Debt Advice Services

Motion made, and Question proposed, That this House do now adjourn.—(Vicky Foxcroft.)

“Follow that!” is the first thing to say. Let me try.

I will start by saying that often the British public would rather talk about sex than debt. Both can equally cause a lot of trouble, though. A 2019 study showed that the majority of people in this country believed it was easier to talk about miscarriages than about money. How that has changed in recent years, when the cost of living has become the top topic of conversation for millions of people because they are drowning in debt. Indeed, they are now the majority.

In my constituency of Walthamstow, nearly 55,000 people are in financially vulnerable circumstances. That is 58% of my local population and way above the national average of 38%. Yet the truth is that debt is suffocating millions of people in this country; it is not just a north-east London phenomenon. The Joseph Rowntree Foundation recognised in October that there were 7 million low-income families in this country going without the essentials in the previous six months, including 5.4 million who had experienced food insecurity in the previous month. That is a fancy term for starving themselves because they could not afford to put food on the table. Furthermore, 4.3 million low-income households are in arrears on at least one household bill or credit commitment, and 14 million people in this country have less than 100 quid in their savings. One piece of Lego stuck in the washing machine and they are done.

Some would say that taking on debt in response to that is manageable—and it is for some people. That is how they have got through the crisis. However, that is not the one person every four minutes who is declared bankrupt or insolvent in this country. The Registry Trust estimates that 4.6 million people have one or more county court judgment. They are issued at a rate of 2.5 times more in lower-income communities such as mine than in higher ones. At the end of last year, lenders wrote off £576 million of debt, of which £291 million was credit card debt. That is £3 million a day being written off because people will just never pay it back.

Four million households hold a loan they originally took out to pay for food or housing—that is worth around £9.6 billion. Some £2.3 billion of that is owed on bills that have a massive consequence if people do not pay them or fall behind, such as council tax, rent or mortgages and energy bills—the kind where people end up losing their home or with the bailiffs at the door. It is not hard to see why. This is not profligacy; there is just too much month at the end of many people’s money.

High inflation since the end of 2021 has baked in higher prices in areas such as food, and energy costs are rising again. Private rents have continued to increase ahead of inflation, up 8.7% last year and higher in places such as Walthamstow. Interest rates might have seen two cuts, but the full impact of elevated interest rates is still feeding through into mortgages. Yes, the legacy of Liz Truss will be felt for decades to come, in the empty pockets and multiple evictions. So sue me for saying so.

The Government set up a financial inclusion committee with consumer groups and financial institutions to look at how to provide individuals who have poor credit histories with access to safe and affordable credit. In this target-rich environment, there is much for the legal loan sharks in this country to feast on—and feast they do. Low-income households in this country owe £23 billion in unsecured loans and credit cards. That is up from £19 billion just in May last year. A total of 2.2 million low-income families have high-cost credit loans such as payday loans or pawn shop arrangements. Three million people told Ipsos last year that somebody in their family had gone to an illegal lender in the last three years.

Banks do not want to lend to these people because they are seen as a bad bet. That is because of the cost of living crisis: they just cannot get hold of the money to keep things moving. Our credit union movement, which has been promised so much by so many different Governments, just cannot grow to keep up with the need. Governments have promised to invest in it but failed to do so. It has been as ripped off as those who ended up at Wonga or Klarna to make ends meet.

I pay tribute to groups such as Fair4All Finance, which provides funding for credit unions such as the London Capital credit union that works in Walthamstow, but no credit union can compete with the online lenders who are pummelling our constituents on their phones and on their websites, offering them unprotected credit to get through to the end of the month so that they can buy a pizza. Then they stick them with late repayment fees and charges before lending to them again, even though they cannot repay it, because they are stuck in a spiral of unaffordable debt. In all of this debt, the most important thing that a person can do is talk about it. That means that they need somebody to talk to, because it could be the critical difference between getting out of the hole that they are in and burying themselves even further.

The Financial Conduct Authority imposes a levy on all regulated financial services companies to pay for such support, and that includes funding the Money and Pensions Service. Others such as the citizens advice bureaux, which many of us will pay tribute to in our constituencies, and StepChange have to fundraise for themselves. Ultimately, in this environment we cannot afford to keep funding failure. We need to prevent people getting into debt in the first place and move them off the high-cost credit that causes so much of it.

