1.1. The Money Advice Trust welcomes this opportunity to contribute to the Treasury

Committee’s call for evidence on UK household finances, as well as the Committee’s

focus on this subject.

1.2. Please note that we consent to public disclosure of this response.

2.1. The Money Advice Trust is a charity founded in 1991 to help people across the UK

tackle their debts and manage their money with confidence. The Trust’s main activities

are giving advice, supporting advisers and improving the UK’s money and debt

environment.

2.2. In 2017, our National Debtline and Business Debtline advisers provided help to more

than 220,000 people by phone and webchat, with 1.5 million visits to our advice

websites. In addition to these frontline services, our Wiseradviser service provides

training to free-to-client advice organisations across the UK, and we have now delivered

training and consultancy to more than 160 creditor organisations on identifying and

supporting customers in vulnerable circumstances.

2.3. We use the intelligence and insight gained from these activities to improve the UK’s

money and debt environment by contributing to policy developments and public debate

around these issues.

2.4. As one of the UK’s main providers of free debt advice, in responding to this call for

evidence, we have focused our comments on the Committee’s questions in the

‘household indebtedness, consumer credit and incomes’ grouping.

2.5. For more information about this response contact Matt Hartley, Money Advice Trust

Head of Public Affairs, on 0207 653 3320 or matt.hartley@moneyadvicetrust.org

3.1. Household debt levels are growing significantly and while the current level of household

debt is not generally considered as unsustainable in the macro-economic sense, our

concern is with the micro-impact on the minority of households who are at or near

financial difficulty.

3.2. Rising living costs and low wage growth have contributed to a severe squeeze on

household budgets in recent years – and the risk is that if economic circumstances

change, the precarious financial position of household budgets and higher levels of

household debt will lead to a significant increase in debt problems.

3.3. Debt problems are already increasing significantly in the UK, with demand at National

Debtline up 10% year-on-year in the first three quarters of 2017. Other advice agencies

are experiencing similar trends. We expect demand for debt advice to continue to rise

significantly in the years ahead (see Section 4).

3.4. The nature of debt problems is also changing, with significant increases in non-credit

defaults including council tax, utility bills and arrears on other household bills. Problems

with debts owed to the public sector are increasing, and so too is scrutiny of the debt

collection practices of central and local government (see Section 5). The growth of self-

employment in the UK and increasingly variable incomes has also had a significant

impact on demand for advice, including on business related debts (see Section 6).

3.5. The Financial Conduct Authority (FCA) has taken a significant interest in problem debt

since it took over responsibility for the consumer credit regulatory regime in 2014, and

has engaged well with consumer groups and the money and debt advice sector. It has

made particularly effective interventions on payday lending through the cost cap, and in

improving the treatment of and outcomes for customers in vulnerable circumstances.

This focus on problem debt is continuing through the regulator’s work on the wider high

cost credit market and Credit Card Market Study (see Section 7).

3.6. There remains a marked lack of affordable credit in the UK, and there is a need to

improve support the credit union sector and access affordable credit more widely,

including by looking to international examples such as Australia’s Good Shepherd

Scheme (see Section 8).

3.7. In the following response, we have laid out several opportunities for government to

consider to help tackle household indebtedness, including recommendations on

improving access to affordable credit, making the proposed ‘breathing space’ scheme as

effective as possible, improving public sector debt collection practices and reforming

bailiff law, ensuring that supply of free debt advice meets growing demand, reviewing

the impact of welfare reform and taking a greater leadership role in financial inclusion

(see Section 9).

Question: Is the overall level of UK household debt and consumer credit sustainable?

What is the scale of and trend in problematic debt and over-indebted households?

4.1. Consumer credit has grown significantly in recent years, consistently hovering between

the 9% and 10% annual growth mark. The Bank of England’s latest Money and Credit

report showed growth of 9.1% in the year to November 2017, with outstanding

consumer credit balances now more than £205 billion1. This has led to a growing

concern, which we share, that higher levels of consumer borrowing are exposing many

households to the risk of financial difficulty should their circumstances change, for

example as a result of a downturn in economic conditions. The increased likelihood of

defaults in such a downturn has led the Financial Policy Committee to label2 consumer

credit growth as a “pocket of risk”.

