Category: Credit use and over-indebtedness

Debt advice can be life-changing, but advisers can’t work miracles

Posted on by david.collings

By Sharon Collard and Jamie Evans

Two years on from the start of the Coronavirus pandemic, at least 8.5 million people in the UK need debt advice from a regulated provider, fuelled by a cost of living crisis that is stretching the finances of millions of UK households to breaking point. Even so, our research suggests that only a minority of people who would benefit from debt advice will actually seek it – a conundrum that has exercised the debt advice sector, creditors, regulators and governments for decades. Where people do seek debt advice, the evidence shows that only a minority get all the information or help they feel they need.

The Coronavirus Financial Impact Tracker was commissioned by abrdn Financial Fairness Trust in March 2020 to capture the financial impact of pandemic on UK households through a series of periodic cross-sectional online surveys conducted by YouGov and analysed by the University of Bristol’s Personal Finance Research Centre. Five surveys were conducted over the course of the pandemic, the last one in October 2021.

One of the things the surveys ask about is whether people sought debt advice from any free-to-use debt advice providers (such as Citizens Advice, National Debtline, StepChange Debt Charity) or fee-charging companies. Looking at the survey findings from October 2021, we see that only 5% of UK households said they had received any spoken advice about their financial situation since the start of the pandemic; 7% had received online advice (e.g. via by WhatsApp or webchat); and 4% had received both spoken and online advice (Table 1).

Not surprisingly, households in worse financial situations were more likely to have received advice over that period – 17% of households classed as ‘in serious financial difficulty’ had received spoken advice; 26% had received online advice and 13% had received both spoken and online advice (Table 1). That still means most households ‘in serious financial difficulty’ did not get any information or help about their financial situation from a debt advice provider, even though 93% of them said thinking about their financial situation made them anxious, 85% were struggling to pay for food and/or bills, and 55% were in arrears on at least one bill/credit commitment.

It could be that government financial support and payment deferrals from lenders helped many of these households weather the financial impact of the pandemic, but such assistance is unlikely to have resolved underlying debt problems. They may also have relied on self-help and obtained the information they needed from other sources that we did not ask about in the survey.

Table 1

We also asked advice-seekers whether they received all the information or help they needed from the debt advice provider they contacted. Almost half (46%) of all advice-seekers said they only received some of the information or help they needed; and a further 14% said they received none. This picture was amplified among advice-seekers who were ‘in serious financial difficulty’, where only a quarter (25%) said they received all the information or help they needed (Table 2).

Table 2

These findings raise some fundamental questions about why people aren’t seeking help who seem to need it; but also why most advice seekers are not getting all the information or help they feel they need – particularly those ‘in serious financial difficulty’.

Despite all the positive help that debt advice agencies provide, there are limits to what can be achieved for people in serious difficulties who have little or no spare income to pay back what they owe and for whom bankruptcy or debt relief fees may be prohibitive. In some cases, debt advisers may be able to do no more than confirm there is no real tangible help available or any recourse to additional financial support. This points to the need for wider reforms outside the debt advice sector such as adequate state safety nets, real living wages and better access to debt relief.

In addition, advice-seekers may need other services such as welfare benefits advice or legal help with their debts that debt advice services can’t offer. It could also be the case that people have expectations of debt advice services that exceed the reality of what these services can offer. Addressing these questions is important to ensure that debt advice reaches more people who need it and delivers good outcomes for the people who use it.

‘Zealous and unsympathetic’: are Government debt collection practices outdated?

Posted on by david.collings

By Jamie Evans

In what many will consider a somewhat worrying sign of the times, in the UK, job adverts for debt collectors surged in August. This comes after news that during and following lockdown, households receiving financial support from the Government were increasingly likely to have missed debt repayments or fallen behind on household bills.

Where the UK’s economy heads next is something that will cause concern for many of us. Financial difficulty and, in particular, debt can be a major source of stress and poor mental health – and can also impact on numerous other aspects of our lives, including our relationships and productivity at work.

But, while debt itself can be problematic, the actions of creditors when collecting money owed to them are just as – if not more – important. Where good debt collection practices will hopefully help the debtor find a route out of difficulty, poor practices will simply make problems worse.

