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‘Government slow to see its role in debt problems’


Personal debt problems have a significant impact on individuals, but the government has a limited understanding of how this affects the public purse and there are weaknesses in its strategy for dealing with the issue, according to the National Audit Office (NAO). Problem debt, which is defined as the


inability to pay debts or household bills, affects around 8.3 million people in the UK. It can have significant damaging effects, such as causing anxiety and depression. It can also increase people’s likelihood of being in state-subsidised housing. Problem debt is caused by a large number


of factors, including life events, access to affordable credit, debt collection practices and a person’s understanding of financial matters. An estimated four in 10 people in the UK cannot manage their money well day-to-day, and internationally the UK ranks below average in financial capability. The NAO estimates that the increased use


of public health and housing services by people with problem debt costs taxpayers an additional £248m a year, and around £900m a year to the economy as a whole. Due to gaps in the government’s data, it is not possible to model other impacts, including on employment and benefits. HM Treasury has the overall policy


responsibility for problem debt and works closely with many organisations across government and the private and third sectors in trying to address this issue. However, the NAO has found weaknesses in HM Treasury’s approach. It does not have any formal mechanism or


forum to bring issues together in a coherent way, ensure a common understanding of priorities, or collectively hold delivery partners to account. People increasingly report problems with


debts to government or utility providers. The NAO estimates that the UK public owes at least £18bn to utility providers, landlords, housing associations, and government, such as through council-tax arrears or benefit overpayments.


October 2018


HM Treasury has limited information on


debt in these areas and, as such, does not fully understand the problem, which hinders its ability to respond effectively. The information available is much less


clear and transparent than retail lending information. Government also lags behind the retail-


lending sector in following good debt- management practice. As an example, established best practice in how to assess affordability of repayments is used by only 19% of local authorities and is not used as standard by central government creditors. Debtors’ perceptions of whether they are


treated fairly also lag behind retail lenders. A lack of data-sharing means government cannot identify individuals who owe money to more than one department, resulting in debt collection teams competing for repayments from the same person. Short-term incentives and funding pressures may also be leading to debts being


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pursued too quickly and aggressively, particularly in local government. NAO’s modelling estimates that intimidating actions and additional charges on over-indebted people are 15% to 29% more likely to make debts harder to manage or increase anxiety and depression. The Cabinet Office leads on the


government’s work to improve debt management practices across government, but departments, agencies and local councils are responsible for their own approaches. Amyas Morse, head of the NAO, said:


“Problem debt has significant consequences both for individuals and the taxpayer. While government has made progress in seeking to address this issue, its attempts so far have been insufficient. “The Treasury needs to have a better


understanding of the scale of people’s debt problems and how it is impacting their lives and the taxpayer so it can effectively resolve the problem.”


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