4.2. In addition to consumer credit, mortgage debt has also been increasing significantly,

standing at £1,385.6bn in Q3 2017, a 4.1% increase from the same quarter the previous

year3. It should be noted that these increases have taken place in an extremely benign

interest rate environment which is expected to gradually come to an end in the coming

years with anticipated base rate rises. Prior to November’s rise, 2.6 million homeowners

had never experienced a rise in interest rates, according to UK Finance. With more than

half of mortgage-payers on fixed-rate deals4, however, the impact of this and other near-

term further base rate rises will not be fully felt for several years.

4.3. The UK’s overall debt to household income ratio5 has been rising since early 2016 and

now stands at 141%, still lower than the pre-crisis peak of 157% reached in 2008, but

forecast by the Office of Budget Responsibility to rise to 150% by 2020. Indeed, official

forecasts for economic growth are predicated on this rise in borrowing.

4.4. It should be recognised that outside of the usual economic measure of ‘household debt’

lies a significant and growing level of other kinds of arrears. The past decade has seen

large increases in arrears in everyday household bills – including council tax, rent and

utilities – as well as increases in debts owed to HMRC and DWP. These non-traditional

debt problems, relating to what the advice sector terms ‘priority debts’ (debts where the

consequences of non-payment are more serious than non-priority debts, such as

eviction, disconnection or imprisonment in the case of tax debts), make up an

increasingly significant part of the UK’s household debt landscape (see Section 5).

4.5. Despite these trends, current levels of household debt are generally considered

sustainable in a strictly macro-economic sense6. However, our concern is with the

micro-economic impact on the minority of households who are in or near financial

difficulty. For many of these households, current levels of household debt are far from

1 Bank of England (2018), Money and Credit – November 2017, January 2018, link

2 Bank of England (2017), Financial Policy Committee statement from its meeting – 20 September 2017, link

3 Bank of England (2017), Mortgage Lenders and Administrators Statistics 2017 Q3, December 2017, link

4 UK Finance (2017), Are mortgage borrowers prepared for rising interest rates?, July 2017, link

5 Office of Budget Responsibility (2017), Economic and fiscal outlook – November 2017, link

6 Bank of England (2017), Financial Policy Committee statement from its meeting – 20 September 2017, link

sustainable. Rising living costs and low wage growth have contributed to a severe

squeeze on household budgets in recent years – and the risk is that if economic

circumstances change, the precarious financial position of household budgets and

higher levels of household debt will lead to a significant increase in debt problems.

4.6. Debt problems are already increasing, with demand at National Debtline up 10% year-

on-year in the first three quarters of 2017. Other debt advice agencies have

experienced similar trends, and we expect that demand for debt advice is likely to

increase significantly in the years ahead.

Question: To what extent is unmanageable debt being manifest in non-credit defaults

(e.g. on utilities bills or council tax)?

5.1. There has been a dramatic shift in the UK’s household debt landscape in the decade

since the financial crisis, with significant increases in non-credit defaults and arrears on

everyday household bills.

5.2. The Money Advice Trust’s Changing Household Budgets research7 showed that more

people are now falling into debt because they cannot afford essentials such as utility

bills and council tax, with an accompanying decline in problems due to ‘traditional’ credit

products. In 2007, 69% of callers to National Debtline had problems with loans,

overdrafts or credit cards – by 2014 that had fallen to 42%. In the same period, the

service saw a 140% rise in calls about household debts such as rent arrears, energy

and water bills, telephone bills and council tax. Other debt advice agencies report very

similar trends.

5.3. Debts to the public sector are a key factor in these trends. Council tax arrears, in

particular, have increased from just 14% of calls in 2007 to more than a quarter (26%) of

calls in 2017. Calls relating to benefit overpayment debts, owed to DWP and local

authorities, have increased from 10% in 2014 to 16% in 2017.

5.4. As these arrears have increased, so too has scrutiny of debt collection practices in the

public sector. Various research conducted with debt advice clients shows that local

authorities, DWP, HMRC and other public sector lenders compare unfavourably to

private sector lenders when assessing perceived fairness in debt collection8. Recent

years have seen continued pressure on both central government, and local

government9, to improve.

