Breathing Space Scheme

Simon Kirby Excerpts

Wednesday 29th March 2017 Westminster Hall

[The Economic Secretary to the Treasury (Simon Kirby)]

It is a pleasure to serve under your chairmanship this afternoon, Mr Turner. I congratulate my hon. Friend the Member for Rochester and Strood (Kelly Tolhurst) on securing this important debate. There have been many thoughtful contributions and I am particularly pleased that they are on the record.

We all share an interest in helping people who have fallen into serious debt. We have heard some very distressing stories from hon. Members today. Debt can have a devastating impact on the lives of people in our communities, and people can fall into debt at really hard times in their life. Whether it follows the death of a loved one, a separation, or being made redundant, they are difficult times, so we must do what we can to help people who are in that situation to get back on their feet. That is all part and parcel of making a society and an economy that works for everyone. It is important that financial services work for everyone, too.

We have done some really good things to help, particularly on the role of the consumer credit market. The Financial Conduct Authority, which we set up in 2013, now regulates the market to give people much more protection. For instance, firms must provide forbearance—a period of respite—if their customers are unable to make their repayments. They must treat customers fairly and lend money responsibly. Crucially, they must lend money only to those whose affordability checks have proved that they can afford to repay it.

Those measures have had a real effect. Since the introduction of the payday loan price cap, the number of payday loans has fallen by more than 50%, from 4.2 million in 2014 to 1.8 million just a year later. Regulation alone is not the answer, so we are taking direct action to support people who are struggling with their debts, such as through the Money Advice Service, which last year funded more than 380,000 free advice sessions for people in debt. We have also been resourcing our illegal money lending teams to tackle those who seek to exploit and abuse vulnerable people. We are helping to ensure that there is a genuine alternative to ruthless illegal lenders with our support for the credit union sector, which includes £38 million of funding for the credit union expansion project.

We have been exploring carefully whether we could introduce a breathing space scheme to give people time to find a way to deal with their debts. I thank all those debt advice charities and creditors that have given their time and expertise to help us to look into this. It is clear that such a scheme has the potential to help people to get their finances back on track. We are looking at it carefully. I am pleased to say that we entirely support its principles of better debt management and lower problem debt.

However, we have also found that introducing such a scheme could mean costs to the public purse and could have an impact on local authority finances. With the national debt nearing 90% of GDP over the next few years, and while we are still forecast to borrow more than £50 billion this year, we have to assess any new spending proposals carefully. That is why we will continue to look into the various options for implementing a scheme such as this, and will consider closely its costs and benefits.

The Government are committed to tackling illegal money lending, which the hon. Member for Sheffield Central (Paul Blomfield) mentioned. In last year’s autumn statement, we announced that all funds from convicted loan sharks would be used to scale up credit union incentives.

My right hon. Friend the Member for Meriden (Dame Caroline Spelman) mentioned council tax debt. It is important that councils, which are best placed to make judgments about collecting council tax, act proportionately and fairly, and take into account the impact of non-collection on the broader population.

My hon. Friend the Member for Rochester and Strood made a number of very important points during her speech. The Government agree that it is important to ensure that people in financial debt get the help they need. That is why, for example, we are creating a new single financial guidance body. We are keen to address the impacts of debt, including on mental health, and we are working closely with the Money and Mental Health Policy Institute to review practices.

I thank the hon. Member for Makerfield (Yvonne Fovargue). Clearly, she has personal experience of this important area. My hon. Friends the Members for Eastbourne (Caroline Ansell) and for Kettering (Mr Hollobone), and the hon. Members for Blackburn (Kate Hollern), for Aberdeen North (Kirsty Blackman) and for Stalybridge and Hyde (Jonathan Reynolds), made thoughtful contributions. I thank them for being strong voices not only for their constituents, but for the vulnerable people we are discussing.

As I said, we have been carefully exploring the option of introducing a breathing space scheme, working closely with the debt advice and credit sectors. So far, the work has demonstrated that a period of statutory protection from creditors has the potential to give indebted customers the chance to get their finances back on track by giving them time to seek debt advice and move into existing debt solutions. Officials have found that a breathing space could stop consumer paralysis in the face of multiple creditor letters and enforcement action. It could encourage more people to come forward for debt advice earlier.

We will continue to look into the various options for implementing such a scheme and will consider closely its costs and benefits. We are looking carefully at what is happening in Scotland. When we are in a position to consult further, we will do so. I understand that many people, including those struggling with debt, would like to see such a scheme sooner rather than later.

In short, we have to do all we can to ensure we are helping people to get out of debt. We have done a lot already. My hon Friend the Member for Kettering mentioned financial education. He may be pleased when reading Hansard to learn that I had a meeting last week with the all-party parliamentary group on financial education for young people—indeed, I am in the process of writing to the Secretary of State for Education on this matter. The hon. Member for Blackburn (Kate Hollern) mentioned financial shocks. We are providing £45 million of levy funding a year via the Money Advice Service to fund, for example, the 380,000 free-to-client debt advice sessions that I mentioned had taken place last year. We are also working with the Financial Conduct Authority to ensure that the lending sector is better regulated.

We have been looking closely at the idea of a breathing space and will continue to explore its potential. I will do my best to work with my hon. Friend the Member for Rochester and Strood, and indeed anyone and everyone else who has an interest, because this is important and I would like as many people as possible to be involved as we move forward.

We will keep examining all the ways in which people in serious debt can be protected and supported as they get their finances under control. We want them to build happier, more secure futures for themselves and their families. I understand that the costs of debt are bigger than just the financial costs—for some, they have a lifelong impact. I want an economy that works for everyone, and will be doing all I can to move this forward.