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Success of new breathing space scheme 'critically dependent' on including debts owed to government

The government's new breathing space scheme must protect people from debts owed to public sector organisations to be effective, according to the Money Advice Trust, the charity than runs National Debtline and Business Debtline.

 
The Treasury has been consulting on proposals for the new scheme, which will offer people seeking debt advice protection from interest, charges and enforcement action on their debts for 60 days - giving them the time and space they need to get back on the road to financial health.
 
In its response to the consultation, the Money Advice Trust has welcomed several aspects of the proposals but warns that their success is "critically dependent" on including debts owed to central and local government in both breathing space and the new ‘statutory debt repayment plan’ also under consultation.  Current proposals do not specifically exclude the public sector from either scheme, but neither has the government explicitly confirmed that these will be included. 
 
The last decade has seen significant rises in the number of debts owed to local authorities, the Department for Work and Pensions, HM Revenue and Customs and other government bodies. The proportion of National Debtline callers with council tax debts has doubled from 15% in 2009 to 30% in 2018, while benefit and tax credit overpayments have surged from 3% of callers in 2010 to 16% in 2018.
 
The charity says that the methods by which these debts are collected often cause the most disruption to the ability of people in problem debt to resolve their financial difficulty. 73% of callers to National Debtline surveyed who owed debts to local authorities reported that the council’s actions had negatively impacted their wellbeing, with 74% reporting the same for DWP and 71% for HMRC.
 
The widespread and growing use of bailiffs to collect council tax and other debts owed to local authorities has been the subject of particular scrutiny, with previous research from the Money Advice Trust showing that 2.3 million debts were referred to bailiffs by councils in England and Wales in 2016/17 – an increase of 14% on two years earlier.
 
The charity has welcomed several other aspects of the breathing space proposals including an extension of the protection window to 60 days and the government's decision to include the business debts of sole traders, which it says will make a significant difference to many of the people it helps through Business Debtline.
 
Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs National Debtline and Business Debtline said:
 
"The government has done a good job with its proposals for breathing space, and we are broadly encouraged by what we have seen. If we can get this right, an effective breathing space scheme could transform the fight against problem debt.
 
"Success is critically dependent on making sure that the scheme includes debts owed to public sector bodies like local authorities, DWP and HMRC - and not just banks, credit card companies and energy firms. These debts owed to public sector creditors are often the debts that people in financial difficulty have the most problems with, and we have seen them grow significantly in recent years.
 
“The scheme must provide a genuine ‘breathing space’ from all types of creditor, to give people the time they need to seek advice and resolve their debt problem.
“A successful breathing space scheme will encourage many more people to seek debt advice, which is extremely welcome. However, the government must also make wider arrangements to improve funding for free debt advice, to ensure that this additional demand can be met by increased supply. Failing to ensure this additional funding risks seriously jeopordising the scheme’s success.”

“… but public sector creditors like local authorities, DWP and HMRC must be included if the scheme is to be successful.”
 
 
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