BUDGET 2023 – consumer credit sector reaction

Chancellor Jeremy Hunt has announced the Spring budget for 2023.

Commenting on budget, Credit Services Association (CSA) Chief Executive Chris Leslie said: “For the collections sector, Jeremy Hunt’s Spring Budget has greatest relevance in its impact on the surplus money people have at their disposal and the cost-of-living squeeze that may affect an individual’s ability to repay debts they owe.”

“So although it is welcome that the overall economic outlook has eased (with growth flat for a period but no technical recession), it remains of concern that the Real Household Disposable Income (RHDI) per person is expected to fall by 5.7% over the coming two year period, still the steepest fall since the 1950s. This is driven predominantly by the energy price level, though the Chancellor took steps to maintain the price cap for a little longer still, and also by changes to income tax which rise because of maintained freezes in the tax thresholds.”

“Nevertheless, it is very welcome that inflation is forecast to fall to 2.9% by the end of this year. And there were welcome changes which will put money in the pockets of the least well-off, the most vulnerable in society and for families struggling to make ends meet. For instance, a significant sum is being made available to fund childcare costs for those with children over nine months old and there are structural reforms being made to DWP benefits especially for those with disabilities, principally to incentivise employment. Measures to encourage retention and a return to the labour market for older workers are also positive, though may not have a significant impact.”

“Some of the biggest tax and spend changes do not affect our sector more than any other – so the capital allowances reform allowing 100% full expensing for main rate assets and the money committed to extending fuel duty freezes are of note but not especially game-changing. Changes were announced to end the disparity between amounts paid for customers on energy pre-payment meters and those on direct debits, which is a welcome change.”

“The work of the Treasury Working Group on VAT treatment of financial services was noted in the Budget document and we have been pleased to feed into that process which is ongoing. However, the announcement that £47m is being invested in new HMRC systems to improve their “debt management capability” is eye-catching – and they predict will yield several hundred million pounds of new revenue in the years to come. The Chancellor says that they will enhance their online self-serve ‘Time To Pay’ service and improve their systems to sift between those who genuinely ‘can’t pay’ from those who won’t pay “to ensure that those who can afford to settle their debts do so”. Seeing the public sector commit to policy and infrastructure change to improve their debt collection strategy is something we have heard before from HMRC but this does look like a significant change – so we will watch closely what this involves.” 

Richard Lane, StepChange Director of External Affairs, said “It was vital that today’s budget set out bold plans that targeted support at the millions of households facing real financial difficulty following more than a year of this gruelling cost of living squeeze. The extension of the Energy Price Guarantee, the end to extra pre-payment meter fees and the extra childcare support announced will make a real difference to struggling households.”

“But for millions of people, the financial squeeze is rapidly becoming a debt crisis. Currently, one in three people who comes to StepChange for help does not have enough money each month to cover their bills and essentials. They are at breaking point due to soaring utility bills, rising food costs, unaffordable rents or mortgages, and stagnant wages. Alongside the welcome extension of help announced today, the government should act to introduce social tariffs for utilities, end punitive deductions from benefits to repay debts, make the Household Support Fund permanent and ensure that rising council tax does not leave more vulnerable households seeing a bailiff on their doorstep.”

“Extending the energy price guarantee will be a huge relief for millions of households but energy prices are still markedly higher than they were 12 months ago, and with real wages not keeping up with inflation, many families will still be struggling to afford their energy bills.  More than one in two new StepChange clients are now in energy arrears, many of whom aren’t eligible for further targeted support and are in danger of falling further into unsustainable debt. That’s why it is so vital that the government urgently introduces a social tariff for energy, which would act as a long-term solution to protect financially vulnerable households from debt and fuel poverty. For those already in difficulty, StepChange is calling on government and energy firms to prevent energy arrears building up further for struggling households, including targeted funding to write-off arrears for people who simply cannot afford to repay.”

“Today’s package of extra childcare support for people on Universal Credit recognises the need to further support families and those on the lowest incomes. However, it’s important that what the government gives with one hand, it doesn’t take away with the other. Many of those now entitled to extra childcare funding will still experience unaffordable deductions from their benefits to repay debts, blunting the impact of extra support and still leaving them at risk of being pulled further into debt. StepChange has long called for the need to end these unaffordable deductions. The government must act if it is to alleviate financial pressure on low-income households during the cost of living crisis and beyond.”

Paul Heywood, Chief Data & Analytics Officer, Equifax UK, said “The Chancellor’s ‘Back-to-Work’ budget looks to return the nation to business as usual after the upheaval of the Autumn budget last year, though many are likely tackling very similar challenges to those they faced last November. In a sign that spring has sprung, the Chancellor and the OBR presented a less bleak picture of the nation’s economic outlook than shared last year. While there is unlikely to be substantial growth in 2023, the fears of recession that have dogged the first quarter of the year appear to be receding.”

“Businesses certainly will welcome plans to restore tax relief for those reinvesting into research and development; however, there is little in the Chancellor’s plan to tackle high borrowing costs for consumers and businesses. Attention will quickly shift to the Bank of England’s base rate decision next week, though there seems little chance of an easing of climbing borrowing costs, as the Bank continues to tackle inflation. Regardless of next week’s rate decision, the credit sector will continue to ensure borrowers can access the credit products they need and support any consumers who find themselves vulnerable in the current economic situation.”

Layla Johnson, Regional Manager at personal insolvency provider, Creditfix, said “It’s no secret that families and households are facing huge challenges to balance their budgets and we are seeing the knock on consequences of this first-hand. Over the course of last year, we saw a 21% year-on-year increase in the number of people seeking personal debt advice.”

“The continuation of the Energy Price Cap Guarantee, avoiding a 20% increase in bills, is welcome respite for households which continue to face rising costs across other essentials. However, the end of the Energy Bills Support Scheme, which has provided a £400 discount since October 2022, means that households will still be paying for their energy after the Budget. Although warmer weather is on the horizon, reductions in energy costs is what will help those struggling the most.”

“Analysis of our Personal Debt Index shows that the proportion of Creditfix customers where an energy provider is their main creditor has more than doubled since 2019, with the average level of debt for these customers currently standing at £11,191.”

Adam Oldfield, Chief Revenue Officer at Phoebus Software, sais “We were told not to expect a budget with sweeping changes and unfortunately, as far as the housing market is concerned, that’s exactly what we got.  There were measures to alleviate the rising cost of living and get more people back into work, which may give a boost to confidence.  However, it is clear that the growth the government is expecting to see from the measures announced in the budget is not expected to come from the housing market, despite growth being a priority.”

“Once again, despite many calls for change, the Chancellor has skipped over stamp duty land tax.  The antiquated tax is a costly barrier but unfortunately, at over £14billion last year, it contributes far too much to the treasury’s purse.”

“Nonetheless, the housing market is notoriously resilient. So perhaps it will be enough that the OBR expects inflation to come down to 2.4% by the end of the year, while the economy continues to grow, for interest rates to steady and for confidence to return.”