“(1) The Secretary of State must, within the period of six months beginning with the day on which this Act comes into force, introduce a debt respite scheme.”
This amendment will require the Secretary of State to set up a debt respite scheme within 6 months of this Act coming into force.
A “breathing space” is a scheme that stops debts from increasing by freezing interest and charges, and halting enforcement action, allowing families the time and space they need to get back on their feet. This morning I told the story of a victim of domestic violence who fled and then got herself into a downward spiral of debt. She said: “I borrowed to pay my debts. I then had to borrow to pay my debts. I then had to borrow to pay my debts.” What she would have greatly enjoyed, if it had been in operation at the time, is a breathing space to halt the downward spiral and allow her to sort out her finances, and indeed her life and the lives of her children.
While we welcome the fact that the Government have committed to a debt respite scheme with the introduction of the new body, those vulnerable people who are stuck in a cycle of problem debt cannot afford to wait. A debt respite scheme gives people who are suffering from debt problems the breathing space to stabilise their financial situation and get on a more stable footing.
One survey showed that 60% of people said that their financial situation had stabilised once all of their creditors agreed to freeze further interest charges and enforcement action. In a world where credit is easier to access than ever before, it is all the more likely that some will fall into problems with debt. Therefore, it is incumbent on the Government to ensure that these people are not left to suffer alone, and that they receive the support and guidance they need to climb back out of the downward spiral of debt.
StepChange, a debt charity, has estimated the wider social costs of current debt problems to be £8.3 billion. Currently, 2.9 million households are at crisis point with severe, unmanageable debt problems. Some 21 million people are struggling with their bills; 18 million people are worried about making their income last until payday; and research by the Money Advice Service found that, for nearly 9 million people, financial difficulty had progressed to more serious and persistent arrears, with bills and debts described as an ever more heavy burden.
Debt has wider social effects. StepChange polled its clients. Seventy-four per cent. said that debt had affected their sleep patterns; 43% said that debt worries left them unable to concentrate at work; 6% said it caused changes to work attendance, such as arriving late or taking more time off; and 2% said that it led to them losing their job. If that evidence was scaled up, it would point to 2.9 million people with severe debt problems, which potentially means nearly 60,000 people out of work as a result of problem debt.
In addition, 57% of indebted parents said debt put their current or most recent relationship under strain. Some 7% said their relationship actually broke up because of debt, and children in households experiencing debt problems were more than twice as likely to say they had been bullied at school.
I am sure that every member of the Committee has personal experience of heartbreaking cases in their constituencies where people are immersed in debt, and of the price they pay and how they suffer. Crucially, debt respite gives them the time and opportunity to sort their lives out. I know that the Minister agrees in principle and that there is common ground across the House that a debt respite scheme should be established, but it is a question of how quickly that can be made to happen. It is our strong view that it ought to be achievable within six months of the Bill becoming law.
Does the hon. Gentleman agree that rushing a scheme could impact the effectiveness of debt respite? Although I completely agree with everything he said about the problems that can be incurred via debt, it is important to get this crucial element of the Bill correct and to liaise with organisations such as StepChange and the others he mentioned.
The hon. Lady is absolutely right. It is important that we get this right at the next stages of the Bill. I do not disagree for one moment. Having said that, let me distinguish between two things. Making substantial changes to the machinery of government to deliver a new function willed by Parliament can take a long time, so the SFGB probably will not be operational until May 2019. I understand that. However, it is not beyond the wit of man or woman to send an unambiguous message now, on the face of the Bill, to those who are responsible for unreasonable pressure being put on people in debt that they are not allowed to do so. Introducing that within six months of the Bill becoming law is eminently achievable.
I stress again that I am the first to recognise that great change sometimes takes time to implement, but to be frank, given the times we are living through, I do not want people who could get respite to spend another six months not getting it. There is no good reason not to give them respite. As I said when we started this morning, we want to strengthen a good Bill, and inject into it a greater sense of urgency as appropriate.
I thank the Minister for his letter about breathing space and the other issues, but it gave me another question for him. He mentioned a six-week breathing space period. I have said this many times: please, please talk to debt advisers. Six weeks is really not enough time.
