Industry reaction: Government to launch breathing space scheme in 2021

21st June 2019

The Government has announced a new breathing Space scheme which will protect Individuals and families struggling with problem debt. Under the new scheme, consumers will be given extra help and time to get their finances under control, City minister John Glen has revealed.

The new plans will see the introduction of a 60-day Breathing Space period from 2021, where people with problem debts will be protected from enforcement action from creditors and will see their interest frozen. During this period individuals must engage with professional debt advisers, so they can find a long-term solution to their debts and get back on track with payments.

As part of these plans, and to acknowledge the links between problem debt and mental health issues, the government is also confirming that individuals receiving NHS treatment for mental health crisis will not need to seek debt advice during the 60-day period. This will remove a key barrier to access for this group. They will continue to receive the same Breathing Space protections, which will last for the whole of their treatment.

City minister, John Glen, said “Problem debt can have a devastating impact on people’s lives, putting a huge burden on individuals which can lead to family breakdown, stress and mental health issues. No one should be stuck in an endless cycle of debt and facing the ever-looming threat of invasive debt collectors.”

“That’s why I’m introducing this new scheme, giving everyone access to the advice, time and support they need to both get their finances under control and get away from the perpetual stress and worry debt can cause.”

Helen Undy, Chief Executive of the Money and Mental Health Policy Institute, said “This scheme could genuinely save lives. Everyone experiencing a mental health crisis should have the opportunity to recover free from escalating debt fees, charges and the threat of bailiffs arriving at their door. We are delighted that the government acted on our call to protect people from being hassled about debts while they’re receiving crisis care, and we look forward to working with ministers to put these plans in place over the coming year.”

Phil Andrew, CEO of StepChange Debt Charity, said “People looking for a sustainable way to repay their debts have traditionally had little protection, leaving them vulnerable to inconsistent approaches by different creditors that can harm their chances of recovery – something as a debt charity we’ve long felt needed reform.”

“Breathing Space and statutory debt repayment plans will fundamentally improve how people seeking to repay debt are treated, putting them in a far less precarious position. We’re particularly pleased to see the Government’s confirmation that debts owed to government itself will be included in the scheme. Accessing Breathing Space through debt advice also adds a valuable incentive to help ensure more people in debt get the support they need.”

Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs National Debtline, said “Breathing Space will provide a powerful incentive for people to seek debt advice, safe in the knowledge they will be given the time and statutory protections they need to begin to resolve their financial difficulty. The decision to include local authorities and other public sector creditors is particularly welcome – and means this new scheme could well be a game-changer in our efforts to tackle problem debt as a society.”

“We look forward to working with government and other partners to ensure that Breathing Space is implemented successfully, and to continue to contribute to the government’s plans for Statutory Debt Repayment Plans as these are developed further.”

Crucially, the scheme will cover a broad range of debts including arrears owed to central and local government. This will mean council tax arrears, personal tax debts and benefit overpayments will be included. As well as Breathing Space and the support for those in mental health crisis, the package also includes a Statutory Debt Repayment Plan for those with problem debt, which offers similar protection to the Breathing Space scheme, helping individuals to repay their debts over a manageable timeframe. The plan will adjust as people’s life circumstances change, which could mean decreasing monthly payments if their disposable income has changed.

The announcement follows the recent consultation on these proposals and the regulations on the Breathing Space scheme will now be put to Parliament before the end of the year, so that it can be implemented in early 2021.

The announcement builds on previous government work to alleviate the impact of problem debt, including reforming the regulation of consumer credit, widening access to professional debt advice and help to build individual financial capability.

Peter Wallwork, Chief Executive of the Credit Services Association (CSA), welcomes the announcement by Government  “The real news from today’s announcement is that central and local government debt will in the future follow the same best-practice processes that our own members have been following, and which have been enshrined in our Code of Practice, since 2012 – providing breathing space to the most vulnerable customers. It will address the potential disconnect between the treatment received by a customer owing debt to a bank or credit card company, for example, and those owing debt to public sector organisations including HMRC. Treating all customers fairly has been at the heart of what our members do for a very long time.”

