Draft Debt Respite Scheme (Breathing Space Moratorium and Mental health Crisis Moratorium) (England and Wales) Regulations 2020

Pat McFadden Excerpts

Wednesday 7th October 2020 General Committees

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Pritchard. I am grateful to the Minister and thank him for his explanation of the regulations. I should make clear at the outset that we support the idea of a breathing space for indebted households and businesses. I am grateful to charities such as StepChange, the Children’s Society, Citizens Advice and others, with whom we have discussed the matter or who have provided information about it.

This idea has been some time in the making. A similar scheme already exists in Scotland. The hon. Member for Rochester and Strood (Kelly Tolhurst) introduced a private Member’s Bill on this issue in 2016. There was a consultation and a response between 2018 and 2019, all leading to the regulations before us today.

Although the regulations themselves are quite detailed, the basis of the scheme is simple: those seeking approved debt advice will be given a breathing space of 60 days, during which they can reach a sustainable repayment plan. That 60-day duration can be longer for people undergoing mental health treatment. During the breathing space, debtors will be protected from fees, charges and enforcement action. The overall aim is that repayment plans will be reached that make returns to creditors and that stop debtors from being financially crushed by the weight incurred.

The regulations are important not only because of the ongoing problems of debt but because a lot of households are under increased financial pressure because of covid, as the Minister said. Those effects are likely to become worse in the coming months as unemployment rises. In the wider context, the Minister might be aware, for example, of the Reset the Debt campaign, organised by a number of UK Churches, that draws attention to the problem of increased debt due to covid and calls for a jubilee fund to help with repayment.

Any help that people can get in coping with such debt is, of course, urgent and important. I have a few questions for the Minister, and I would be grateful if he addressed them. The regulations say that the breathing space should be of 60 days’ duration. For many people, that might be enough time to agree a repayment plan, but for some it might not, particularly if a major event—the death or serious illness of a family member, for example—occurs within that 60 days. Extra covid-induced debt may also make it harder to agree a repayment plan within 60 days. Although the regulations say 60 days at the moment, will the Minister undertake to review the 60-day period at some point in case it needs to be lengthened?

Secondly, the regulations stipulate that there can be only one breathing space within a 12-month period for the non-mental-health part of this. I appreciate that that is designed to stop people from gaming the system by entering repeated breathing spaces over and over, but again there can be drastic changes in circumstances within a 12-month period. Will the Minister keep that aspect of the regulations under review?

Thirdly, there is the question of which kinds of debt qualify for protection under the regulations and which fall outside it. One area raised with us is the question of advance payments under universal credit, which currently fall outside the scope of the regulations and are therefore not protected by the breathing space. Citizens Advice has reported that in 2018, for example, deductions for advance payments were taken from 41% of universal credit payments, and those deductions can be high—they can go up to 30% of a claimant’s standard weekly allowance. Given that everyone expects universal credit claims to grow in the coming months and that, therefore, it is also highly likely that the number of advance payments will grow, will the Minister review the decision to place advance payments from universal credit outside the scope of the breathing space?

Finally, I would like to ask the Minister about the cost-benefit analysis in the impact assessment before us today. There are some sizeable figures here, with an estimated overall benefit to society of some £9.2 billion. Can the Minister tell us how that is calculated and how confident the Government are in that estimate?

This is a welcome measure, which we will support, but it is also one measure coming in after several years of debate and consultation, and it does not come into force until May next year. There is no doubt that on both the household and business debt fronts the issue will grow in importance and it is likely to require further Government action in the coming months.

We saw in the early days of the pandemic what can be done where there is a will and additional resources—on homelessness, for example. As we approve the regulations today, I hope that the Minister can give some indication that the action we are taking today will not stop just with these breathing space provisions and that the Government will also consider what further help can be given to indebted households and businesses in the months ahead.