5.5. The government has moved to respond to concerns about debt collection by central

government departments and agencies by establishing the Cabinet Office-run cross-

government Fairness Group, on which the Money Advice Trust and other debt charities

7 Money Advice Trust (2014), Changing Household Budgets, August 2014, link

8 StepChange Debt Charity (2016), Creditor and debt collector conduct: what’s making debt problems worse?, July

2016, link; Citizens Advice (2016), The state of debt collection – the case for fairness in government debt collection practice, January 2016, link; National Debtline client surveys. 9 Including from the Work and Pensions Select Committee’s 2016 inquiry on ‘The local welfare safety net’, link

are represented. We hope that this will work will lead to improvements in collection

practices, including the adoption of the Money Advice Service-led, industry standard

Standard Financial Statement10 as a tool for objectively assessing income and

expenditure and affordability of repayments, and improvements in the treatment of

people in vulnerable circumstances (see Section 9).

5.6. Local government is also responding to concerns, but the pace of change is too slow

and practice varies widely across the country. The use of bailiffs by local authorities has

attracted particular scrutiny. Our recent Stop The Knock 2017 report11 found that more

than 2.3 million debts were passed to bailiffs in 2016/17, with a 14% increase in council

bailiff use on two years previously. The impact of bailiff action itself has also been the

subject of scrutiny, with the 10 charities now backing the advice sector’s joint Taking

Control campaign for fundamental bailiff reform12.

Question: Have household incomes become more variable as a result of more flexible

labour markets and the “gig economy”? Does this raise a need for new credit products?

6.1. An increase in unstable/variable incomes has been a key feature of changes in the

labour market over the last decade – driven mainly by the UK’s significant increase in

self-employment13, rising from 3.8 million in 2008 to 4.7 million by early 2016 – but also

greater flexibility in the labour market through zero hours contracts and the still small,

but growing, ‘gig economy’14.

6.2. The growth in self-employment has been accompanied by rising need for business debt

advice. Our Business Debtline service, which is the UK’s only free, dedicated debt

advice service for people who are self-employed and other small business owners, now

helps more than 24,000 people by phone and webchat a year and sees more than

130,000 website visits annually.

6.3. Research based on the experiences of Business Debtline clients has shown how self-

employed people with variable incomes can find themselves in a constant struggle to

stay on top of their personal, as well as business, finances, with the two increasingly

becoming intertwined15.

6.4. Given the radical changes in the labour market, we agree that it is appropriate to

consider whether there is a need for new credit products, and financial services products

more widely, to cater for self-employed people and other workers with flexible incomes.

10

Money Advice Service (2017), What is the Standard Financial Statement, March 2017, link 11

Money Advice Trust (2017), Stop The Knock: Mapping local authority debt collection practices in England and Wales, November 2017, link. Results of our mapping exercise are available online at www.stoptheknock.org 12

AdviceUK, Christians Against Poverty, Citizens Advice, Money Advice Trust, StepChange Debt Charity, The Children’s Society, Z2K (2017), Taking Control: The need for fundamental bailiff reform, March 2017, link 13

ONS (2016), Trends in self-employment in the UK: 2001 to 2015, July 2016, link 14

Chartered Institute of Personnel and Development (2017), To gig or not to gig? Stories from the modern economy, March 2017, link 15

Money Advice Trust (2015), The cost of doing business: Supporting the self-employed and small businesses, June 2015, link

For example, we have previously recommended16 that the banking industry consider a

new ‘basic business bank account’ designed to help self-employed people separate their

business and personal finances. Product innovation aimed at improving the financial

resilience of workers in the flexible labour market, who often have no savings, pensions

or insurance provision, should also be considered.

Question: What are financial regulators doing to monitor the issues of problematic debt?

Interventions on consumer credit

7.1. Since responsibility for consumer credit regulation transferred from the Office of Fair

Trading (OFT) in 2014, the Financial Conduct Authority (FCA) has taken a significant

interest in problem debt. In particular, we welcomed the FCA’s payday lending cost cap,

which it has since concluded17 delivered “substantial benefits to consumers”.

