Breathing Space Scheme: Response to HM Treasury’s consultation on a policy proposal
The proposed breathing space and statutory debt repayment plan will be a valuable resource for people facing financial difficulty. These schemes must provide robust protections for debtors both at the point of entry and throughout the schemes. In so doing, they must also support people to repay their debts.
We strongly agree with HM Treasury’s decision to include a broad range of debts within both the breathing space and the SDRP. It’s fundamental to the success of the schemes that the principles around the inclusion of debts within a breathing space are consistently applied for both public and private sector creditors. In particular, it is crucial that deductions from benefits to pay off debts, including Advance Payments, are explicitly included within a breathing space. Universal Credit deductions can see up to 40% (30% after October 2019) of a person’s monthly income deducted. Such a high level of deductions could leave people continuing to face significant financial hardship after its initiation, and would invalidate the purpose of introducing breathing space. The technical mechanism for pausing these deductions under Universal Credit is already widely used, when deductions are paused for hardship. Notifications processes could be aligned with those set out in the consultation.
The protections provided by introducing the breathing space must remain robust. We welcome the decision to protect debtors from both contractual and default interest, as well as arrears charges and enforcement activity. The 60 days of relief from interest will be essential to the success of this scheme - providing people time to seek debt advice and select a debt solution with the confidence that their situation will not be worse than before, as well encouraging earlier engagement with debt advice agencies.
The breathing space and SDRP should remain free to clients at the point of delivery. The broad eligibility requirements of the breathing space and SDRP contribute to the attractiveness of the schemes. Therefore, as with debt relief orders, the statutory regulations around the breathing space and SDRP should ensure that individuals are not charged for using these schemes.
The breathing space and SDRP should retain a degree of flexibility. At times, it will be important to recognise that the 60 day period for the breathing space will not be sufficient. In conditions where individuals face major changes of circumstances or cannot access debt advice, advice providers should have the discretion to extend the protections of the breathing space. Similarly, where an increase in income or additional equity is anticipated, advisers should be given discretion to initiate ‘low and grow’ SDRPs which extend beyond 10 years. Debtors should be given some flexibility around payment breaks - allowing for multiple shorter payment breaks, as well as longer term breaks, in response to a major financial shock.
We welcome the Alternative Access Mechanism that aims to provide financial relief and support to people in mental health crisis. The service can be delivered either through a centralised unit or a co-located advice service in health premises. The Alternative Mechanism should be:
Easy and quick to access for both clients to enter, and for practitioners to refer.
Open to all clients in mental health crisis, whether they are in in-patient or community settings.
Dependent on securing a client’s consent, except in circumstances where clients have existing powers of attorney.
Provided for a minimum of 60 days, to take into account fluctuating mental health needs and to reduce administrative burden on mental health practitioners, debt advice agencies and creditors.
We advocate co-locating the Alternative Mechanism in health services. This is based on our experience of providing advice services in more than 600 GP practices and more than 30 mental health in-patient and community services. We propose that, prior to full implementation, there should be a pilot that tests several delivery models, and co-designs the service with clients, practitioners and debt agencies. They are well-positioned as end users of this service.
We agree that the administration of this scheme should be undertaken by the Insolvency Service. For the breathing space and SDRPs to be deliverable by a large range of debt advice organisations, we propose that the notifications and payment distribution should occur through an Insolvency Service system. This would operate alongside existing payment distribution mechanisms for debt advice agencies with appropriate permissions. The burden of delivering the breathing space and SDRP should also be minimised for debt advice agencies, by treating the 30 day check as a ‘light-touch’ intervention.
Finally, in order for these schemes to be effective, it is vital that sufficient funding is provided to debt advice agencies for their delivery. This includes funding for the process of advising clients, not just the distribution of payments.