Treasury plans 60-day debt relief window

The government is to launch Breathing Space, a debtor protection scheme to help people in debt by freezing all creditor contact over a 60-day period to encourage them to access advice sooner

The Treasury has published an impact assessment on the proposed Breathing Space scheme, due to be introduced in 2021.

The scheme will give people in debt a 60-day window when creditors are not allowed to chase them as long as they negotiate a debt repayment plan with a professional debt adviser and reach a long-term solution for repaying their loans.

The scheme will be mandatory for credit providers, including banks and credit unions, and it is expected to save £500m a year in excess interest payments as well as recovering up to £5bn in unpaid debts.

There are an estimated nine million people in debt in the UK, of which only around 1.1m receive advice each year.

The Treasury estimates that between 650,000 and 2.9m people would benefit from debt advice but do not ask for it. Even those that do seek help often do so at a late stage and often take the quickest rather than most sustainable solution.

Breathing Space will include a mental health crisis moratorium for those receiving treatment. For this group, the protections of the scheme will last for the duration of their crisis treatment, followed by a further 30 days.

The Treasury forecasts that Breathing Space will help over 700,000 people to access professional advice in its first year, increasing to 1.2m a year by 2031.

Scheme eligibility

Breathing Space will give debtors a 60-day window to freeze payments and renegotiate their debts with a professional debt adviser.

There will be a number of obligations on debtors, including not taking out further credit of £500 or more without the approval of their debt adviser once they have started a Breathing Space agreement.

The debtor must also continue to meet their ongoing liabilities where they are able to do so, and continue to engage with debt advice to find a solution.

Debt advisers will administer an ongoing eligibility check at the 30-day point to ensure the debtor is keeping to the terms of the Breathing Space agreement.

Breathing Space was a 2017 manifesto commitment and consists of two parts – a 60-day debt advice window and and a statutory debt repayment plan (SDRP).  SDRP will extend the protections of Breathing Space to debtors who commit to fully repay their debts to a manageable timeline and will be developed as a phase two project.

Creditor compliance

The Treasury is working closely with debt advisers, creditors and trade bodies to help them prepare to deliver Breathing Space in practice.

The scheme will be mandatory for creditors and they will be required to process the notification of an entry into the scheme, supress contact relating to repayment, notify enforcement agents and pause interest, fees and charges.

Creditors will need some time to prepare for the introduction and will have to make system changes.

An IT portal for debt advisers will be developed by the Insolvency Service. The Treasury is working closely with the Insolvency Service to ensure that the portal meets the needs of creditors and debt advisers, as well as recording some of the management information required to evaluate the policy.

Mark Sands, chair of insolvency trade body R3’s personal insolvency committee, said: ‘The Breathing Space scheme is something we have campaigned for and supported for many years.

‘Giving people in debt time to talk over their options with a professional adviser will help them to choose the right way forward for them, without additional stress or pressure.

‘The government's prediction that many hundreds of thousands of people will benefit from the scheme in the first year that it is introduced shows the crying need for breathing space, and we eagerly await more detail on its introduction date and how it will be implemented.’

Europe Economics estimates that debtors who are advised to enter debt management plans (DMPs) or individual voluntary arrangements (IVAs) repay their creditors an additional £3,522.

Creditor revenue

The scheme is expected to cost creditors an estimated £1.46bn in lost interest and £207m in annual charges, with annual running costs of £29m once IT systems are updated, and one-off training costs of £400,000. Government creditors will face similar costs (£7.1m).

On the plus side, the scheme is expected to improve recovery rates for creditors by raising an additional £6bn in debt repayments, deliver productivity benefits for employers (£3.7bn), and reduce negative mental and physical health outcomes among debtors (£2.1bn).

Breathing Space impact assessment

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