The government’s response to the national debt crisis comes into force this month. But despite well-meaning intentions, could this new legislation have repercussions for the sector?

It’s not news that more and more people are falling into debt. Last summer we wrote about fears of a debt time-bomb, as advice agencies geared up for their busiest time on record, helplines inundated with calls. This was after the first lockdown was lifted. Since then we’ve had two more national lockdowns, triggering an unemployment, housing and mental health crisis. 

For people who were already struggling with debt, things have got a hell of a lot worse, while hundreds of thousands have fallen into it as a direct result of the pandemic. The rent crisis is thought to be largely to blame for the increase in debt amongst young people – an estimated 800,000 private renters have built up arrears (National Residential Landlords Association). The recent rise in young people using buy-now-pay-later loans is also a concern, according to the charity StepChange. 

A report published last month by the Resolution Foundation shows that before the pandemic, two-thirds of middle-income households in the UK had non-mortgage financial debts. During the crisis, 17 per cent of UK households who had experienced a drop in income, reported taking on debt to cover day-to-day costs of living (food, bills etc). 

What is Breathing Space?

So far the government’s response to dealing with the fall-out from the pandemic has been to press ‘pause’. Whether it be on evictions – an eviction ban has been extended until the end of May – or with unemployment, by extending the furlough scheme until September. These short-term protections are just that – they won’t last forever, and while they do it creates a false sense of security for those on the receiving end. Eventually something’s got to give. 

Welcome ‘Breathing Space’. Also known as the Debt Respite Scheme, Breathing Space will give people in England and Wales who have problem debt the right to legal protections from creditor action for a defined period. The idea is that this will give people time to seek advice and potentially enter a debt repayment scheme. 

There are two types of breathing space: a standard breathing space and a mental health crisis breathing space.

A standard breathing space is available to anyone with problem debt. It gives them legal protections for up to 60 days (two-months). The protections include pausing most enforcement action and contact from creditors, and freezing most interest and charges on their debts.

A mental health crisis breathing space is only available to someone who is receiving NHS mental health treatment when they apply to the scheme. It lasts as long as the person’s treatment, plus 30 days (no matter how long the treatment lasts).

To trigger ‘breathing space’ people need to contact an FCA-regulated provider of free debt advice, or their local authority (where they provide debt advice to residents). 

It’s estimated that the scheme – which launched on 4 May – will help over 700,000 people get professional help. It covers a wide range of debts including council tax, personal tax debts and benefit overpayments, as well as credit cards and personal loans.  

Will it work?

On the whole, the scheme has been welcomed by the sector. National debt charity StepChange has been campaigning for Breathing Space since 2014.

Sue Anderson, head of media, said: “Breathing Space has the potential to arrest the cycle of worsening debt and to help put people seeking debt advice on the road to recovery. It’s welcome that people taking action to deal with their debts will finally get statutory protection that, up to this point, has only been voluntary and offered by some creditors.”

Research by the charity found that six in ten people who weren’t protected from interest, charges and enforcement action went on to take out even more credit to cope. Credit cards continue to be the most common debt type, held by two thirds of StepChange clients in 2020 (67 per cent). Meanwhile, last year saw single people without children account for 44 per cent of StepChange clients – up from 36 per cent in 2019.

Anderson added: “Breathing Space will help to reduce the pressure of a stressful debt situation, allowing people to focus on engaging fully with advice. This is the first step towards regaining control of your finances and plotting a sustainable route out of debt.”

But there are others who are more sceptical. Rosie Phillips, chief executive of DHI, which runs services for disadvantaged people, said: “It sounds great, but it means that mental health is increasingly becoming the gatekeeper to all sorts of support. Access to mental health services is arguably discriminatory – it seems much more accessible to well-behaved, middle class people than to say poor, working class males who are more likely to ‘act out’ and be seen to have behavioural or a drug and alcohol problem, than get taken on for talking therapies.” 

In addition, many people in need of mental health support may not accept help.

“I thought we were trying to move funding upstream but it is forever being sucked into crisis services, which are much more expensive,” says Phillips. “Why can’t we support people with debt and prevent them having to be referred to a mental health crisis team?”

For more information on the Debt Respite Scheme visit the government website