However, so few people in the current environment get the help that they desperately need to get out of this nightmare. The 2018 independent Wyman review found that just 1.1 million people got debt advice, with just 13% of those considered indebted. By 2020, it was estimated that 1.7 million were getting help. The Government set a strategy of 3.7 million by 2030, but, just last year, the Money and Pensions Service only saw 2 million people. That is not through a lack of trying. Some 82% of debt advisers told MAPS that there had been a large increase in demand, while just over half of them reported a decrease in the resources to cope with it. That is the nub of the debate today.

The total funding available for debt advice in this country in 2018 was £196 million, with about a third of that coming from the levy on financial services and the rest coming either from local government or fair share creditors—the payments that people can get in a debt repayment plan to pay for services. We now know that the financial services levy is raising about £78 million, but we have no idea what is happening to the rest of the money needed, not least because local government is on its knees after 14 years of Conservative cuts. My own local authority is cutting the support that it offers to people struggling with council tax payments, let alone providing any debt advice. It is not alone. Exeter CAB has seen a £125,000 cut to its services, Woking CAB a £189,000 cut and Coventry Independent Advice Service a cancelled grant for £325,000. The numbers go on across the country.

Funding will get harder too because of the cost of living crisis, as more and more people cannot afford to make a debt repayment plan in the first place. The CAB says that half of the people it works with have a negative budget, and 66% of Money Advice Service users were also in that position. Therefore, there is a risk that we will not get the funding to get people out of this hole. The Money Advice Service needs to get involved in cases earlier, but a consultation by the previous Government last year on the future of the service said that, looking at what the overall level of debt advice should be, the funding required was out of scope.

Above all, it is scandalous, given how implicated the “buy now, pay later” companies—the Klarnas, Clearpays and Laybuys of this world—are in the debt problems in this country and the length of time it has taken to get even close to some kind of regulation of them, that they do not even contribute to this pot, because they are not a form of regulated credit. Not only are our constituents going without protection from the ombudsman when they are mis-sold products; these companies are not even paying for the damage that they do. Yet around one third of people who need debt advice have “buy now, pay later” debt.That is why I am urging the Government—especially in the light of delays in regulating companies, which had a windfall this Christmas and will have another one next Christmas—to consider a windfall tax on the BNPL companies to help pay for the debt advice that is so desperately needed.

The companies have written to me claiming that they are not against being regulated, which is odd because I was at the Labour party conference where they stood on a platform and claimed to be so. They have also said that they are happy to contribute to making donations towards debt advice, so let us take them at their word, and squeeze them as much as they have squeezed our constituents.

We also have to stop commercial companies that make millions of pounds from pretending to offer debt solutions and claiming that they are helping consumers rather than pushing them further into debt. At the very least, the Insolvency Service should regulate such companies. Frankly, I would prefer a law that ensured that excessive profits cannot be made from somebody else’s personal debts by capping the charges. Sickeningly, many “buy now, pay later” companies present themselves as a money management service. That is why I am asking the Government to develop measures on what lenders are doing not only to reduce financial exclusion but to ensure that they are not the cause of debt themselves through bad lending practices. Even America, that great bastion of communist thinking, does more. The Community Reinvestment Act gives lenders an explicit obligation to meet the needs of all borrowers in their localities, including those on low incomes, to help stop them being the main meals of the legal loan sharks in the first place.

That is why we need to ensure that the Money and Pensions Service does not become primarily a website and helpline. Tackling debt in communities means helping people in communities, especially given the variation in debt between areas. If the service is just online, that does not uphold the principle of helping those most in need, and especially the most vulnerable. That matters because of the number of people who would benefit. In 2021, the service defined those in need as people who were behind on one priority bill or facing bailiffs. It separated out those people that it thought just needed money guidance—tips on how to budget—but those people were building up arrears, and were recognised to be at a tipping point. Some 8 million people are listed as needing debt advice, but a further 13 million are at that tipping point. Any of us who have had someone come to our constituency surgery in financial difficulty know that the sooner we intervene, the more chance we have of success. With 21 million people at a tipping point, let us not let them tip; let us help them now.

