Fair’s Fair: Understanding how to fine-tune government debt collection from an ‘unlikely hero’
25 July 2019
Steve Coppard is Deputy Director Cross-Government Debt Policy & Strategy at the Cabinet Office.
My role at the Cabinet Office is all about transforming government to deliver efficiencies and savings by working smarter on behalf of taxpayers. The customer fairness agenda is a small part of my overall policy work, but it has a huge social and economic impact. It is also a passion of mine, not only because I have personal experience of debt-induced vulnerability, but also because of high-profile cases where people have ended up in a much worse situation than I did. People such as Jerome Rogers, a young man who took his own life after £130 in traffic fines escalated to more than £1,000 once bailiff fees had been added. 100,000 indebted people in England attempt suicide every year and 420,000 consider it.
Everybody in my team has one mission – to reduce debt-related mental health and suicide.
The UK government has been building closer working partnerships with the debt advice and debt collection sectors since 2016 when we established a ‘Fairness Group’. The Fairness Group brings together central and local government, debt advice organisations (including StepChange, Citizens Advice, and PayPlan) and the debt collection industry (represented by the Credit Services Association). In May 2019, we released a joint public statement on how the Fairness Group will continue to work together to continually improve how government interacts with people in debt, particularly those in vulnerable circumstances and/or experiencing financial hardship. This includes applying the Cross Government Debt Management Strategy’s Fairness Principles which are aligned to the Financial Conduct Authority’s (FCA) ‘Treating Customers Fairly’ guidelines, in line with sector best practice.
When it comes to fairness, we can learn from an ‘unlikely hero’: the private sector debt collection industry, which has been hugely improved by FCA guidelines. If we can deliver on the recommendations of the National Audit Office (NAO) and the Treasury Select Committee, we can bring public sector collections in alignment with the private sector best practice adopted by CSA members.
Doing what’s ‘right’?
So, why do we have to chase people for government debts such as Council Tax? Simply put, we owe it to the public to fund the delivery of public services. However, when we look at the facts around the small proportion of truly vulnerable customers (both those that get into debt because they’re vulnerable, and those who become vulnerable because of debt), there is also a strong financial case for treating them fairly. The long term, collaborative, affordable approach to repayment results in fewer interventions than attempting to recover more than the customer can afford in each instalment. Unaffordable repayment plans inevitably don’t work, and result in failure and rework into the system. Government’s debt management interventions work perfectly well in the majority of cases, but for a minority of people, those same interventions can have a disproportionate impact. To put this into context, government’s debt balance is circa three percent of income. Of that three percent, just over half (57%) is household debt and only a small proportion of those households will be vulnerable, so we are talking about a fraction of one percent of government’s income. This one percent if chased in the same manner as the rest of the population, can have a disproportionate impact – both on those people’s lives and on wider society. We need to fine tune the approach.
The time for change is now
We must find alternative interventions that minimise the social cost and maximise revenue flows. By investing time and money in chasing these people using standard strategies, they end up costing government more when we could better invest that effort in treating them according to their circumstances. This will build financial resilience and get people out of debt, rather than getting debt out of people.
Both the NAO and the Treasury Select Committee said that government as a whole lags behind private sector best practice, particularly calling out the quick jump to use bailiffs. This was echoed by the Money Advice Trust’s Chief Executive, Joanna Elson, who said in response to the publication of the Fairness Group’s public statement: “Public sector debt collection practices should set the gold standard, but it has been widely recognised that there is a significant amount of work to do to realise this ambition.”A key piece of the puzzle is to ensure the legislation that underpins collections activity actually supports organisations today. The reality is that some legislation forces a counter-intuitive approach to collections. For example, a 27-year-old law dictates that those with Council Tax arrears will quickly be subjected to a liability order, adding a court summons and ~£130 to the debt. Once the liability order is in place, the next intervention is to take the debt directly from the person’s wages (if they earn enough) or send a bailiff. The NAO found that additional charges and intimidating actions make debts 15% - 29% harder to collect. These regulations need to be brought up to date. 27 years ago, when these regulations were introduced, we didn’t have a household debt problem in this country, but today there are 8.3m people with at least two household debts.
This is not about vilifying the enforcement industry; there is a place for enforcement action, but we should be identifying those people who genuinely cannot pay or are vulnerable. Enforcement action should not be the default position. The Ministry for Housing, Communities and Local Government recognised this in a recent announcement which committed to improve how local authorities recover unpaid Council Tax and end aggressive enforcement tactics. Likewise, this is not about being soft - those people who can afford to pay but choose not to should not be given leniency if they are prioritising lifestyle over debt.
We have excellent case studies which flip KPIs around council tax recovery rates on their head and show that when debt advice is given it can result in higher repayment rates and fewer interventions.
Local Government Minister Rishi Sunak recently said: “The experiences of some innovative councils show that Council Tax collection rates can be improved without resorting to the unfair treatment of vulnerable people.”
At the same time, the private sector is also funding free-at-the-point-of-access debt advice through a variety of channels including Fairshare, because it recognises not only the ethical case, but also that the investment maximises the value in a debt book that would otherwise be written off. We are working with the industry to see how this best practice can translate across to government.
Small changes make a big difference
Addressing government treatment of people in debt is not about wholesale reform; it is about fine tuning. The FCA’s ‘Treating Customers Fairly’ guidelines completely revolutionised the consumer credit market (and saved £80m!) so if you have a model that works then why change it?
This doesn’t make implementing the changes simple – there is a lot of work to do to reach organisational maturity – but by working closely with the advice and private sectors, we can replicate a one-size-fits-all model by putting fairness first, for both ethical and financial benefit.
A good starting point is to change the narrative. The debt collection sector has come such a long way in recent years, but we still need to overcome the stigma associated with debt. Some online forums are still quoting industry practices from a decade ago, but the reality of private sector debt collection is streets ahead of its perception. We need to get the message out that we want to get people out of debt, not get debt out of people; that we prioritise debt resolution over debt collection and that we recognise the need to work with people and not against them.
As the debt collection industry has shown, by seeking the right outcomes and treating people according to their circumstances, collection comes naturally and the money flows in without the need to impose unaffordable repayment plans. The case for fairness stacks up time and time again.
The Fairness Group’s priorities are to create a robust vulnerability strategy for government collections, further improve communication with the debt advice sector, and define what good looks like in terms of collections KPIs. We’re looking to the private sector debt collection and examples of best practice across government for how to do it and the CSA’s Code of Practice and FCA principles on Treating Customers Fairly as common denominators, which is a good a place to start as any.
Steve is speaking at the upcoming UK Credit & Collections Conference (UKCCC) in Newcastle.
UKCCC event site
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