Posted November 2, 2020
Money Advice Trust Public Affairs and Policy Manager Grace Brownfield takes a look at the evidence behind our new report, ‘Levelling up: The case for reforming government debt collection’
Over the past decade, we have seen a significant increase in the number of people owing debts to central and local government. The proportion of callers to National Debtline with council tax arrears has nearly doubled over the last decade; the proportion with benefit and tax credit overpayments increased sevenfold in a similar period.
As England heads into a second national lockdown, with similar restrictions in place in Scotland and Wales, and the economic impact of the coronavirus outbreak continues to take its toll, we unfortunately expect the number of people struggling with debts to government to rise further.
While preventative action to stop debts building up is vital, the way government collects debts from those who fall behind will be key to how households recover from this crisis.
Levelling up government debt collection practices
As my colleague Matt Hartley set out on this blog a few weeks ago, the issue of government debt collection is – we hope – approaching its ‘tipping point’. While there has been some progress in recent years, change has been too slow – particularly when considering the severity of the issues we see.
As we release our new report Levelling up: The case for reforming government debt collection – based on our response to the Cabinet Office’s recent call for evidence – I’ve taken a look at what evidence from people in debt and debt advisers reveals about the issues within government debt collection.
Unaffordable demands make debt problems worse
The extent of affordability issues in government debt collection is perhaps most starkly summed up by the fact that advisers across the debt advice sector rated both HMRC and the Department for Work and Pensions (DWP) as worse than payday lenders at assessing affordability and accepting affordable repayment plans.
Only 13% of advisers think DWP assess affordability ‘well’ or ‘very well’, and the figure is just 12% for HMRC. This is lower than nearly all other creditors, including payday lenders, hire purchase lenders, energy, telecoms and water companies, debt collection agencies and banks.
Such results are perhaps not surprising considering that much of the best practice when it comes to affordability of debt repayments is not widely embedded across government. There is still not widespread adoption of the Standard Financial Statement; people frequently report having their affordable repayment offers turned down and being pushed for higher amounts they cannot afford; and often little flexibility or account of circumstances is shown.
These practices frequently undermine people’s efforts to resolve their debt problems and can push them further into financial difficulty, contributing to feelings of frustration and hopelessness. 44% of National Debtline clients with debts to HMRC disagreed that they were offered any assistance to help resolve their debt problems. This rises to 48% for both DWP and local councils. Again, this is much worse than the experience our clients have with other creditors in the private sector.
“People feel intimidated and pressured into agreeing to payment plans which are not affordable, and very often circumstances and vulnerabilities are not taken into account.”
Debt adviser surveyed by the Money Advice Trust
More to do on vulnerability
While there has been welcome recognition from government about the need to improve identification and support of vulnerable customers, it’s fair to say that government creditors are relatively early on in their journey to doing so – particularly in comparison to other sectors.
Among the advisers the Money Advice Trust surveyed in our new sector-wide survey, just 9% said they thought DWP identified and supported vulnerable customers ‘well’ or ‘very well’. For HMRC, the figure was just 12%. Local councils performed better but still only a third (33%) of advisers surveyed said councils identified and supported vulnerable customers ‘well’ or ‘very well’.
Not taking account of vulnerability makes it harder for people to engage with creditors and contributes to a view that government organisations are working against, rather than with, people in debt – leading to poorer outcomes all round.
Unfortunately, we frequently see how government debt collection practices exacerbate existing vulnerabilities, such as physical or mental health conditions:
80% of those who had debts to DWP, 79% to local authorities and 78% to HMRC reported that the actions of the department or local authority had a negative impact on their wellbeing.
85% reported a negative impact from the actions of bailiffs/enforcement agents, who are often collecting council tax debts.
“They [government department] were generally unhelpful and unsympathetic to my situation. I didn’t feel they had any supportive measures in place, I wasn’t offered any extra support even though I explained I have been diagnosed with anxiety and depression.’’
Business Debtline Caller
An outdated approach to communications
Good communications are essential to help people resolve their debt issues. However, when it comes to central and local government, all too often we see examples of communications about debt that are unclear, confusing or threatening.
Advisers we surveyed across the sector reflected that the approach taken by government creditors can contribute to a sense of hopelessness from people about their debt situation, can put people off trying to contact them again and lead to them disengaging with government organisations.
“The people we try to help really struggle to understand the letters / award notices / bills [they are sent]. Often they have attempted to try and address the issues themselves but just give up because they can’t get through on the phone or they are spoken to very unsympathetically”
“The emphasis in [government organisations’] communications and practices are usually traditional insofar as they treat the debtor as someone who has done something morally wrong and who must face punishment if they do not make amends. Our local council used to be like this too, but has improved dramatically over the last year or so towards working with clients to solve problems – reducing the impact on health.”
Debt advisers surveyed by the Money Advice Trust
It’s not just our evidence that shows the problem: In 2018, the National Audit Office found that ‘intimidating letters, phone calls or doorstep visits lead to a 15% increase in the probability of debt problems becoming harder to manage, and a 22% increase in the probability of anxiety or depression levels rising’. We’re pleased that some changes to consumer credit act notices are on the way, in recognition of the impact that threatening letters can have – but change is badly needed in the way government communicates with people in debt, too.
Time for a bold package of reforms
Set out like this, these problems look stark. There’s now significant consensus on the need for a bold package of reforms that levels up government collection practices with those in the private sector, particularly financial services.
Alongside the Centre for Social Justice and a growing number of Parliamentarians of all parties, we’ve called for a new Government Debt Management Bill to embed effective approaches on affordability, vulnerability and communications. We also need to see urgent reform of council tax collection and independent bailiff regulation, in particular.
There are still some who insist government is different to other creditors; that their duty to collect as much money as possible for the public purse justifies current practices. But the evidence to back-up this view simply isn’t there. The experiences of financial services shows that taking a more supportive and affordable approach to collection can actually increase the amount collected, rather than undermine it, as well as reducing the likelihood of people falling behind again.
As the government itself acknowledged in the Cabinet Office’s welcome call for evidence, an approach that recognises this is the true definition of fairness in debt collection.
This is the first in a series of blogs on government debt collection, exploring the current issues and setting out the changes needed. Read the full report Levelling up: The case for reforming government debt collection.
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.