, with specific consideration for the impact it has on the most vulnerable in society. However, in the interim, some sort of remedial approach is needed to give a helping hand to people who find themselves in a vicious circle of debt.

There is currently too great a gap between struggling with debt repayments and formal bankruptcy proceedings. Insolvency proceedings are typically suitable for only a small number of unmanageable personal debt cases. In particular, as my hon. Friends the Members for Makerfield (Yvonne Fovargue) and for Blackburn (Kate Hollern) said, a single event can often serve as the trigger for a spiral into debt problems. That is typically a change in circumstances such as family breakdown, redundancy or bereavement. The individual suffering from such problems can often be back in employment or have support from the welfare system arranged in a period of six months to a year, but at present the challenge of having to deal with the initial personal problems alongside that mounting debt can have an adverse effect on getting back into employment and cause serious mental health issues, which slows the process down. Those factors combined demonstrate that a breathing space scheme would help to alleviate the pressure on individuals while they get back on their feet.

[Kirsten Oswald (East Renfrewshire) (SNP)]

Does the hon. Gentleman agree that schemes such as the debt arrangement scheme that my hon. Friend the Member for Aberdeen North (Kirsty Blackman) spoke of are hugely important in alleviating the stresses and strains that impact on not only the family members who are dealing with the debt but the children themselves? If we do not put steps in place to try to deal with that, the impact on the children could be long standing; it could have a lasting effect on their life chances.

[Jonathan Reynolds]

I endorse those remarks in terms of what the objectives of such a scheme should be. We believe that, for it to be as effective as possible, the Government must undertake some further exploration of the technical details. In current versions of the scheme under way elsewhere, I understand that public sector debts such as council tax debt are excluded as well as self-assessment fines, benefit overpayments and so on. Those debts can often cause the most serious stress to individuals, so it is important to include those obligations alongside consumer credit.

[Yvonne Fovargue]

Does my hon. Friend agree that, as recent research from StepChange has shown, local authorities and Government agencies are worse than payday lenders in how they enforce debts?

[Jonathan Reynolds]

I am afraid that is my experience. I want to stress that that has been a serious problem for my constituents. In preparing for the debate I recalled that in recent months in my surgeries there have been three individuals who have all been pushed into dire financial situations specifically by the recovery of benefit overpayments, including one situation in which someone had to borrow money from family to feed their children. I have also found one of the fastest growing problems is council tax arrears, which affected 36% of the clients helped by the charity StepChange in my constituency in 2015, up from 20% of its client base in 2012.

As per previous announcements confirmed in the spring 2017 Budget, the Government intend to shift collection of certain overpaid tax credits from Her Majesty’s Revenue and Customs to the Department for Work and Pensions, with its enhanced collection programme projected to collect £520 million by 2022. The recovery of that sum is likely to have a substantial impact on the individuals concerned in the next few years, so a breathing space scheme that includes that type of debt would be enormously helpful in alleviating some of that pressure.

[Paul Blomfield]

I wonder whether my hon. Friend would echo the concerns raised by my hon. Friend the Member for Makerfield (Yvonne Fovargue) that the Government have indicated some sympathy for the proposals but seem to be kicking the issue into the long grass. If the Minister says nothing else in his response, will my hon. Friend share my hope that he will give a commitment of a date for when a review could be undertaken and completed?

[Jonathan Reynolds]

I agree entirely with my hon. Friend, and in my closing remarks I will ask for exactly that commitment.

There needs to be clarity over how participation in a debt arrangement scheme will impact on an individual’s credit rating. The rationale behind avoiding bankruptcy is partly down to the future impact of that on an individual’s borrowing capacity and financial position, particularly when their financial affairs may stabilise in a matter of months. Individuals struggling with debt in the short term may be hesitant to enter into a scheme if they feel that would damage their long-term ability to secure finance or if it would serve as a black mark on their credit history, should they wish to obtain a mortgage in future.

The key priority now is to see some progress and movement. The Government initially promised to put forward the review of the scheme—[Interruption]

[Mr Andrew Turner (in the Chair)]

Order. I understand that there may be more than one consecutive Division in the House. Please could all Members return here as soon as possible after the final Division so that we can conclude the sitting? If there is only one Division, Members should return immediately after that.

--- Later in debate ---

[Mr Andrew Turner (in the Chair)]

The sitting will conclude no later than 6.7 pm.

[Jonathan Reynolds]

Before the sitting was suspended, I had begun to reach my conclusion. The key priority now is to see progress and movement on this issue. The Government initially promised to have a review of the scheme by December 2015, as we have heard today, but we are still waiting for that. Since then, according to the debt charity, StepChange, 1.3 million people have sought debt advice from the major debt advice charities. That shows the urgency of the situation and the real need for the scheme.

In a December 2015 report, StepChange also estimated that problem debt was costing the economy £8.3 billion, through knock-on effects such as lost productivity and the strain on health services. I ask the Minister to agree about the importance of minimising the harm caused by personal problem debt, the costs of which evidently affect all parts of the country. Will he also commit to a timeline for producing a detailed proposal for a breathing space scheme?

The issue of growing personal debt will not go away. Indeed, evidence shows that it is getting worse. The Government need to respond to this debate by promising clear and comprehensive action on how that can be tackled. Opposition Members believe that, although the scheme would not be a total solution for the public, it would be an excellent starting point.