Research by the Centre for Responsible Credit shows that such people are already under extreme financial pressure. They frequently borrow to make ends meet. They use “buy now, pay later”, have unauthorised overdrafts, and are already behind on their consumer payments. If we underestimate the number of people in debt because the bigger group are better at juggling, can we really say that it is not a problem to be constantly borrowing from Peter to pay Paul, Paul to pay Penelope, and Penelope to pay both of them? Millions of people in this country are one bad argument with their partner, one new school uniform item needed or one parking fine away from being unable to manage, and they have just been through a month when everyone spends, on average, an extra £700 because it is Christmas.

These people do not need us to judge them; they need us to help them. If we do not massively increase the funding for money advice services and ensure that their focus is on preventing debt in local communities, it will not just be personally devastating for millions of people but hamper our chances of getting economic growth. Ultimately, I am asking Ministers to introduce a cost-cutting measure. The National Audit Office reported in 2018 that debt problems are so detrimental to the wellbeing of the British public that they lead to higher public spending on both welfare services, such as mental health services, and state-subsidised housing to the tune of £900 million a year. That is why we ultimately need a financial inclusion committee to look at not just the costs of credit but how we stop people getting ripped off in the first place, and to be a consumer champion across the piece, whether on energy deals, finance or even local public service debt advice provision. In the end, if we join up the dots we really will save everyone money—the one thing that right now nobody has.

It is a pleasure to follow my hon. Friend the Member for Walthamstow (Ms Creasy), who spoke incredibly passionately about the difficulties of debt. There is a lot of debt in my community, which appears, on the face of it, to be relatively affluent, but one of the problems is that people feel a huge compulsion to maintain that appearance. I have spoken to a lot of people on the doorstep, and in the course of the submission that we made as a constituency to the Social Mobility and Child Poverty Commission, about the fact that people are really struggling and finding it incredibly difficult.

In areas such as mine, where there is not a perception of poverty, there are simply no services to assist people who need help. My constituency has no citizens advice bureau anywhere, no law centre—nothing. When people have difficulties, they therefore do not know where to turn. We need to do the best we can to improve civil legal aid. Citizens advice bureaux were partly funded by local government, which was cut, and partly through the legal advice work they did that was charged at legal aid rates. Unfortunately, since those are now so difficult to work under, all those advice services have been decimated.

My local citizens advice bureau spoke to me—I say local; it is not in the constituency, though it can occasionally do some in-person transitory work—about how important it is to see people face to face. It said vulnerable people, older people and others might in theory have online access, but actually cannot go through a complex system to resolve their debt without that consistent face-to-face assistance. We need to aspire not just to improve telephone and online services, but to ensure that in-person advice is provided.

My hon. Friend briefly touched on the quality of advice that people are receiving and the fact that although the Financial Conduct Authority regulates the products that people are being sold around debt reduction—they are products—there is a real problem of mis-selling them, despite the theoretical regulation. Unfortunately, regulation is only as good as the enforcement. It is important that we keep discussing the matter and that we bring real change to the advice landscape because our residents need us to.

I congratulate my hon. Friend the Member for Walthamstow (Ms Creasy) on securing the debate. I very much recognise and have seen the work she has done over the years to raise the profile of responsible consumer credit practices and effective debt advice. I thank my hon. Friend the Member for Congleton (Mrs Russell) for her contribution and specifically for raising the experience of her constituents.

Credit, when offered responsibly, can be an essential tool for people who have to manage unexpected costs or who need to smooth their cash flow. As a Government, we want to support consumers in having access to credit when they need it. But, at the same time, we are determined to ensure that access to credit comes with robust protections to ensure that lending is affordable and consumers are protected when things go wrong. That is why in October last year we published a consultation on a proposed regulatory regime for “buy now, pay later” products. The regime will introduce better protections for millions of consumers and will bring “buy now, pay later” firms into the regulatory perimeter of the FCA. That in turn will mean that firms offering “buy now, pay later” products will be required to pay specific annual FCA fees and levies. Among those is the financial guidance levy, the proceeds of which fund free debt advice services.

