Debt advisers help to repay or write off debts, prevent repossessions, keep the bailiffs at bay and boost household incomes. Yet funding for these vital services is being cut at a time when they are needed more. Unite for a Workers’ Economy has launched a Save Debt Advice campaign to pressure government to boost this funding by making those responsible pay their fair share.
Cutting advice services is a direct attack on struggling working-class households, both those who need the help and the workers who staff the services. We are being made to pay for a crisis we did not create, while government protects corporate profits at our expense.
In 2020, a decade of Tory austerity, wage stagnation and the shredding of our social security safety net meant millions were relying on credit to prop up insufficient incomes. Then the pandemic arrived. Debt advisers talked about an imminent tidal wave of demand, but this took longer than first expected. During 2021, reduced furlough incomes left millions borrowing to make ends meet but the triggers to contact advice services – bailiff visits, court judgments and evictions – were on hold.
Then in 2022, rocketing food, fuel and energy prices saw the tidal wave hit, brutally. Advice services have been overwhelmed, not only by record numbers seeking help, but also by people’s vastly more complex debt problems. The debt counselling charity StepChange reported a 32 per cent increase in demand between January 2022 and January 2023, while initial assessments for new debt advice clients at Citizens Advice increased by 88 per cent in the same period. 72 per cent of debt advisers say the cases they see are more complex than before the pandemic.
Added to this mix is a demoralised, underpaid and overworked advice workforce. In December 2021, 29 per cent of debt advisers said they were actively seeking another job, and a botched revision of funding by the Money and Pensions Service (MaPS) in late 2021 saw many experienced advisers leave in anticipation of redundancy.
The largest source of funding for free debt advice in England is an annual levy on businesses set by the Department for Work and Pensions, which is distributed to advice providers by MaPS. Under current legislation, this levy is limited to firms authorised by the Financial Conduct Authority (FCA) and is only paid by consumer credit and mortgage lenders. Other businesses that are some of the worst causes of household debt – notably energy providers – do not have to pay it.
Just as demand for debt advice is soaring to record levels, this funding has been cut. MaPS annual budget for debt advice was £91.4 million in 2022/23, but the projected figure for 2023/24 is £77 million – a 15 per cent drop, before accounting for inflation. This is more than pre-pandemic funding, but a downward trajectory when demand is going sharply the other way makes no sense.
Astonishingly, funding for the community-based face-to-face services that cater for the most complex cases and vulnerable people has been slashed compared with before the pandemic. Actual spending on community-based services was £31.5 million in 2019/20, but MaPS has reduced this to £30 million from 2023/24, a real terms cut of 21 per cent. Citizens Advice recently announced likely redundancies as a result.
Advice services have been overwhelmed by record numbers seeking help and by more and more complex debt problems
There is no question that the money is there to pay for adequate debt advice services, so the levy must be increased and extended. First, the firms that currently pay the levy can afford much more. The big four UK banks alone recently reported £19.8 billion profits in the first three quarters of the 2022/23 financial year.
Second, many sectors that create or profit from problem debt have no statutory duty to contribute to advice services, including energy, water, telecoms, debt collectors and even bailiff firms. For example, British Gas parent company Centrica made £3.3 billion last year, trebling its annual profits.
Changing legislation to expand the scope of the levy beyond FCA-authorised firms would mean these firms paying their fair share towards fixing the debt crisis. The idea of all creditors bearing the costs of debt fairly is well-established – in insolvency law, losses are shared equitably among all creditors, a principle going back centuries.
There is no additional cost to the Treasury in this demand. In fact, increasing advice services would substantially reduce public spending elsewhere. Early legal intervention saves an estimated £8,000 in public costs per case in areas such as homelessness, mental health, addiction and unemployment.
Growing the pie
There is a bigger debate about how funding is allocated. Cycles of competitive tendering every few years disrupt service provision, threaten job security and depress wages in a cost-saving race to the bottom, so long-term secure funding is essential. Other advice services essential to fixing debt problems, such as welfare rights and housing advice, are also chronically underfunded. But before we worry about how the funding pie is shared out, we urgently need a pie that is big enough to go around.
Unite has written to the chancellor with this initial demand and taken it directly to the government departments responsible in a day of action in London on 13 March, 2023 – a historic first time that debt advice workers have taken to the streets. Advice UK, Debt Justice and the Centre for Responsible Credit joined us, along with frontline debt advisers from Unite Debt Advice Network and grassroots campaigners We Are Debt Advisers.
Our economy is broken because of the deliberate choice of politicians to put corporate profit first. Of course, our economy should never force millions into debt in the first place and we urgently need to move to a new economic model that tackles inequality. In the absence of this, however, cutting a crucial lifeline for households in debt during a national debt crisis is a grim example of Conservative mismanagement. Unite for a Workers’ Economy is building power in working-class communities to fight back and start setting the political agenda ourselves.