The Government has announced new plans which would mean people struggling with serious debt may soon benefit from a ‘breathing space’ from their bills.
The Government is seeking views as it develops a way to provide individuals in debt with up to six weeks free from further interest, charges and enforcement action. This period would give those affected time to take action by seeking financial advice about how to manage and relieve their debt burden.
Debt advice is key in helping people access a range of solutions, including informal repayment plans and debt write-off options, in order to help people get back on their feet.
The Economic Secretary to the Treasury, Stephen Barclay, said “For many people in the UK problem debt seems impossible to escape. Its effects can be far-reaching, impacting all aspects of a person’s life and leaving them feeling helpless. That is why we are working to give people who are overwhelmed by debt more time to seek advice, find a workable solution, and help get their lives back on track.”
“Although many people can and do use credit successfully to manage their personal finances, for the minority who get into difficulties this government wants to offer more support. The new scheme could include legal protections that would shield individuals from further creditor action once a plan to repay their debts is in place. Problem debt, where people are falling behind on their financial repayments or see their debt as a heavy burden, affects millions of people in the UK. Causes can range from the sudden loss of employment to a more gradual dependence on debt to make ends meet, with many people waiting 12 months or more before seeking help.”
“A six weeks’ grace period, where those suffering are safe from enforcement action and interest charges, could help give people the time and opportunity to seek debt advice. The government is committed to getting this right and over the next twelve weeks will be meeting with key industry representatives from charities, debt advice organisations, lenders and creditors”
Responding to the Treasury’s ‘Breathing space’ scheme call for evidence, Mike O’Connor, Chief Executive of StepChange Debt Charity said “We welcome the Government’s move to fulfil its manifesto commitment. Personal debt is growing, and we know that the guarantee of protection provided within a breathing space scheme is crucial to helping people who are overwhelmed by debt to recover control of their finances and move on with their lives.”
“The Government is asking the right sort of questions, including noting the importance that their own debts could be within any scheme. But we know from the experiences of our clients that continuous protection between the initial breathing space period and any statutory repayment plan is vital. Any interruption would destabilise fragile family finances and risk putting people back to square one.”
Citizens Advice welcomes the move to help prevent people’s debt problems from escalating, but says action is also needed from the Financial Conduct Authority (FCA) to stop people getting into problem debt.
In August, research from Citizens Advice revealed that 1 in 5 people struggling with credit card debts had their credit limit raised without them requesting it – showing that lenders were increasing people’s access to debt without the proper affordability checks.
The charity is seeking a ban on unsolicited credit increases and has called on the FCA to compel credit card companies to step in sooner when someone is struggling to pay their debts.
Gillian Guy, Chief Executive of Citizens Advice said: “It’s good to see the government taking action on problem debt – an issue we help thousands of people with every week. Providing breathing space is one way to help people get back on track, but action must be taken to stop them getting in problem debt in the first place.”
“That’s why we’re calling for an end to irresponsible lending from credit card companies. For example, no one should have their credit limit raised without them requesting it – something which risks pushing them further into debt. With prices rising faster than wages, household finances are increasingly stretched. The FCA should step in to protect borrowers by banning credit card companies from automatically raising credit card limits and making lenders support customers who are starting to struggle.”