7.2. We have seen a clear effect of the cap at National Debtline. The proportion of callers to

National Debtline with at least one payday loan rose from just 3% in 2010 to a peak of

13% in 2013. The government’s announcement of the cap in November 2013 led to

significant exits form the market place in advance of it coming into effect in January

2015. Consequently the proportion of National Debtline callers with payday loan

problems more than halved between 2013 and 2015, and has since remained at

between 6% and 7%.

7.3. More recently, the FCA has been right to turn its attention18 to the wider high cost credit

market, including in the rent-to-own, home-collected credit and catalogue credit sectors.

However, we must remember that while the FCA can regulate the supply of high cost

credit, it cannot regulate away demand. Any further regulatory interventions must be

carried out with reference to a detailed analysis of potential ‘displacement effects’

between different types of credit, so that likely changes in consumer behaviour as a

result of, for example, widening the cost cap, are more fully understood.

7.4. Financial regulators are also looking at unauthorised (and authorised) overdrafts, which

have become a common feature of the debt problems that debt advice agencies like

National Debtline help people to resolve. We support the specific measures that the

Competition and Markets Authority (CMA) announced19 in 2016 to benefit unarranged

overdraft users, including a requirement on banks to send alerts to customers and

informing them of a grace period to enable them to avoid charges.

7.5. The CMA has also announced bank-set monthly caps on unauthorised overdraft

charges, and some banks have ended these voluntarily20. Bank-set monthly caps are a

welcome step in the right direction. However, we are pleased that the FCA has

16

Money Advice Trust (2015), The cost of doing business: Supporting the self-employed and small businesses, June 2015, link 17

FCA (2017), FS17/2: High-cost credit and review of high-cost short-term credit price cap, July 2017, link 18

FCA (2017), Financial Conduct Authority sets out agenda and priorities for consumer credit, July 2017, link 19

CMA (2016), Retail banking market investigation: Final report, August 2016, link 20

BBC News (2017), Lloyds Bank to abolish charges for unplanned overdrafts, July 2017, link

signalled that it may be prepared to step in with an industry-wide cap if significant

reductions in charges paid by people in financial difficulty do not materialise.

7.6. Similarly, the FCA’s Credit Card Market study and proposed remedies21 have included a

welcome focus on early intervention and the need to reduce persistent credit card debt.

While we welcome this focus on early intervention, the FCA could go further in ensuring

its proposed remedies are made as effective as possible in tackling this problem. In

particular, 36 months remains too long for someone to be struggling under persistent

credit card debt, and we continue to make the case for the time periods the FCA has set

out in its plans to be reduced. We also hope that the door remains open to future

increases in credit card minimum payment levels, to ensure that debts are paid down in

a more reasonable period, would also like to see a simple and universally applicable

method for people to opt out of credit card limit increases.

7.7. The FCA has helped to deliver particular improvements in the area of customers in

vulnerable circumstances, such as mental health and serious illness, following its 2015

Occasional Paper on Consumer Vulnerability22. The financial services industry is

increasingly engaging with this agenda, and continues to act on the recommendations

made by the Financial Services Vulnerability Taskforce23 that followed the FCA’s

intervention, led by the then British Bankers Association, now part of UK Finance, in

2016. This is in part evidenced by high demand for the Money Advice Trust’s training for

frontline creditor staff, which has now helped more than 11,000 staff in over 160

organisations to better identify and support customers in vulnerable circumstances. The

FCA has also undertaken good work to address services around access24 to services,

particularly in the ageing population.

7.8. The FCA is currently consulting on its future plans as part of its Consumer Approach

work25, including consulting stakeholders on a new definition of vulnerability, and we are

currently working with the regulator and others in the sector to ensure this approach, and

any new definition, is as effective as possible for people in vulnerable circumstances.

7.9. We are also pleased that the FCA has said it will consider introducing a statutory ‘duty of

care’ on firms, which we support as a principle. As it stands, this consideration will take

place following the UK’s departure from the European Union – a timetable that many

would like to see brought forward.