I appreciate the point the hon. Lady is about to make, because I heard her make it in the Chamber the other day, but does she acknowledge that the six-week breathing space in Scotland has been effective? That is an interesting example of effective legislation coming out of the Scottish Parliament. Although a longer breathing space may be preferable, six weeks has been shown to be effective up there.
It may have been shown to be effective, but it has not been shown to be the right amount of time. The average debt in Scotland takes four months to handle, so six weeks is not the right amount of time. People have regularly asked for extensions to the six weeks.
To re-emphasise the point—I promise not to come back on it again—that the six-week breathing space in Scotland has led to a reduction in bankruptcies. It has been successful in that respect. It is wrong to suggest that six weeks is wholly inadequate.
The number of bankruptcies is not the issue; they are actually quite rare. A very small proportion of the people who go to debt organisations are made bankrupt. It takes most people with the average amount of consumer debt four to six months to deal with it. Those are not people who would ever have looked at bankruptcy. Bankruptcy is not appropriate for them and would not even be considered.
The average number of consumer debts is rising, and creditors are slow at responding. People often forget to bring in a debt, and so they have to write to all the creditors and redo the statements. Six weeks is just about better than nothing, but I would say, from my long experience of dealing with debts, that four months is probably the minimum. We want to prevent creditors from delaying it until the six weeks is over and people have to go for extensions, which may or may not be granted. Some creditors—I have to be honest—delay it simply so they are not part of the solution.
Although I still think the length of time is inadequate, I welcome the proposal for a breathing space. Another issue with the length of time is that it is very difficult for people who suffer from depression or low-level mental health problems to make regular appointments, and they are often asked to come in all the time to deal with their debt. That needs to be taken into account. I welcome the move, but please do not be wedded to six weeks.
It is a pleasure to serve under your chairmanship, Mr Rosindell, and to participate in this stage of the process. I feel a bit like poacher turned gamekeeper, given that I was a member of the Work and Pensions Committee a few years ago when many of these matters were discussed. I remember having long discussions with my hon. Friend the Member for South Thanet and the hon. Member for Paisley and Renfrewshire South. It is still a matter of great sadness that I have not been to Paisley.
Amendments 34 and 35 would require the Government to implement a breathing space scheme within six months of the Bill’s receiving Royal Assent. It is legitimate to press that point, because everybody on this Committee—this was striking on Second Reading—is concerned and feels a sense of urgency. Before I became a Minister, I spent time working with Members of other parties on the all-party group on hunger and food poverty. I visited South Shields and saw at first hand, in a community that is very different from mine in Salisbury, the distress that debt can cause. Now that I am a Minister and in a position to do something, I am extremely focused on ensuring that this happens.
Members of all parties agree that creating a breathing space scheme will have significant benefits for thousands of the most vulnerable families. However, it will need to be designed properly and implemented in partnership with the debt advice sector and creditors. Creating a scheme will ensure that vulnerable consumers have time to assess their financial situation and begin to deal with their debts. The Government are committed to establishing a scheme as quickly and effectively as possible, including through the passage of the Bill. I am pleased that clauses 7 and 8 provide for the scheme’s introduction, but it is worth acknowledging how complex some of these situations are and how complex the scheme may need to be. It includes both a breathing space and a statutory debt management plan. It involves significant co-operation among creditors, debt advisers and those accessing a breathing space, who in many cases could be leading chaotic lives.
I listened carefully to the hon. Member for Makerfield on Second Reading. I always have great respect for her when she speaks in the House. Today she talked about needing four months, and on Second Reading she talked about needing six months. She cited an example of somebody who may think they have all their debts lined up, and then another materialises later on. Those are the sort of complex situations that we need to come to terms with in the design of the scheme. There are significant questions about how debtors can access the scheme, which debts are included, how flexible the scheme can be, and how it ties in with existing statutory debt solutions.
I will come to that point and will be as explicit as I can, giving an indicative timeframe.
The scheme needs to be properly designed with consultation with experts in the debt advice and creditor sectors. That is key to ensuring that it works in practice and properly benefits the lives of the vulnerable people that we all want it to support.