Government debt collection practices ‘worst in class’

As I outlined in a new briefing paper for the House of Commons Library, the debt collection practices of central and local public sector bodies have increasingly been called into question in recent years. There are reported to be as many as 500 different public bodies that an individual might owe money to, including the Department for Work and Pensions (DWP), HM Revenue & Customs (HMRC), the NHS, and local authorities.

In 2019/20, public sector bodies were owed an estimated £16 billion across several types of debt – including benefit overpayments, council tax arrears, benefit advances, criminal court financial impositions, and rent arrears on local authority housing. The total value of all debt owed to the public sector, however, is not currently measured.

While commercial lenders and debt collectors have begun to improve debt collection practices in recent years – mainly as a result of regulatory action from the Financial Conduct Authority (FCA) –government bodies have been heavily criticised for not following suit.

Debt advice charities, including Citizens Advice, StepChange and the Money Advice Trust, have all called on the Government to improve practices – and their calls have been echoed more recently by the Centre for Social Justice and a growing number of MPs and Peers. In 2018, the Treasury Select Committee concluded that public bodies are “often found to be the most zealous and unsympathetic of creditors in collecting arrears” and more recently former Conservative MP Nicky Morgan (now Baroness of Cotes) wrote the following:

“Regrettably, the public sector continues to lag behind. Despite glimmers of progress, the Committee’s verdict in 2018 that the public sector was ‘worst in class’ for debt collection remains sadly accurate.”

Aggressive practices causing downstream problems

Criticisms of the public sector’s approach to debt collection have focused on their perceived heavy-handed nature, with a reliance on enforcement agents (bailiffs), rapid escalation of debts (including the use of imprisonment for non-payment of council tax debt), and increasingly aggressive practices as the financial year-end approaches.

Overall, it is argued that a short-term incentive to collect money owed as fast as possible may come at the cost of longer-term sustainability and may in fact lead to a lower likelihood of all money being recovered or of individuals being able to escape the cycle of problem debt.

These issues are exemplified by the BBC’s docudrama ‘Killed by my debt’, which tells the real-life story of 19-year old courier Jerome Rogers who found himself in debt to Camden Council as a result of two minor traffic violations. In 2016, after the two initial £65 fines he received spiralled to a £1,000 debt and bailiffs clamped his motorbike – his primary means of making a living – Jerome sadly took his own life.

Jerome’s case raised awareness of the issues associated with debt collection and prompted Camden Council (and others) to introduce formal policies related to the treatment of vulnerable debtors. Nevertheless, according to Freedom of Information (FOI) requests made by the Money Advice Trust, in 2018-19, English and Welsh local authorities used bailiffs 1.1 million times to collect council tax debts and 780,000 times for parking debts.

Important geographical differences

The aforementioned FOI requests also highlight the variation in practices across the country, with bailiff use increasing in some areas but not in others and some local authorities adopting ‘good practice’ measures (such as policies for supporting vulnerable individuals). The Money Advice Trust have mapped these practices across England and Wales, as shown below.

Differences also exist between the constituent nations of the UK. England, for example, remains the only country in UK (and, more widely, in Europe) to imprison people for non-payment of council tax. Wales abolished this practice from April 2019, with Mark Drakeford describing the sanction of imprisonment as ‘an outdated and disproportionate response to a civil debt issue’. Scotland and Northern Ireland also have very different rules around the enforcement of debts more generally.

Recommendations for change

While the Government has already made some changes in this area, including reforms to the bailiff industry in 2014, it recognises that more can be done. In June 2020 the Cabinet Office published a consultation on fairness in Government debt management.

Campaigners argue that the Government needs go much further. In particular, there have been calls for independent bailiff regulation and an end to the practice of imprisonment for non-payment of council tax, as England is the only remaining country in Europe to continue using this type of enforcement. Campaigners also want to end rules which make individuals liable for an entire year’s council tax payments after just one missed instalment, as this fails to offer those having repayment difficulties a route out of debt.

Additionally, a group of 55 cross-party peers and MPs have written a letter to support the idea of a ‘Government Debt Management Bill’. This would place current codes of practice on a statutory footing and more generally ensure consistency across public bodies (and across the country) in the way that they calculate repayment affordability and treat those in vulnerable situations.

With the impact of the pandemic potentially leading to an increase in those facing financial difficulties, such calls for change are only likely to grow louder.

About the Author: Jamie Evans is a Senior Research Associate at the Personal Finance Research Centre, within Bristol’s School of Geographical Sciences. He is currently on a part-time Parliamentary Academic Fellowship at the House of Commons Library within the Business and Transport team. For more information on these fellowships, please visit UK Parliament’s website.