As I turn to the importance of debt advice, I pay tribute to the thousands of debt advisers across the country for the critical work they do to provide support for those in need.

We all value the debt advisers. As my hon. Friend has just said, “buy now, pay later” companies do not yet contribute to the levy that pays for those people, but the companies themselves have said that they would make voluntary contributions. Would the Treasury consider approaching them to get that money ahead of their being part of the regulatory landscape, so that we can have more of these brilliant debt advisers?

I am sure that Treasury officials and the Economic Secretary to the Treasury, my hon. Friend the Member for Hampstead and Highgate (Tulip Siddiq), will be in close contact with the sector about any proposals they have. It is important to emphasise that because of the regulations we are consulting on for the new regime, that will mean that “buy now, pay later” firms will be required to pay those specific fees and levies, which will help fund free debt advice services. We know that funding those services is important because intervention through debt advice services not only prevents financial difficulties from escalating, but protects people’s overall mental health and wellbeing. More widely, there are positive effects for families, communities and the economy at large.

As a new Government, we are committed to supporting national and community-based services through the Money and Pensions Service, or MAPS as it is commonly known. Those services provide advice to hundreds of thousands of individuals and families in need in England. In December, MAPS published its first debt advice impacts report, which showed that across 2023-24 people accessing debt advice through MAPS-funded services gained an estimated £48 million of extra income. That underlines the fact that for many people, advice not only allows them to deal with their debt problems, but helps them to find a way forward with more money in their pockets. Eighty-seven per cent of people who received MAPS-funded debt advice said they would recommend the service to someone in a similar situation.

Outside of England, the UK Government provide funding through the financial services levy to the devolved Governments in Scotland, Wales and Northern Ireland. As debt advice is a devolved matter, the devolved Governments have responsibility for delivering those services within their nations and for tailoring provision to the needs of their local communities.

My hon. Friends spoke about the gap between those who need debt advice and those who are currently accessing it. The Government recognise that gap and the need to tackle it. Funding levels, which my hon. Friends mentioned, are regularly reviewed to reflect demand, inflation and evolving needs. The MAPS debt advice budget for the upcoming financial year will be communicated in the usual way in the spring, and I will ensure that my hon. Friends are informed.

In my constituency, the Whitmore Reans Welfare Centre, a voluntary organisation, signposts individuals to the debt advice that they need. In the past, the centre received funding for a part-time or full-time caseworker, but it is finding it increasingly difficult to provide the kind of one-to-one advice mentioned earlier, which is so useful for residents. Can the Minister give any advice on how to help organisations of that nature so that constituents can be signposted to, and given, one-to-one advice?

I thank my hon. Friend for raising that constituency case and highlighting the important work that that organisation does for his constituents. I cannot comment from the Dispatch Box on individual funding decisions, but he underlines the importance of tailoring to local need. Although there may be a national priority to ensure that people are provided with debt advice, individual local debt advice agencies will need to tailor their services to the needs of their communities. He is an excellent advocate for his constituents in that regard.

Alongside the debt advice services that the debate has focused on, it is important, as I was saying, that individuals can access the financial services that they need. That is why the Government announced in December our intention to develop a financial inclusion strategy that will aim to further tackle barriers to individual and household ability to access affordable and appropriate financial products and services. The strategy will be supported by a committee that the Economic Secretary to the Treasury convened for the first time in December, which will consider the problem of debt.

I will turn my attention briefly to the work that the Government are doing to support vulnerable individuals and businesses repaying debt to the public sector. The Government debt management function functional centre, based in the Treasury, convenes the debt fairness group—a collaboration with the debt advice sector that identifies opportunities to continuously improve public sector debt recovery processes. The functional centre’s work includes debt management toolkits to support public sector bodies dealing with those facing physical and mental health challenges, and to help them identify and support the 8.7 million adults in the UK who have experienced economic abuse.

I thank my hon. Friend the Member for Walthamstow once again for raising this important matter. I have no doubt that she will continue to be a champion on the issues that we have discussed. The Government remain committed to providing accessible debt advice and promoting financial inclusion. We are committed to ensuring that everyone has the support they need to manage their finances effectively and build a more secure future for themselves and their family.