Treasury launches new scheme to tackle problem debt

People struggling with debt problems will be supported through a new debt respite scheme that has been launched by the Treasury today.
 
The government has estimated that around 700,000 people struggling with problem debt could benefit from the scheme this year.

The scheme, Breathing Space, will give those facing financial difficulties 60 days to get their finances back on track – with most interest and penalty charges frozen, and enforcement action halted. They will also receive professional debt advice to design a plan which helps to get their finances back on track.

The Treasury confirmed these protections will also be available for people in mental health crisis treatment – for the full duration of their crisis treatment plus another 30 days.

The scheme is expected to benefit creditors, with over £400m in extra debt repayments expected in the first year of the scheme, as people are supported to get their payments back on track.

Economic Secretary to the Treasury, John Glen, commented: “We’re determined to tackle problem debt, but it is incredibly hard to get your finances back on track when your debts are piling up and you’ve got creditors at the door.

“This scheme will give people a breathing space from charges, distressing letters and bailiff visits, so they can tackle their problem debt with support from a professional debt adviser.

“And to help people going through a mental health crisis, which is too often linked to financial problems, we’re bringing in stronger protections lasting beyond the end of their crisis treatment.”

CEO of StepChange Debt Charity, Phil Andrew, welcomed the introduction of the scheme.

“Giving people the statutory protection of a time period to help them begin to deal with their debts is a huge step up from the previous voluntary, patchy approach,” Andrew said.

“This is the latest piece in the jigsaw of safeguards for people experiencing problem debt, with more to come. Statutory Debt Repayment Plans, when they come into being, are set to give further, much needed protections. We look forward to working closely with the Treasury to ensure they are successfully implemented.”

However, CEO and co-founder at fintech firm Tymit, Martin Magnone, said that the scheme is “not enough”, and suggested that more action is still needed to prevent unmanageable debt.

“The credit industry has put its profits first and its customers second for too long now, with minimum payments, hidden fees and steep interest rates designed to keep customers trapped in revolving debt,” Magnone commented.

“The Treasury’s Breathing Space scheme is certainly a positive step forward – especially in this period of economic uncertainty – but it’s simply not enough. More action is needed to prevent unmanageable debt from happening in the first place.

“With this in mind, it’s time that credit lenders encouraged customers to use their services responsibly; minimum payment terms should be axed, lenders should be completely transparent on fees and interest rates, and they should incentivise customers to pay off their debts as quickly and as cheaply as they can.

“Used responsibly, credit can be a good thing, but it requires an industry pivot – where customers’ wallets take priority over lenders’ – to ensure consumers use it in the right way.”

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