Engagement with consumer groups

7.10. The FCA regularly engages with consumer groups and the money and debt advice

sector through the FCA’s Consumer Network and other forums, which we find to be an

invaluable channel through which the sector can raise concerns around regulation and

industry practice – and examples of detriment experienced by our clients from individual

firms. For example, we have used this to raise significant concerns, alongside other

21

FCA (2017), Credit card market study: MS14/16, link 22

FCA (2015), Occasional Paper No. 8: Consumer Vulnerability, February 2015, link 23

Financial Services Vulnerability Taskforce (2016), Improving outcomes for customers in vulnerable circumstances, February 2016, link 24

FCA (2016), Occasional Paper No. 17: Access to Financial Services in the UK, May 2016, link 25

FCA (2017), FCA Mission – Our Approach to Consumers, November 2017, link

advice agencies, about lead generation companies impersonating debt advice charities

on search engines such as Google.

7.11. The regulator’s focus on problem debt has continued under Andrew Bailey’s term as

chief executive, and we are pleased that one of his first actions in the role was to visit

debt advice agencies across the country, including National Debtline and Business

Debtline in Birmingham, where he listened to calls from clients and spoke directly to

frontline advisers. He has since spoken publicly26 on how this round of visits has

informed his approach, and that of the organisation, as it consulted on its Mission27 in

2017. This level of engagement with the advice sector has been welcome.

Adding value to policy making

7.12. The FCA’s recent Financial Lives study28 provided an invaluable snapshot of the reality

of household finances in the UK, and is an example of the value the regulator can add

beyond its narrow regulatory remit, in informing wider public policy development. To

build on this, we would like to see the introduction of a formal mechanism by which the

regulator can inform government policy development, including in areas outside of its

remit, but where its expertise can add significant value.

7.13. We believe there is more that can be done in areas on the boundary of the FCA’s remit.

One example is the lead generation industry, which operates outside of the FCA’s

regulatory perimeter, but is the cause of significant consumer detriment in relation to

debt management and insolvency practitioner leads (including the issue of search

engine impersonation – see 6.11). We regularly raise concerns and provide evidence of

bad practice in this industry, but the regulator is unable to act in this market. We would

like to see the regulation of lead generation brought into the FCA’s remit, and for the

mechanism described above to include the ability for the FCA to make

recommendations to HM Treasury regarding issues on the periphery of the industries it

regulators which are causing consumer detriment. This is ultimately a decision for the

Treasury, but we would urge the Committee to look into this.

Question: Has the UK financial services market been effective in providing suitable

credit products for low income households?

8.1. Mainstream lenders have been less effective in providing suitable credit products for low

income households than other areas of the market. This can be seen as a contributing

factor to the emergence of the payday lending market (which has now declined

significantly due to the FCA’s cost cap) and other forms of high-cost credit, which can

lead to further financial difficulty for low-income households.

26

Guardian (2017), Britain’s debt timebomb: FCA urges action over £200bn crisis, 18th

September 2017, link 27

FCA (2017), Out Mission 2017: Howe we regulate financial services, April 2017, link 28

FCA (2017), Understanding the financial lives of UK adults, October 2017, link

8.2. There is a marked lack of affordable credit for low income households in the UK. While

the credit union sector has grown significantly over the last decade, with 199% growth in

membership and 215% increase in loans between 2006 and 201629, the sector remains

a relatively small part of the consumer credit sector, with total loans of only £803m (of a

total consumer credit balance of £205bn). The credit union movement is significantly

larger in other developed countries, with penetration rates30 in the USA (48%), Canada

(44%) and the Republic of Ireland (77%) dwarfing Great Britain’s 3.1%.

8.3. We believe the government could do more to support the growth of the credit union

sector, and affordable lending more broadly, including through by looking to international

examples such as Australia’s Good Shepherd scheme (see our responses in Section 9).

Question: What interventions can the government make, including “breathing space”

schemes?

9.1. There are several interventions the government could make to address household

indebtedness that we would urge the Committee to consider as part of its inquiry.

Improving access to affordable credit

9.2. We believe the government could and should do more to support the growth of credit

union lending as part of a strategy to improve access to affordable credit amongst low-

income households. Building a more sustainable and modernised credit union sector is

an important part of tackling financial exclusion, and that increased support – over and

above the Department for Work and Pension’s Credit Union Expansion Project31 –

should be a central component of the government’s efforts in this area.