The Government are clear that it will not be possible to conclude that process within six months of Royal Assent, which is what the amendment would require. However, I agree with the hon. Member for Makerfield that we must work quickly to establish the scheme, given the benefits it could bring to indebted individuals. To that extent, the Government have set out a clear timeline for the implementation of breathing space.
My officials are currently working hard to analyse responses to the Government’s call for evidence on the scheme, which closed on
Throughout the period, my officials will be drafting regulations to introduce the scheme and I can confirm that they will be laid as soon as possible in 2019. I feel the frustration of Members on, I suspect, both sides of the Committee. All I can say is that I will be doing everything I can and will be working very closely with the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Hexham, to make sure that we do this as quickly as possible.
As one of those people who are feeling the frustration with the 2019 date, why do we have to wait for the establishment of this body when all the debt charities and most of the creditors have been pressing for a breathing space under the old system? Why do we have to wait for the new body to do that?
I acknowledge the problem, but having taken the trouble to move three entities into one single body and to make it an authoritative place for people to go to for reliable advice across different elements, it would be appropriate, given how central the debt problem is, for it to have a meaningful contribution to establishing the parameters of the scheme. That seems consistent with the objectives that we have set out and discussed, although I acknowledge the wide—although not complete —consensus.
I will reflect on the point made by my hon. Friend the Member for Brentwood and Ongar about the Scottish experience. It is interesting and instructive that that has iterated quite significantly over time over many years, albeit with a significantly smaller cohort of just 2,000 people. That tells us that lessons have to be learned through experience of work on the ground. I am extremely anxious that we get the best possible scheme designed by the time the process is concluded. This process balances speed with getting the policy right.
I would also mention the independent review of the debt advice provision. It concluded very speedily. It was a very short process, and concluded over the Christmas period, in January. Will the recommendations in that have to wait to 2019 to be implemented? Some of them seem extremely sensible.
I am grateful to the hon. Lady for making that point. I am aware of that report, which came through on
I have explained why we cannot accept the amendment. I cannot emphasise enough that requiring the scheme to be set up before the end of the year would risk the scheme not working for consumers or not being utilised by the sector in the optimal way. The scheme was a key manifesto commitment that we are working on apace, but it is too important a policy to be rushed through, as the amendment proposes. I am extremely focused on the policy. Given my experience, I have set out that it is one of the most important things that I will do in my time in office. I am committed to seeing it through. I hope that Members are reassured by that and that the hon. Member for Birmingham, Erdington will withdraw the amendment.
The Minister speaks with obvious sincerity, which is welcome. As has repeatedly come up in our proceedings today, whether our experience is from our constituency or otherwise, we have all seen the price that people pay as they sink ever more deeply into debt. I do not mind admitting that there was one particular case—it is not appropriate to go into the details—where, when my constituent walked out the room, I was in tears because of what had happened to her. Her life was in a downward spiral. There is common ground and obvious sincerity, so the Government should act.
We will not push the amendment to a vote, but I suggest that the Government reflect further and come back on Report with the best possible timescale for implementation. I agree with my hon. Friend the Member for Makerfield: we should not necessarily have to await the formation of the new body. The scheme is a related matter to the function of the body—of that there is no doubt—but we have seen experiences such as the arrangements in Scotland. We also have the collective wisdom of the discussions in the sector and in the House of Lords. Everyone is determined to get it right. We just do not think that the scheme should be introduced a year beyond the Bill coming into effect in three or four months’ time. We would be talking about it being a year and a half before we ultimately see this welcome mechanism introduced.
In not pushing the amendment to a vote at this stage, I ask the Government to reflect further and come back on Report on two things. First, we want clarity on what the Government think is necessary. The Minister has gone a long way towards that. We want clarity about how one goes about arriving at the default scheme. That relates to the mechanisms and who should be engaged. The Minister has referred to that already. Secondly, we want the quickest possible timescale to get the scheme introduced. If the Minister will respond accordingly on Report, I am prepared to withdraw the amendment.
I am grateful for the hon. Gentleman indicating that he will withdraw the amendment. I observed closely what he said on clarity on the default scheme and having the quickest mechanism possible to bring it forward. I will reflect with my colleague the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Hexham and provide an update on Report.