5 takeways from the Spring Budget
Reflections on the Chancellor’s Spring 2024 Budget
Posted March 6, 2024
Grace Brownfield reflects on the Chancellor’s Spring 2024 Budget, including welcome changes to Debt Relief Orders and what it means for people in financial difficulty.
Set against the backdrop of an extended period of high costs, which has taken its toll on the finances of millions of people, and with an election looming, there was much speculation over what to expect from Wednesday’s budget.
It was therefore welcome to hear early on in the Chancellor’s speech recognition of the challenges facing people in debt, alongside specific announcements on Debt Relief Orders (DROs) and a six-month extension to the Household Support Fund.
In this blog we explore what these changes mean for people in financial difficulty and dive into what was and wasn’t in the Chancellor’s speech.
1 Welcome changes to Debt Relief Orders
In many ways, the biggest announcement for people in debt was the welcome, and long overdue, changes announced to Debt Relief Orders (DROs). DROs are a personal insolvency solution that provide a crucial route out of debt for people who are eligible. We have long-called for changes to be made to make them available to more people and be simpler to administer.
By scrapping the £90 fee entirely from April, this removes one of the key barriers to people in need accessing this option. In 2022, we conducted a major survey of 565 debt advisers, to feed into the Insolvency Service’s Review of the Insolvency Framework: almost half (45%) said the £90 fee was one of the top three barriers to people accessing a DRO.
The changes do not stop there, though. The minimum debt value threshold will be increased from £30,000 to £50,000 from the end of June. This will help ensure that people with little available income or minimal assets aren’t excluded from accessing a DRO, purely because of what they owe – something that has been even more pressing as costs, and debt levels, rise.
Similarly, with the value of used cars increasing significantly over the last few years, the increase in the maximum value of a motor vehicle that someone can retain from £2,000 to £4,000 (also from June) much better reflects the reality for many of our clients in need of a DRO. Indeed, the vehicle limit was the top barrier to accessing a DRO that advisers reported when surveyed.
These DRO changes are the first major reforms we’ve seen coming out of the Insolvency Service’s review of the Insolvency Framework. Through this, we and many others across the sector have been setting out a clear case for change, not just on DROs but on bankruptcy fees, IVA reform and the wider insolvency landscape. We hope this is just the first step in bringing about much needed improvements to ensure everyone who needs a safe route out of debt can find one.
2. Six-month extension to Household Support Fund
Following widespread calls from councils and other organisations on the need to extend the Household Support Fund, the Chancellor appears to have listened by extending the scheme by a further six months. The cash and vouchers the fund provides for some of those most in need will give welcome relief for people hit particularly hard by the high cost of essentials. Whilst a welcome announcement, the short extension highlights the need for a longer-term plan to support the millions of people continuing to struggle as a result of this extended period of high costs. Findings from National Debtline reveal the ongoing challenges facing many people – two in three (64%) of callers surveyed say that it is a struggle to make ends meet every month.
3. Lack of action on energy arrears
Despite the welcome extension to the Household Support Fund, which has already helped many households with essential costs, there was an absence of anything related to the record levels of energy arrears.
Our findings from the end of last year revealed that a quarter of people with energy debts could not afford to repay. With the winter period leading many to use more energy to heat their homes, it's likely more people will be facing unaffordable arrears as costs remain high.
Findings from our National Debtline service show the average amount of energy debt owed by our clients is rising. In 2023, people owed on average £1,301 but so far in 2024, the average amount owed is £1,795.
People are not just falling behind on their energy bills – debts are building up and repayment amounts simply aren’t affordable for many.
The scale of this challenge cannot be ignored – the Government needs to act now to bring in a temporary Help to Repay scheme for energy arrears. This would provide a desperately needed route out of debt for millions, via payment matching and write off options. With the backing of 13 organisations, our proposals would also help tackle the record levels of energy debt, to the benefit of both consumers and suppliers.
4. Some support for the self-employed
There was also some positive news for small business owners and people who are self-employed. The increase in the VAT registration level for small businesses from £85,000 to £90,000 will – according to Treasury figures – impact around 28,000 businesses in the next tax year, who will no longer need to be VAT registered. It is also particularly significant for many of the people we help at Business Debtline because eligibility for the Government’s Breathing Space scheme for sole traders is tied to VAT registration. This means a business debt can be included in this scheme if the sole trader is not registered for VAT (i.e is under the VAT threshold). Raising the VAT threshold may well mean more sole traders can get Breathing Space on business debts – providing them with vital protections from creditor action while they develop a plan to deal with their debts.
5. Council tax reform needed now more than ever
Council tax levels are set to rise further for most people in April, adding to the pressure many are already under. Almost a third of callers to our National Debtline service have council tax arrears (30%), making it the second most common priority debt type we help with behind energy.
For people on the lowest incomes, even a small rise in council tax can push them into the red – and this can have severe consequences as collection practices can escalate quickly.
We’ve long called for reform of council tax collection practices, to improve fairness in collection and affordability of bills – and reduce the use of bailiff action by councils to collect outstanding, and often unaffordable, amounts.
With many facing higher council tax bills come April, the lack of ringfenced funding for council tax support schemes represents another missed opportunity.
Without this, councils with already stretched budgets may struggle to provide the support needed by people on the lowest incomes. And without wider reform of council tax collection rules, as more people do fall behind, we’ll likely see more facing harsh collection practices as a result.
Welcome steps, but more to do
Overall, there was much to welcome in the Budget from a debt advice perspective: the DRO changes, extension of the Household Support Fund and VAT registration rise will mean more households and small business owners in financial difficulty getting access to support, and there were welcome changes to give people on Universal Credit more time to repay Budgeting Advances. But there is still a difficult road ahead for low-income households, who remain under significant financial pressure. As we look to the year ahead, we need all political parties to commit to further support to help them weather the storm.
Grace is the Money Advice Trust’s Senior Influencing Manager. She previously worked in the policy team at StepChange Debt Charity. Before that she worked on issues related to the financial impact of cancer at Macmillan Cancer Support and NSPCC. View all posts from Grace Brownfield.
