Breathing Space Scheme

Yvonne Fovargue Excerpts

Wednesday 29th March 2017 Westminster Hall

[Yvonne Fovargue (Makerfield) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Turner. I congratulate the hon. Member for Rochester and Strood (Kelly Tolhurst) on obtaining the debate.

I will not go over the figures, because we have heard many times about the problems and the numbers of people in debt. Most of us have taken out credit and it is not a problem until it becomes debt—unaffordable debt. As I know from my previous role at Citizens Advice, that often happens because of a bump in the road, whether it is a reduction in hours of work, illness or a relationship breakdown. The problems are often temporary, but people need time to recover. Moreover, they need space to recover from the illnesses, mental health issues and stress that can be caused, and which are contributed to by threats from creditors and pressure to repay debt at unaffordable rates. I therefore support a statutory breathing space.

I will not go into all the reasons for such a scheme or for the debt payment programme in Scotland, but I will stress that a breathing space is a temporary measure. A breathing space is not permanent and it is only available when people are working to get back in control of their debt, with assistance, and as long as they engage with a provider of regulated debt advice. I will, however, spend some time on how long the breathing space should be.

R3, the Association of Business Recovery Professionals, has said that 28 days is sufficient for a breathing space. Frankly, when I worked on debt problems I never even got a response from a creditor within 28 days. People would come in; I would write to their creditors, who would then respond to me with how much they owed; I would get people back in and they would give me their income and expenditure; and I would write to the creditors again with an offer—28 days is a completely unacceptable amount of time for all that.

Twelve months is a reasonable period, and six months would be a minimum. Often I got a letter within six months, but people’s incomes and circumstances change and so we had to write back. The Financial Conduct Authority’s rules already guarantee 30 days from the lending firms it regulates, and that period is extendable by another 30 days. The R3 proposal would extend that to other creditors, but 28 days is simply not enough.

The R3 proposal is the exact opposite of giving people the space and time they need to get back on their feet. It does not even give time for the necessary paperwork, let alone give people in difficulties the time they need to concentrate on their debt and to take in the fact that they are getting to grips with it and a solution is in sight. For those recovering from illness—if they have had a cancer diagnosis, for example—going through a relationship problem or trying to find a new job, things do not happen within 28 days, I am afraid. The R3 proposal is diametrically opposed to what debt advice agencies say is necessary. People need a chance to recover. Twelve months is reasonable.

The breathing space is not for everyone. It is not a catch-all or a get-out for people in debt. It needs to be conditional on a full assessment of their circumstances and needs by a regulated debt advice provider. I cannot stress the word “regulated” enough. Continued engagement with the process is necessary by the individual in debt.

The breathing space is not simply a way of putting off paying, and it needs continued engagement. Were the debt advice provider immediately able to recommend another statutory debt remedy such as bankruptcy, an individual voluntary arrangement or a debt relief order as the best option, people would not be advised to enter the breathing space scheme, other than for temporary protection while an application was going through. It is not a way for people to get out of paying.

In 2015, the Government accepted the recommendation of an independent review of the future of the Money Advice Service. They said that they would look at introducing a breathing space. The consultation was expected to be opened and completed before Christmas 2015, but I am still waiting for the consultation document and the terms of reference. I ask the Minister when that consultation will come through. I have my response ready—it is there and ready to go.

Can we have the statutory consultation? Can we help people who are in debt and have had a bump in the road? Let us help them to smooth it out a bit. Let us help the creditors get their money, let us help people in debt to pay off their debt and let us help the state as well as the families, because the state is dealing with the mental health problems and paying for the prescriptions of people with depression. Let us help those people deal with the root cause of their problems, which is being in debt.

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[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.