9.3. Beyond credit unions, in addressing the lack of affordable credit, the government should

also look to examples of policy outside the UK. In Australia the Good Shepherd

scheme32 sees the National Australia Bank partner with the Australian Government to

offer a range of shop-front community finance products such as Good Money and the No

Interest Loan Scheme (NILS), as well as a StepUP scheme to provide low-interest loans

to low-income households. NILS has been running for 35 years, with evaluations

showing that four out of five clients experience economic mobility and four out of five

people stop using payday loans as a result. This model has been demonstrated to work

very well for people on low incomes who need to access household goods and other

financial services but are at risk of taking out high cost credit or missing household bills.

29

ABCUL (2017), Facts and Statistics, link 30

World Council of Credit Unions (2015), 2015 Statistical Report, link 31

Gov.uk (2013), Credit Union £38m expansion deal signed, link 32

More information on the Good Shepherd scheme link

9.4. Similarly, the Irish Government has partnered with the country’s strong credit union

sector and the wider third sector to establish ‘It Makes Sense’33, a microcredit scheme to

reduce dependence on high cost credit. The scheme offers low interest loans of up to

12% APR to social welfare recipients, with repayments deducted directly form welfare

payments.

Improving public sector debt collection practices

9.5. Given the significant rise in debt problems relating to public sector creditors, including

local authorities HMRC, DWP and other departments and agencies (see Section 5),

government action to improve public sector debt collection practices would make a

significant difference to large numbers of people in problem debt in the UK.

9.6. A specific intervention that the government could make is to ensure that all departments

and agencies adopt the Standard Financial Statement, run by the Money Advice

Service, as a means of objectively assessing income and expenditure and the

affordability of repayments. The government could also do more to improve the

experience of, and outcomes for, people in vulnerable circumstances in departmental

collection practices. The establishment by the Cabinet Office of the cross-government

Fairness Group, looking at fairness in debt collection, is encouraging and we are hopeful

that progress can be made on these and other issues.

9.7. In the area of council debt collection, we have previously called on the government to

place current good practice guidelines for local authorities34 on a statutory footing, as a

means of improving debt collection, and to introduce statutory reporting of debt

collection methods and outcomes as a means of increasing the pace of change across

the country. In the shorter term, the Ministry of Housing, Communities and Local

Government could endorse the six areas of best practice we have identified in our recent

Stop The Knock research35, as a means of further encouraging authorities to improve.

9.8. The government should also take urgent action on bailiff reform to prevent continued

detriment arising from the actions of some bailiffs and bailiff firms. We would urge

government to consider the recommendations36 of the advice sector’s Taking Control

campaign, which include independent regulation for the bailiff industry, a single

complaints mechanism and a restructuring of bailiff fees to incentivise good practice.

Making ‘breathing space’ as effective as possible

33

More information on the It Makes Sense scheme link 34

DCLG (2013), Council Tax: guidance to local councils on good practice in the collection of Council Tax arrears, June 2013, link 35

Money Advice Trust (2017), Stop The Knock: Mapping local authority debt collection practices in England and Wales, November 2017, link. 36

AdviceUK, Christians Against Poverty, Citizens Advice, Money Advice Trust, StepChange Debt Charity, The Children’s Society, Z2K (2017), Taking Control: The need for fundamental bailiff reform, March 2017, link

9.9. The Money Advice Trust has been involved in development of the idea of a ‘breathing

space’ scheme, along with partners in the sector, for several years. We welcome the

government’s commitment to introducing a scheme to provide protections from interest,

fees and charges for people who seek debt advice. Such a scheme, if implemented

effectively, has the potential to provide a powerful incentive for people in financial

difficulty to seek free debt advice.

9.10. We are currently engaging with the Treasury on the design of the scheme, including

through its call for evidence announced37 in November 2017. In particular, given the

growth of non-consumer credit debts (see Section 5) we believe the government must

ensure that all debts, including those owed to the public sector and utility companies, are

included in the scheme. The inclusion of all creditors will ensure that the scheme offers

the genuine ‘breathing space’ that people in financial difficulty need to begin to resolve

their situation.