Suggested further reading

Evans, J. (2020) Debts to public bodies: are Government debt collection practices outdated?. House of Commons Library briefing paper number 9007. https://commonslibrary.parliament.uk/research-briefings/cbp-9007/

Evans, J., Fitch, C., Collard, S., & Henderson, C. (2018)  Mental health and debt collection: a story of progress? Exploring changes in debt collectors’ attitudes and practices when working with customers with mental health problems, 2010–2016. Journal of Mental Health, 27(6): 496-503. https://doi.org/10.1080/09638237.2018.1466040

Anderson, B, Langley, P, Ash, J, Gordon, R. (2020). Affective life and cultural economy: Payday loans and the everyday space‐times of credit‐debt in the UK. Transactions of the Institute of British Geographers. 45: 420– 433. https://doi.org/10.1111/tran.12355

García‐Lamarca, M. and Kaika, M. (2016), ‘Mortgaged lives’: the biopolitics of debt and housing financialisation. Transactions of the Institute of British Geographers 41: 313-327. doi:10.1111/tran.12126

Does borrowing behaviour influence wellbeing?

Posted on by david.collings

by Sara Davies

Standard Life Foundation recently commissioned us to conduct a rapid evidence review to understand people’s borrowing behaviour and how it impacts their financial wellbeing. This involved a structured, critical analysis of around 150 relevant items and an assessment of their methodological strengths and weaknesses. We found:

  • Income strongly influences borrowing behaviour. Low-income households are less likely to use consumer credit than those on higher incomes, but more likely to use high-cost lenders when they do borrow, often to make ends meet.
  • Owning assets has some relation to borrowing behaviour. Homeowners have higher levels of borrowing than non-homeowners; their borrowing is linked to their level of housing assets. However, we lack evidence on the effects of savings on borrowing.
  • Psychological factors shape borrowing behaviour, but not as much as socio-demographics. There are complex interactions between different psychological factors; and one can mediate (and moderate or amplify) the effects of another. Psychological effects seem less powerful in explaining borrowing behaviour than other personal factors, such as income.
  • Macro-economic conditions play a major role in shaping people’s financial situations, their access to borrowing and the cost of borrowing. Aggregate consumer borrowing rises when macro-economic conditions are good and falls when they deteriorate. At firm level, credit card design and marketing (such as credit limit increases and zero-interest offers) encourage borrowing. Speed, convenience and easy access attract borrowers to use high-cost credit, particularly where they have few other credit choices.
  • Lower financial literacy is linked to poor borrowing behaviours and over-indebtedness. There are concerns young people, with lower financial capability overall, are particularly at risk from poor borrowing decisions. The evidence is weak regarding the impact of financial literacy programmes (which tend to focus on financial knowledge) upon financial behaviour

Read more about this research

Report | Key Findings

Responding to citizens in debt to public services

Posted on by david.collings

Early intervention is key to stopping Welsh households from falling behind on their council tax or social housing rent payments, according to a new report from the Wales Centre for Public Policy. In 2018, the First Minister asked the WCPP to explore the evidence around the question ‘How might public services and their contracted partners in Wales better respond to vulnerable debtors, especially those subject to prosecution and prison?’

The report – which was co-authored by Professor Sharon Collard of PFRC, and Helen Hodges and Paul Worthington of WCPP – focuses on council tax debt and rent arrears to local authorities and social landlords as key forms of citizen debt to Welsh public services and their contracted partners.

As councils across Wales are seeking large increases in their council tax rates for the coming year, the report highlights the importance of building personalised and proactive support for vulnerable citizens, rather than a one-size-fits-all approach.

Key features of an effective support system would include:

  • Building trust with citizens right when they start being responsible for paying council tax or social rents
  • Identifying any problems and acting on them as early as possible
  • Easing the process of referring people in debt into partner services, and improved access to independent specialist help

But the report also warns that the ability for councils and housing associations to respond to future increases in demand, particularly in relation to any roll-out of Universal Credit, could be hampered because of increased workload pressures.

67,600 (5.2%) of households in Wales have problem debt according to the ONS, with a greater number of them in arrears for their council tax or social housing rents than in previous years.

Read more about this research

Responding to citizens in debt to public services – a rapid evidence review (PDF)