Duncan Swift, President of insolvency and restructuring trade body R3, said “We welcome the Government’s announcement that it is moving ahead with the Breathing Space policy. We’ve long-supported the idea of a Breathing Space, and plans for its introduction will help those struggling with debts to get the advice they need to begin to resolve them.”

“We also welcome the commitment that individuals using the Breathing Space must engage with professional debt advisers. Professional advice is a must for individuals struggling with debt. It gives them the chance to talk to an experienced, independent third party who can help them look at their debt issues objectively and find the fairest, most practical way of resolving them.”

“The news that arrears owed to central and local government will be included in the Breathing Space is also positive and will mean the person who is in debt will be more fully protected from creditor pressure and from the risks of making a quick decision rather than a considered one.”

“However, we need to see the Government’s full consultation response, rather than just a press release, before we can see how this policy is going to work more fully. For example, today’s announcement makes no mention of the 30 day check-in, which was mentioned during the consultation, and whether this suggestion will be maintained in the final proposals.”

“The check in is an essential way of ensuring individuals in the breathing space take proactive action to tackle their financial difficulties, and helps to strike a balance between the needs of debtors and the rights of their creditors.”

“Those aren’t the only questions we have. How will the mental health support proposals work? What will the eligibility criteria be? This is a critical element of the proposals and one that needs careful consideration and clarification. Equally, how will the Statutory Debt Repayment Plan work? Does it sit within the UK’s insolvency framework or independently of it? How does it differ from an Individual Voluntary Arrangement (IVA) or a Debt Relief Order (DRO) – and why would someone choose to set up a plan when one of these may be a better alternative?”

“More information is needed about how these proposals translate into policy and we look forward to seeing the details of what the Government has planned – and to working with them to ensure that the finer points of this very worthwhile initiative work for everyone affected by problem debt.”

Russell Hamblin-Boone, Chief Executive of the Civil Enforcement Association which represents representing the civil enforcement industry, said: “These changes will potentially protect people with problem debt, but it is not straightforward or without implications. Council tax accrues daily, is billed annually, and paid monthly. Councils provide services to everyone but are unable to choose who is taxed to pay for it.”

“We support a breathing space that gives people in severe financial difficulty additional time to seek debt advice, provided it is applied before the debt is passed to an enforcement agent. This takes at least 112 days and after this time there is a clear timetable set by the courts for unpaid tax to be recovered.”

Gillian Guy, Chief Executive of Citizens Advice, said “After years of calling for more support for people in debt, we’re pleased to see the government take action to protect people from action by creditors. This new scheme will help people struggling with debt keep a roof over their heads and food on the table while they pay back what they owe. This will also offer crucial respite from aggressive bailiffs.”

“However the scheme won’t cover everyone straight away. We’re concerned thousands of people with debts and deductions under Universal Credit are going to miss out on this support initially.c“With more people likely to seek debt advice as a result of this scheme, the government also needs to ensure specialist debt advice services are adequately funded.”

Becky O’Connor, Personal Finance Specialist at Royal London, said“Problem debt can happen to anyone at any time in their life. It’s not necessarily the result of someone failing to manage their money properly, but can be the consequence of sudden misfortune, ill health, job loss, divorce or caring responsibilities, for example. Anyone of us could benefit from this breathing space period at some time in our lives, as a result of struggling in unforeseen circumstances.”

Deborah Ware, Director at Gregory Pennington said “The Government’s proposal includes important steps to improve the protection of those in problem debt but the timescale for delivery – especially for the SDRP – should be clarified as soon as possible. The announcement has the potential to bring great benefits to many people with serious problem debt and we look forward to working closely with the Government and the wider sector.”

“Overall the scheme provides a great step forward securing access to free debt advice and providing improved protection for consumers.”