The Government has that it will introduce a No-Interest loan scheme and breathing space plans as part of the Autumn budget announcement. Responding to the news The Money Advice says it ‘welcomes action’ on tackling problem debt, including the new details of the government’s Breathing Space scheme, plans to pilot a no-interest loans initiative and changes to address some concerns over Universal Credit.
Joanna Elson OBE, chief executive of the Money Advice Trust, said “This budget contains welcome action on tackling problem debt – with improvements to the government’s planned Breathing Space scheme, a new pilot to boost the supply of affordable borrowing and changes to address some of the concerns raised on Universal Credit. The government’s Breathing Space scheme has the potential to be a game-changer for the fight against problem debt, and we look forward to working through the detail to help make the scheme as effective as possible. The announcement today that the scheme will include small business debts for sole traders is particularly welcome.”
“Applying Breathing Space protections for 60 days instead of six weeks is a positive step, and will give people in financial difficulty more time to start to resolve their debt problems. There will still be some people who will need longer to do this – and we will continue to argue for this period of protection to be extended at the discretion of an expert debt adviser.
On the announcement of a feasibility study to help inform a pilot of a no-interest loans scheme Elson said “Too many people fall into a vicious cycle of debt that starts by the need to borrow a small amount for something essential like a fridge or a cooker – with high interest and charges quickly turning small debts into big problems. It’s vital that we improve access to affordable credit for those who need it – and I am pleased to see the government has listened on the merits of a no-interest loan scheme modelled on Australia’s example. We await details of what this scheme could look like in practice – but this announcement is an encouraging step.”
StepChange Director of External Affairs Richard Lane said “Having campaigned for years for a no-interest loan scheme, we’re looking forward to working with the government and the banks to bring it to life. Over a million people turned to high-cost credit last year to meet basic living expenses, which is counterproductive both for households and the economy. If finances are tight and your fridge breaks down, the last thing you need is expensive credit – what you need is simply a replacement fridge. By taking away the additional high cost of borrowing, the new scheme will demonstrate how no interest loans can act as a realistic and better alternative to short-term high-cost credit. It can only be a good thing to reduce the risk of households building up problem debt as a result of trying to meet their basic needs.”
On breathing space, Lane said “The fact that breathing space is being introduced is a great step forward, but it’s vital that the government listens carefully to responses on how the scheme design should be finalised. There are three crucial elements still at stake. First, all debts and enforcement activity – including debts owed to government – need to be included in the breathing space. Second, there needs to be flexibility to extend the 60-day time period if necessary, to avoid the risk of people who are in the process of sorting out their debts being put back to square one if time runs out before this process is complete. And third, the administration of the scheme needs to be proportionate, using the existing expertise of partner debt advice charities, to avoid becoming bogged down in expensive bureaucracy.”
Gillian Guy, Chief Executive of Citizens Advice, said “Improvements to the breathing space scheme and a proposal for an interest-free-loan scheme are welcome news from Treasury. We expect this lead to be a call to action to the public and private sectors, and to regulators, to tackle the misery of debt and help more than one million people who are forced to turn to high-cost credit.”
“The government should now reinforce these initiatives by overhauling its own debt collection practices, including regulating bailiffs. It should also ensure specialist debt advice is readily available for people alongside breathing space and that the Financial Conduct Authority cap the cost of rent-to-own agreements by April 2019.”
Head of Consumer Affairs at Experian, James Jones, said “The proposal to pause interest, charges and enforcement for people struggling with problem debt is a positive move and should be welcomed, especially if it helps more people seek help sooner. The no-interest loan proposal could also be a real help for people who have typically resorted to high-cost credit to cover unexpected expenses, or in some cases, essential household bills. It’s important that everyone is able to access affordable finance.
“There are a range of steps everyone can take to help make sure their credit score is in good shape and supports access to borrowing at competitive, affordable interest rates. These include getting on the electoral roll, keeping balances on cards and overdrafts low, and making sure you don’t miss payments.”
Ian Larkin CEO of Target Group said “The Budget today shows that the Chancellor expects GDP growth to be weak. With only five months to go before the UK exits the EU we are facing an uncertain financial future, and firms of all shapes and sizes are needing to prepare for what may lie in store. While the exact nature and scale of impact are unclear, businesses are preparing for the worst while hoping for the best. Should the UK suffer economic decline we can expect to see house prices fall, unemployment rise and currency-driven inflation prompting further increases in interest rates. ”
“In this context, many more borrowers would struggle to service their debts. Last week we saw RBS setting aside £100m in anticipation of increased defaults. Once loans are issued lenders have limited ability to influence the incidence of default, but their actions can have a big bearing on the scale of losses ultimately incurred. Now is the time for lenders to be preparing to handle increased levels of borrower contact and the smarter lenders will be gearing up for proactive contact. In recent years there have been big advances in the ability to use technology and data to develop pre-impairment indicators that help identify signs of potential borrower strain before a payment has been missed. As the old adage goes – “there is no such thing as bad weather, just unsuitable clothing”. Time to get those raincoats ready.”
Mark Pilling, Spicerhaart Corporate Sales Managing Director, says “We welcome the news that the Chancellor has decided to pump £1.7bn into Universal Credit but are concerned with his decision to stick with the reforms, despite its issues. Because, since the announcement in 2010 that income support, jobseeker’s allowance, employment and support allowance, housing benefit, child tax credit, and working tax credit would be merged into one single ‘universal credit’ payment, it has been plagued by problems.”
“The main issues are that it takes up to 35 days to reach a claimant, and in many cases, those on benefits are receiving considerably less as a result of the changes. The chancellor says the changes will help 2.4million working families and that he will put measures in place to help with the transition, but whether this helps or not will remain to be seen.”
“So far, the knock-on effect of has been huge with two-thirds of private landlords with tenants receiving Universal Credit reporting problems with non-payment and arrears. Let’s hope his changes will address some of the issues, otherwise, we are in real danger of seeing more tenants going into arrears, which in turn will see landlords in arrears and more repossessions as a result.”