Ninety-three percent struggle to afford essentials after Government collections

Today’s deadline for responses to the Cabinet Office on Government debt collection practices sees StepChange Debt Charity submitting a detailed critique, based on client experience, which shows how remarkably poorly the practices of both local and central government compare to those in regulated markets.

The charity calls for fundamental and specific changes to underpin a shift both in culture and practice in government debt collection.

StepChange has found that, among clients with debts to government, 93% said that the actions taken to collect money owed had made it difficult to afford essential household costs. In turn, this led to more than half of these clients borrowing further to make ends meet – simply exacerbating problems.

This reflects a deeply flawed approach that currently underpins government debt collection, where there is an implicit approach of punishment for being in debt, and the focus is primarily on time-limited debt recovery, rather than on pro-active affordability assessment and affordable repayments. This must change, says StepChange in its response.

Only a third of StepChange clients with debts to local authorities had undergone an affordability assessment, and similarly only a third of clients with debts to DWP. Although HMRC has helpfully embedded an income and expenditure form into its “Time to Pay” negotiating framework, in practice only 17% of StepChange clients with debts to HMRC had gone through affordability assessment. The discrepancy hinges on the fact that, right across Government, the system relies on people challenging unaffordable payments. It should hinge, instead, on pro-actively setting up genuinely affordable repayment plans based on an accepted income and expenditure assessment framework such as the Standard Financial Statement – which is widely used in debt advice and the commercial credit sector, but not in local authorities or Government departments.

Government practice stands in sharp contrast to the controls that exist in the regulated credit sector, which is regulated, monitored, and enforced to oversee fairness in consumer outcomes. The FCA not only has a core principle of treating customers fairly that firms are required to demonstrate, but also detailed forbearance rules to operationalise this and create sustainable repayment plans in practice. No such universal, regulated, monitored framework exists for debts owed to Government. Its absence is exacerbating financial hardship, and increasing unrealistic debt enforcement costs being levied against vulnerable people who cannot afford to pay – particularly important given that 57% of those with government debts have additional vulnerability, compared with 44% of StepChange clients as a whole.

At the moment, as both the Public Accounts Committee and the National Audit Office have highlighted, different parts of Government do not even share relevant data with each other about individuals’ debts and circumstances. This results in local authorities and government departments pursuing repayment plans in isolation from the wider context that is essential to determining fair outcomes for individuals. According to Money Advice Trust research, only 59% of local authorities even have a vulnerability policy in place.

Without a regulatory framework, the pockets of good practice that do exist in some local authorities rely heavily on enlightened individuals, and this is not a sustainable foundation. Within the commercial sector, lenders and advice agencies are able to work in partnership based on agreed principles and rules. Lenders know that they have the responsibility to meet the FCA’s treating customers fairly rules, and can rely on the fact that when a debt advice agency makes a proposal on behalf of a client, this will have gone through a recognised standard income and expenditure affordability assessment, and offers a realistic prospect of sustainable repayments. No such structure exists in relation to debts owed to Government – but it is important that one should be built.

Peter Tutton, Head of Policy, Research and Public Affairs at StepChange Debt Charity, says: “The Government has taken a hugely positive step in legislating for Breathing Space to allow people in debt a chance to see recovery action paused while they work with a debt advice provider towards a sustainable long term solution. It would be a tragedy if its own debt collection practices end up undermining the outcome. So now is the time for the Government to get its house in order on its own debt management practices.

“The current unhealthy relationship between government debt and poor collection practices exists across all areas, which is worrying given the high level of vulnerability among those who owe money. One example is starkly demonstrated by the over-use of bailiffs to enforce council tax arrears.

“Even the language of government debt collection is frequently toxic and counterproductive – frightening people away from engagement, rather than fostering it.

“So much can be learned from the experience of the commercial credit sector, where a regulatory structure has been built that focuses on treating customers fairly and requiring forbearance under a clear, compulsory, and well-monitored framework in which information is shared to inform realistic repayment plans. It’s time to replicate this in the world of government debts too.”