Kelly Tolhurst is MP for Rochester and Strood.
Recent figures from the Bank of England show household debt at its highest level since the financial cash in 2008 at £192 billion. While not all debt is problematic, policymakers have joined debt advice charities in expressing alarm. Mark Carney warned that the “extremely rapid” growth of personal borrowing has become a serious threat to the UK’s financial stability.
Problem debt is when that debt gets out of control. Credit can be a good thing, helping people smooth their finances and make purchases today to be repaid out of future income. Yet the rise in personal borrowing has led to mounting concern that households who get into debt need safer ways to manage when they get into difficulties. Personal debt problems after all can have a profound impact on people’s lives. Debt makes people ill; it causes families to break up; it stops people from working and makes people less productive at work.
Analysis from The Children’s Society has revealed that children in low-income families with multiple debts are at far higher risk of suffering from mental health problems than equivalent families with smaller numbers of types of debt. Their findings also show that almost a quarter of children in debt-ridden families – equivalent to more than 500,000 children – are unhappy with their lives. This means that children living in families struggling with debt are five times more likely to be unhappy than those in families without debt troubles, putting them at greater risk of developing mental health problems later in life.
In my own constituency of Rochester and Strood, there are an estimated 2,700 children living in families affected by problem debt.
Seeing the impact of debt on children and families both nationally and in my constituency, I have decided to take this issue on in my first Private Members’ Bill. I am working on the Bill with The Children’s Society and charities across the debt advice sector including StepChange Debt Charity. This Bill would introduce protections for families who are doing the right thing – getting debt advice and wanting to repay their debts over time in a safe and affordable way, without having to cut back on the basics for their children.
Often families can fall into debt due to a one-off circumstance in their life – illness, bereavement or job loss. My Bill is calling for a ‘Breathing Space’ scheme for families. This period – where families are free from enforcement action, additional fees and interest on their debts – gives them time to get their finances back on track without fear their debt will mount even further. Only a fraction of people seeking help with their debts currently qualify for existing legal protections and I believe there needs to be a better way to support those families who want to repay their debts, but need support and protection to enable them to do so.
I want to make sure families are protected and that those who are repaying their debts have a legal guarantee against poor practices – ultimately protecting the children in these households. Unfortunately, what so often happens is one poor creditor sending round the bailiffs or another adding charges to a family’s account which can completely derail a carefully balanced debt repayment plan.
There is precedent for a scheme of this sort. In Scotland, the Debt Arrangement Scheme (DAS) offers legal protection to families in debt who seek advice. In 2015/16 £38 million was repaid through the DAS. Crucially over time the number of people using the DAS has increased as a percentage of available debt options. At the start of available data in 2009/10 over half (57 per cent) of debt options were bankruptcies – this has now shifted significantly down to 36 per cent bankruptcies and 22 per cent for the DAS. More people are paying back their debts and are being supported to do so, rather than having their debts written off.
My proposed Bill is a bill that works for all. It works for creditors who get the money owed to them back, rather than seeing it written off through bankruptcy; it works for the state and services who support families and most importantly, it works for families and children who can repay their debts free from enforcement action, rising fees and charges and spiralling interest repayments.
I hope colleagues will continue to show their support for this Bill and the introduction of a breathing space scheme in the near future. If you want to find out more please do get in touch.