9.11. One key consideration is that we believe the eligibility criteria for the scheme must

include people who are self-employed. Given the increasing entanglement of personal

and business finances, the scheme should cover business debts, in addition to personal

debts, for self-employed people, with appropriate mitigations in connection with potential

knock-on effects for other small businesses such as suppliers.

9.12. While the scheme proposed by the Treasury is based on offering a ‘breathing space’

period of 6 weeks, in line with the government’s manifesto commitment, we know that for

many people, this will not be long enough for them to begin to resolve their debt

problem. We would therefore like to see an element of extendibility where appropriate.

Ensuring that supply of free debt advice meets demand

9.13. Crucially, the government should also take steps to ensure that the supply of free debt

advice meets demand. The scale of consumer need for free debt advice is significant

and is currently unmet by supply – and demand for debt advice is likely to increase

significantly in the years ahead. This trend will only accelerate if, as we hope, the

government’s ‘breathing space’ scheme is successful in its aim of incentivising more

people to seek advice on their debts.

9.14. The government has already acted on public financial guidance through the Financial

Guidance and Claims Bill, which establish the Single Financial Guidance Body (SFGB)

as a successor body to the Money Advice Service, The Pension Advisory Service and

PensionWise from Autumn 2018. The SFGB will have responsibility for commissioning

debt advice, based on the same financial services levy that currently funds the Money

Advice Service. The government has said it expects funding levels to remain the same,

with long term operational efficiencies meaning more funding for the front line. This is

welcome.

37

HM Treasury (2017), Breathing space: call for evidence, October 2017, link

9.15. However, there is a more fundamental need for significantly increased funding for free

debt advice in the UK to ensure that current and future need is met.

Reviewing the impact of welfare reform

9.16. In addressing the issue of household indebtedness, the impact of wider social policy

decisions on the people we help should also be considered. The advice sector is

increasingly seeing clients with lower incomes due to a range of factors including the

impact of welfare reform and wage restraint (particularly in the public sector). Advice

agencies are seeing a consequent rise in the number of clients presenting with deficit

budgets, who cannot cover their normal monthly expenditure or household bills, and are

in more complex debt situation as a result.

9.17. We would urge the government to implement the House of Lords Financial Exclusion

Committee’s recommendation of a “detailed, comprehensive cumulative impact study of

how changes in social security policy resulting from the Welfare Reform Act 2012 might

have adversely affected financial wellbeing and inclusion … [considering] the extent to

which these changes have contributed to debt and arrears” as a priority38.

A greater leadership role on financial inclusion

9.18. More broadly, the government could play a greater leadership role in the effort to

improve financial inclusion in the UK, as advocated by the Financial Inclusion

Commission39 and final report of the House of Lords Financial Exclusion Committee40.

9.19. We welcomed the government’s commitment to establish a cross-government Financial

Inclusion Policy Forum41, made in response to the House of Lords Financial Exclusion

Committee’s 2017 report. This commitment followed the creation of a dedicated

ministerial brief in the form of the Minister for Pensions and Financial Inclusion, who will

co-chair the Policy Forum with the Economic Secretary to the Treasury. We look forward

to learning more about how the work of this Policy Forum will translate into action.

9.20. Financial exclusion is a significant social problem, however, the scale of which

necessitates a co-ordinated, whole-society strategy in response. The creation of the

Financial Inclusion Policy Forum should be just the first step in greater government

leadership on this agenda, and we would urge the Committee to consider this – and how

the Policy Forum will be resourced and decisions implemented – as part of its inquiry.

38

See Recommendation 22 in House of Lords Financial Exclusion Committee (2017), Tackling financial exclusion: A country that works for everyone?, March 2017, link 39

Financial Inclusion Commission (2015), Financial inclusion: Improving the financial health of the nation, link 40

House of Lords Financial Exclusion Committee (2017), Tackling financial exclusion: A country that works for everyone?, March 2017, link 41

HM Government (2017), Government response to the final report of the Lords Select Committee on Financial Exclusion, November 2017, link