In Focus Collections
Breaking point for family finances?
A recent survey has found that 93% of respondents struggle to afford essentials after government collections
Peter Tutton Head of policy, research and public affairs, StepChange Debt Charity
Last month’s deadline for responses to the Cabinet Office on government debt collection practices saw us submit a detailed critique, based on client experience, which shows how remarkably poorly the practices of both local and central government compare to those in regulated markets. We called for fundamental and specific
changes to underpin a shift both in culture and practice in government debt collection. We have found that, among clients with
debts to government, 93% said that the actions taken to collect money owed had made it difficult to afford essential household costs. In turn, this led to more than half of these clients borrowing further to make ends meet – simply exacerbating problems.
Flawed approach This reflects a deeply flawed approach that currently underpins government debt collection, where there is an implicit approach of punishment for being in debt, and the focus is primarily on time-limited debt recovery, rather than on pro-active affordability assessment and affordable repayments. This must change. Only a third of StepChange clients with
debts to local authorities had undergone an affordability assessment, and similarly only a third of clients with debts to DWP. Although HMRC has helpfully embedded
an income and expenditure form into its “Time to Pay” negotiating framework, in practice only 17% of StepChange clients with debts to HMRC had gone through affordability assessment. The discrepancy hinges on the fact that,
right across government, the system relies on people challenging unaffordable payments. It should hinge, instead, on pro-actively
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setting up genuinely affordable repayment plans based on an accepted income and expenditure assessment framework such as the Standard Financial Statement – which is widely used in debt advice and the commercial credit sector, but not in local authorities or government departments.
Practice Government practice stands in sharp contrast to the controls that exist in the regulated credit sector, which is regulated, monitored, and enforced to oversee fairness in consumer outcomes. The FCA not only has a core principle
of treating customers fairly that firms are required to demonstrate, but also detailed forbearance rules to operationalise this and create sustainable repayment plans in practice.
No such universal, regulated, monitored
framework exists for those debts owed to government. Its absence is exacerbating financial
hardship, and increasing unrealistic debt enforcement costs being levied against vulnerable people who cannot afford to pay – particularly important given that 57% of those with government debts have additional vulnerability, compared with 44% of our clients as a whole.
Data sharing At the moment, as both the Public Accounts Committee and the National Audit Office have highlighted, different parts of government do not even share relevant data with each other about individuals’ debts and circumstances. This results in local authorities and
government departments pursuing repayment plans in isolation from the wider context that is essential to determining fair outcomes for individuals. According to Money Advice Trust
This reflects a deeply flawed approach that currently underpins government debt collection, where there is an implicit approach of punishment for being in debt, and the focus is primarily on time-limited debt recovery, rather than on pro-active affordability assessment and affordable repayments
research, only 59% of local authorities even have a vulnerability policy in place.
Framework Without a regulatory framework, the pockets of good practice that do exist in some local authorities rely heavily on enlightened individuals, and this is not a sustainable foundation. Within the commercial sector, lenders
and advice agencies are able to work in partnership based on agreed principles and rules. Lenders know that they have the
responsibility to meet the FCA’s treating customers fairly rules, and can rely on the
October 2020
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