The cost-of-living crisis is feeding through into an increase in debt problems and the number of people in poverty is rising sharply. Around 13.4 million people were living in poverty in 2020/2021, including 3.9 million children. It is estimated that one million more people were pushed into poverty during this winter.
According to the Money and Pensions Service (‘MaPs’) there are now 9.3 million people reporting “strong indications of a need for debt advice”; a figure which has risen by 10% within the past 12 months. These are people currently behind on at least one priority bill, facing creditor enforcement action and/or using credit to pay for essentials.
But despite the need for debt advice rising, MaPS’ funding for the sector is in decline. In 2020/21 it allocated £94.6 million to the sector; in 2022/23, £91.4 million. Next year, it will be just £76 million.
This decline in funding is being deliberately disguised by MaPS in its media releases. When it announced its budget of £76 million for next year it stated that this was “an 80% increase compared with 2019”. In doing so, MaPS appears to be comparing next year’s budget with the funding levels of four years ago (2018/19).
The impact of the pandemic
Does comparing budgets to pre-pandemic levels do the issue justice? In expectation of the pandemic's impact on household finances there was a near doubling of the MaPS budget in 2020/21. But in fact there was a dip in debt advice enquiries when the first lockdown began. This was due to a combination of direct financial support provided by government to households; suspensions on creditor enforcement activity, and the fact that access to face to face advice was suddenly unavailable.
However, the pandemic nevertheless led to a considerable accumulation of debt amongst lower income households, and just as restrictions on enforcement were lifted this collided with the cost-of-living crisis. Demand for debt advice have risen steadily since, and cases have become more complex – with an increasing number of people seeking advice lacking sufficient income to cover essentials let alone make offers of repayment towards their debts.
This situation has been recognised by MaPS, with their Chief Executive, Caroline Siarkiewicz, noting in a news post last year that:
"The number of people needing debt advice, and the complexity of cases presenting, will both increase over the coming months and years as people whose financial wellbeing was already low have been hit hard by the pandemic and are now facing the adverse effects of increased costs of living."
It is therefore extremely difficult to understand how anyone could consider a near 20% cut to debt advice to be an appropriate response.
A lack of capacity
Regardless of the disingenuous way in which MaPS – an arm’s length body of the Department for Work and Pensions – has presented its cut as an 80% increase, it is now clear that the capacity of the sector to respond to demand is completely inadequate.
Stunningly, during the cost-of-living crisis, MaPS’ Corporate Plan for 2022/23 (finally published after lengthy delays) tells us it is has been committed to funding just 570,000 debt advice sessions this year.
In contrast, its plan for 2021/22 committed to providing 536,000 advice sessions from its mainstream funding plus “...over the course of the pandemic” providing “additional debt advice capacity to support up to 1 million people.” It appears we have moved from an ambition to meeting the debt advice needs of 1.5 million people to a little over a third of that figure in the space of a year.
Channel shift combined with 20% cut in funding
In an attempt to do 'more with less', MaPS has focused on a major ‘channel shift’ programme. The basis of this lies within the Wyman Review’s recommendations. This rejected calls to increase the levy on financial services firms to expand advice (see below), and instead urged MaPS to improve “the efficiency of supply by reducing duplication and encouraging wherever possible greater use of technology and the lowest cost delivery channel.”
The adoption of Wyman’s recommendations (which were poorly evidenced and did not have widespread support in the sector) has led MaPS to channel most of its debt advice funding into providers of digital and telephone services at the expense of community-based agencies.
Last October’s funding announcement by MaPS revealed that telephone and digital channels currently account for 240,000 (42%) of its advice sessions, but it expects these to increase by 65% in year one of its new national contracts (that is to 396,000 by the end of 2023/24). By the end of 2025/26, the contracts are expected to deliver 650,000 sessions.
