CALL FOR EVIDENCE - Debt Respite Policy Proposals for Northern Ireland

Overview

1. INTRODUCTION

Following the UK Government’s arrangements for the introduction of a Statutory Debt Repayment Plan and to ensure equity of protection for people in problem debt in Northern Ireland, the then Minister for Communities, Deirdre Hargey gave a commitment to initiate work to explore primary legislation to establish a local debt respite scheme, incorporating provision for both a ‘Breathing Space’ and a ‘Statutory Debt Repayment Plan’.  This Call for Evidence is part of this policy exploration.

1.1 About this Call for Evidence

The Department is issuing this Call for Evidence to build upon the evidence gathered by the UK Government and gain insight from the debt advice sector and creditors about the scale of the issue locally.  We are also interested to know whether the England and Wales Breathing Space debt respite scheme could best meet the needs of people here.  Any views or suggestions that respondents wish to put forward on any of the questions are welcomed.

The Department wants to incentivise more people to access professional debt advice and to access it sooner, helping them to reach sustainable debt solutions. It also wants to provide debtors who engage with this advice, the headspace to find a debt solution by temporarily pausing creditor enforcement action, interest, and charges. By offering these protections in Breathing Space, and by making debt advice the gateway to these protections, the policy intends to deliver on these objectives.

1.2 Who should respond to this Call for Evidence?

This consultation applies to Northern Ireland only.  Duration for the Call for Evidence begins on 14/12/2022 and runs until 01/02/2023. Given the broad potential impact of this policy, the Department welcomes views from within the debt advice sector, private and public sector creditors, voluntary sector and wider society, as well as members of the wider public who wish to contribute.

This Call for Evidence is the first stage in an ongoing public engagement process. The Call for Evidence document sets out the current understanding of the evidence available relating to a future debt respite scheme for Northern Ireland.

1.3 Privacy, Confidentiality and Access to Consultation Responses

For this consultation, we will publish a summary of the questionnaire responses but these will not contain any personal data. We will not publish the names or contact details of respondents, including the names of organisations responding. If you have indicated that you would be interested in contributing to further Department work on the subject matter covered by the consultation, then we might process your contact details to get in touch with you. For more information about what we do with personal data please see our consultation privacy notice.

Your response, and all other responses to this consultation, may also be disclosed on request in accordance with the Freedom of Information Act 2000 (FOIA) and the Environmental Information Regulations 2004 (EIR); however all disclosures will be in line with the requirements of the Data Protection Act 2018 (DPA) and the UK General Data Protection Regulation (UKGDPR).

If you want the information that you provide to be treated as confidential it would be helpful if you could explain to us why you regard the information you have provided as confidential, so that this may be considered if the Department should receive a request for the information under the FOIA or EIR.    

2. BACKGROUND

2.1 Problem Debt

Problem debt is when people who find keeping up with their regular bills and credit commitments a “heavy burden”.  It is associated with a range of negative factors for people including poor mental wellbeing, health and recovery and causes relationship issues.  It also has a negative effect on society and the economy.

Debt advice, which includes a range of debt solutions, can help indebted individuals deal with their debts and return to a stable financial footing. 

2.2   Debt and Mental Health

There is a well-established link between mental ill health and money problems, demonstrated by a body of evidence from a range of UK-based social and economic research. For example, a 2016 report by the Money and Mental Health Policy Institute (the Institute) found that people experiencing mental health problems are three and a half times more likely to be in problem debt than people without such problems. NI has higher levels of mental ill health than any other region in the UK; one in five adults and around 45,000 children have a mental health problem at any one time.

The Institute published research conducted after the pandemic, setting out a state-of-the-nation snapshot of the financial and mental wellbeing of people across the UK during the pandemic. 

It revealed that during the Covid crisis, people with mental health problems faced a much higher risk of financial hardship compared to the wider population.

The findings showed that during the pandemic people with mental health problems were: 

• Three times more likely to have fallen into problem debt than the wider population (15% compared to 4%).
• More than twice as likely to have relied on credit or borrowing to cover everyday spending — for example, on food or heating (26% compared to 11%).
• More likely to have had zero savings to help them cope with emergencies. 1 in 4 people with mental health problems say they have no savings that they could use in emergencies (compared to 18% of the wider population), and nearly half (46%) say they can’t afford to save money regularly.
• At high risk of considering suicide when behind on payments. 44% of UK adults with mental health problems who fell behind on bills in the previous year either considered or attempted to take their own life. If reflected nationally, that amounts to 2.5m people in total.

2.3  Improvements in Creditor Practice

The Financial Conduct Authority (FCA) mandates consumer credit firms to only lend money to people when the firm has a reasonable expectation that a customer can afford to repay the debt. FCA regulated firms must also comply with a high-level principle to treat customers fairly. At the same time, the Financial Guidance and Claims Act 2018 established a new Single Financial Guidance Body (SFGB) (now known as Money and Pensions Service) to provide help and guidance to consumers on all financial matters. The SFGB also has a statutory duty to improve the public’s financial capability.

However, despite this preventative action, the Department is aware of the importance of effective safety nets and protections for those who fall into problem debt. This includes ensuring a sufficient supply of debt advice and the availability of appropriate debt solutions.  Providing equal access to high quality independent debt advice and solutions allows people in poverty/lower incomes to be able to manage their income and budget better, while paying back debts.

2.4 NI Debt Advice Services

The Financial Guidance and Claims Act 2018  transferred responsibility for policy, funding and the commissioning of debt advice services to Scotland, Wales and NI from 1 January 2019.   Funding for debt advice services is raised through a levy on the Financial Services sector by HM Treasury and distributed on the basis of population and levels of over indebtedness. This funding is ringfenced for the provision of free independent debt advice service and financial wellbeing to support people in debt.

