An encouraging proposal for the Breathing Space scheme

Money Advice Trust chief executive Joanna Elson offers our first thoughts on the Treasury’s Breathing Space policy proposal, published this week.

While all eyes were on the Budget on Monday, most eyes in the debt advice sector were also on the detail of the government’s latest consultation on its new statutory Breathing Space scheme, published on the same day.  The good news is that the Treasury’s plans are an encouraging read.

The team here at the Trust has been working with Treasury officials as they develop plans for Breathing Space over the past year, and we were pleased to discuss some of the issues at stake in the scheme’s design with the Economic Secretary to the Treasury, John Glen, during his recent visit to National Debtline in Birmingham.

The new proposals, now out for consultation until the end of January, are for a Breathing Space scheme similar to the design that we laid out in our consultation response in February (read a summary here and our full submission here).  Here are some initial thoughts:

Broad eligibility, good protections and a sensible design

Pleasingly, Breathing Space looks set to have a wide eligibility, with broad protections from interest, charges and most enforcement action – accessed via debt advisers using an online portal run by the Insolvency Service.

Crucially, the six-week time period of protections that was included in the government’s manifesto commitment has been extended to 60 days – which should mean the scheme gives people in financial difficulty more time to start to resolve their debt problems.  We have been arguing for an element of adviser discretion, to ensure the scheme also works for people with more complex situations – but a 60 day window is certainly progress.

The proposal also brings the news that the government’s related plans for a new statutory debt repayment plan (SDRP) will be developed on a different timescale to Breathing Space – with the Treasury taking a sensible ‘two schemes, not one’ approach.

Sole traders are included

We are particularly pleased to see the inclusion of sole traders with business debts in the Treasury’s plans for Breathing Space – a move we have been arguing for strongly, and one which will be hugely significant for many of the people we help at Business Debtline.

This would apply to sole traders who do not meet the VAT registration threshold (currently a turnover of £85,000) – and importantly, covers business tax arrears as well as business-related debts.  With business and personal finances increasingly intermixed, the inclusion of sole traders was crucial – and we are delighted that the Treasury has taken this step.

The question of public sector debts

A similarly crucial pre-requisite for the success of the scheme is the inclusion of public sector creditors including local authorities, HMRC and the Department for Work and Pensions in Breathing Space.  On this point, the signals are more mixed.

The government agrees on the need to “offer protection on as many of an individual’s personal debts as possible” – and we were relieved to see that public sector debts, aside from court fines and social fund loans, do not appear in the list of excluded debt types outlined in the proposal.   Debts on business tax and business rates are also explicitly included.

However, the proposal is far from explicit on the question of public sector creditors, and the document includes no specific mention of council tax arrears (now accounting for 30% of National Debtline callers, up from 15% a decade ago), benefit and tax credit overpayments (now at 16%, up from 3% a decade ago) or personal debts to HMRC.

In the absence of a clearer signal of the government’s intent, we will be continuing to make the case for a firmer commitment that these public sector creditors will be included.

And of course… demand

Part of the appeal of Breathing Space is the powerful incentive it will provide for people in financial difficulty to seek advice, and seek advice earlier.  Indeed, the government has identified this as one of the scheme’s two main policy objectives.

A consequence of a successful Breathing Space scheme – and the signs are good that we are moving towards this – is therefore a significant increase in demand, at a time when the supply of free debt advice already far outstrips supply.  The administration of an effective scheme will also have an impact operationally, with debt advisers performing much of this work.

Despite this, the government has made clear in this proposal that no “specific new funding stream” will be introduced, with advice agencies instead expected to operate the scheme within existing funding.  Clearly, this is something that needs to be worked through.

Despite this significant caveat – and a list of other issues that the team will be raising in the coming months (and too detailed to include here) – our first impression is that the Treasury has delivered a very solid proposal, and one which could lead to a scheme that would be a genuine game-changer.

We are looking forward to working through the detail of the proposal and engaging further with Ministers and officials, along with colleagues in the rest of the advice sector, over the coming months.

Read the Treasury’s consultation on its Breathing Space policy proposal in full here.

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