StepChange responds to NAO report on how much debt costs the state

StepChange Debt Charity today responds to a new official report showing that problem debt costs the state almost a quarter of a billion pounds every year, for reasons that include the behaviour of government itself. Tackling Problem Debt, published today [Thursday 6 September] by the National Audit Office, estimates that problem debt directly costs the public purse at least £248 million a year – with wider economic costs of £897 million.

The NAO points out that although around 40% of personal debts are to government, “government lags behind the retail lending sector in following good debt management practice”. This is further backed up by findings from StepChange clients cited in the report, which found that more people felt they were treated unfairly by local authorities (35% of clients) than by payday lenders (32%).

StepChange Debt Charity strongly backs recommendations to the Treasury that urgently calls for action to address the discrepancy in how the government approaches debt collection.

The NAO estimates that:

· People are 7.76% more likely to report being depressed or anxious if they are in problem debt, which the NAO says equates to some 81,000 people at an estimated annual cost to the NHS of £24 million a year.

· People are 2.85% more likely to be in state-subsidised housing if they have previously reported being in problem debt, equating to 23,000 people at an estimated annual cost of £224 million a year.

In evaluating whether the Government is getting value for value, the NAO says “there is further to go before value for money is secured”. The report particularly identifies the poor quality of information available about the nature of personal debts owed to government, and to utilities, compared to the high quality data available on consumer credit and mortgages. The report states that this makes it difficult to assess risks and outcomes effectively, and also points to “perverse incentives” to recover government debt quickly, which can result in bad collection practices.

StepChange supports both the analysis and the report’s key recommendations. In particular, the charity welcomes the NAO’s focus on the impact of problem debt on individuals and its enlightened approach to assessing how this impacts in aggregate on wider costs.

The NAO has quantified how intimidating actions to collect debt, and additional charges being applied, substantially increase the likelihood of debt burdens becoming harder to manage. The knock-on increases in anxiety or depression caused by these practices have a direct and avoidable cost to the state. As well as pinpointing why good debt collection practices matter, the report starkly demonstrates why the shortfall in free debt advice provision, leaving 600,000 people a year without access to advice that would help them, is so important to redress.

Commenting on the report, StepChange Debt Charity CEO Phil Andrew said: “The National Audit Office hits the nail on the head. Poor debt collection practices that fixate only on getting as much money back as quickly as possible are counter-productive and ultimately harmful. The government is simply robbing Peter to pay Paul, as the wider implications of government debt collection practices are costing taxpayers almost a quarter of a billion pounds every year.

“If the Treasury follows the NAO’s recommendations on how to continue its efforts towards improving the personal debt landscape, progress can undoubtedly be made to alleviate current problems. We will do everything we can to support improvements.”