But to achieve this increase in the overall number of sessions, MaPS has chosen to cut back on community-based services. These now face a cut of £3 million next year. This has already led to a recruitment freeze on vacant posts. As we have previously reported, compulsory redundancies are now increasingly likely. In the current year, these services have been expected to deliver 330,000 advice sessions, but MaPS has recently confirmed that it will be forced to revise this number significantly downwards from April.
Whilst we are waiting to see precisely how much capacity within community-based services has been lost, it is likely that next year will deliver a marginal overall increase in capacity at best. And with more of the advice sessions being delivered through on-line and telephone channels, there are concerns that the most vulnerable debtors will struggle to obtain the advice and support they need.
Outcomes for people obtaining advice could also suffer. With more people facing bailiff action; in rent arrears and with inadequate incomes, casework services with good connections to the local authority and other support agencies are vital. It is difficult to see how national services can provide this, and despite assurances from MaPS that it has built in casework requirements for its national providers there are few details available as to how those will be delivered in practice. But perhaps most alarmingly of all, MaPS does not appear to have any outcomes framework in place against which the success of debt advice services (national or local) can be assessed. It appears focused on expanding the volume of sessions alone.
A woefully inadequate response
In any event, increasing capacity to deliver even 1 million debt advice sessions by 2026 is a fraction of what is needed. Whilst MaPs is not the only funder of debt advice, previous reviews indicate that it is responsible for around 45% of all free to client provision. For example, StepChange (which is not MaPs funded) provides debt advice to around 160,000 people per year.
By our calculation, based on the current cost per session, getting debt advice to everyone who needs it would cost around £1.4 billion. Even if we accept that 55% of people could be supported by non-MaPS funded providers, there is a case for a ten-fold increase in the MaPS budget.
Whilst that sounds 'off the scale', it is worth remembering that the National Audit Office has previously found that problem debt costs the taxpayer a lot of money. For example, it results in worsening mental health and reduces participation in the labour market. Government needs to invest to save.
Protests to save debt advice
Before now, there hasn’t been much public expression of the concern about the state of debt advice. The sector, and the advisers within it, have struggled to find their voice about the pressures that the cost-of-living crisis is putting on services; the risks posed by the ‘channel shift’ to digital and telephone services, and the cuts to community-based advice.
But in central London on Monday 13th of March, that changed. Unite’s Debt Advice Network took to the streets; to protest the inadequate funding of the sector, and the poor pay and working conditions for staff within it. Messages of support from debt advisers around the country were also posted out on social media. Organisers demonstrated outside the Department for Work and Pensions, HM Treasury, and Money and Pensions Service; handing in a petition signed by over 2,000 advisers. They also leafletted passers-by explaining why debt advice services have never been so vital.
Threats of redundancies
The MaPS cut to community-based services is increasingly likely to result in compulsory redundancies. But the protests also heard of non-MaPS funded agencies under pressure. With more and more people unable to make any kind of offer to repay their debts, alternative funding models such as ‘Fair Shares’, which underpins StepChange, are starting to collapse. Unite members at StepChange report an estimated 200 job losses, and there were reports of possible redundancies at Christians Against Poverty too.
Increase and expand the levy
At the same time, there are a growing number of essential services firms who are making significant profits during this crisis; but who do not contribute to the funding of debt advice. According to Unite, many energy, water, and telecoms firms are not making any contribution. And yet the rising prices of these essentials are often a driver of debt. On the one hand, the advice sector is being told that less funding is available from government, whilst on the other government is failing to maximise its potential funding pot. The Unite leaflet pointed out that British Gas’ parent company. Centrica, announced a trebling of annual profits to £3.3bn in 2021, and Energy company EDF announced annual profits of £1.1bn in the same year. Despite government having imposed a windfall tax on energy providers, none of that money is being channelled into funding for debt advice.
The demand on the streets of central London, made by debt advisors on 13th March was simple: to meet the growing need for debt advice government should raise and expand the levy. CfRC supports that demand. It is to be hoped, with debt advisers become increasingly organised, government and MaPS will feel the need to respond positively and soon.