HM Treasury allocations are made on the basis of the share of adults likely to need debt advice. For NI this has been estimated to be 175,679 adults per annum for 2022. The need for debt advice is defined in terms of people being behind in at least one priority bill, facing early or late stage creditor action and using credit for the essentials.

Across NI, 1 in 6 adults were ‘over-indebted’ in 2018 according to the former Money Advice Service research. The rates were highest in Derry City and Strabane District Council area (17.9%) and Mid Ulster (17.6%) which, together with Belfast, account for more than a third (36%) of over-indebted adults in NI. Some of the personal debt problem is invisible as it arises from illegal lending.

The Department for Communities has been funding the debt advice service through Advice NI since 2019 to date, helping around 14,267 people struggling with problem debt of approximately £139 million in that time.

Other available sources of regulated debt advice services for people in Northern Ireland include Christians Against Poverty and StepChange.  Christians against Poverty is a national organisation specialising in debt counselling and guidance with bankruptcy or insolvency. The organisation delivers its services through a network of 18 centres across Northern Ireland working in partnership with local Christian churches.  StepChange is the UK’s largest debt charity with more than 25 years experience in the field who provide telephony advice and support to anyone in the UK to achieve long-term financial control.  

2.5     Other Jurisdictions

The UK Government made a manifesto commitment in 2017 to introduce a new Debt Respite Scheme consisting of two elements – a breathing space moratorium and a statutory debt repayment plan.

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020, commonly referred to as “the Breathing Space Regulations”, were made on 17 November 2020 and came into force on 4 May 2021. Due to the absence of the Assembly at the time the UK Government was bringing forward its legislative plans, NI was excluded from these arrangements. The Regulations provide eligible individual debtors with problem debt a period of protection from their creditors known as a “breathing space moratorium”. The aim is to give people the time to access professional debt advice, without the stress caused by spiralling debt and impending enforcement action. However, payment of all “ongoing liabilities” must continue during this time.

There are two types of moratorium: a standard breathing space and a mental health crisis breathing space. A standard breathing space moratorium is available to eligible debtors seeking professional debt advice (which may be provided in person, on the phone or electronically). The moratorium gives them legal protections from creditor action for up to 60 days. The protections include pausing most enforcement action and contact from creditors, and freezing most interest, fees, and penalties on their debts. A mental health crisis breathing space moratorium is only available to someone who is receiving mental health crisis treatment and it has some stronger protections. This breathing space lasts for as long as the person’s mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts).

An individual can only access a standard breathing space moratorium after being assessed as eligible by a debt advice provider. The England and Wales Breathing Space Regulations impose an obligation on creditors to comply with the restrictions and protections imposed by the moratorium.

The UK Government has yet to set a date for the implementation of its Statutory Debt Repayment Plan.  A statutory debt repayment plan would enable a person in financial difficulty to enter a statutory agreement to repay their debts under a manageable timetable with protection from creditor enforcement action.  Following consultation, HM Treasury has decided not to lay regulations for its Plan this year. Instead, they have indicated that all further decisions on the policy will be based on the outcome of The Insolvency Service’s ongoing review of the personal insolvency framework. You can find the UK Government’s full response to its Statutory Debt Repayment Plan Consultation online here.

Whilst the UK Government’s arrangements only apply to England and Wales, the current Scottish Debt Arrangement Scheme administered by Scotland’s Insolvency Service, already provided debtors with a short breathing space and statutory repayment plan.

2.6     Evaluation of Breathing Space England and Wales

For an early view of the first year of the England and Wales Standard Breathing Space scheme by StepChange  go to the following link https://www.stepchange.org/policy-and-research/breathing-space-review.aspx

This evaluation concluded that whilst volumes are not as high as forecast, the early findings suggest that the scheme was well received by those who availed of it.  It shows that people who access Breathing Space tend to value the protections offered by the scheme and are more likely to enter a debt solution and display more positive wellbeing outcomes than other clients. However, concerns remain about the outcomes experienced by some clients, enforcement of Breathing Space protections and the length of the scheme.

At the end of 2021 the Department for Communities commissioned MindWise, a Northern Ireland mental health charity, to conduct research on the England and Wales Mental Health Crisis Breathing Space arrangements.  This study concluded that whilst the Mental Health Crisis Breathing Space in England and Wales is a step in the right direction, the scheme does not go far enough.  The research indicated that overly restrictive eligibility criteria and access arrangements are severely limiting the scope of the scheme in England and Wales, as a result of the requirement that a person must be accessing crisis treatment from specialist mental health services, in order to access the scheme.  In their view, this requirement will also exclude people in crisis here.  The research references a recent review of crisis services in Northern Ireland which reveals high levels of unmet need for people in crisis who could not access secondary mental health services.  It signifies that of those people who died by suicide in Northern Ireland, 72% were not under the care of mental health services in the 12 months prior to their death; and only 58% had a diagnosed mental disorder at the time of death.  As a result, the Mindwise study recommends a broadening of eligibility criteria for the Mental Health Crisis Breathing Space.   

3. QUESTIONS FOR CONSIDERATION

The Department for Communities would like to gather evidence about the implementation of a debt respite scheme in Northern Ireland.  This document considers various aspects of a debt respite scheme comprising a breathing space and statutory debt repayment plan measure. Questions will cover and seek evidence on the design and implementation of both elements, based on the UK Government’s model.  We are also interested to identify the potential impact on debtors and creditors. We welcome expert views and evidence on these points.