Is debt advice delivering value for everyone?

Anyone with an interest in debt advice and its funding, will have watched, with interest, the battle being waged over the allocation of funds in England. At issue is how much is allocated to which types of advice and a coterie of concerns with reporting and targets.

There’s no doubt that the coming months (and years) will find more people struggling and falling into financial difficulty. Capital Economics recently suggested that the real terms fall in household income could be 1.9% - that is 0.4% higher than the fall linked to the Global Financial Crisis which clocked in at about 1.5%. 

Difficulties linked to higher energy costs are already percolating into the system and energy sector regulator, Ofgem, has stepped in quickly to examine whether direct debits are being escalated more than is necessary, potentially putting more pressure on already strained household budgets. Increases in the cost of fuel, basic goods – not to mention taxation – all add to a poisonous brew. The only question is the scale at which these pressures will push people over the edge. 

Three years ago, we attempted to quantify how much money is in the system for debt advice. The levy itself tends to grab the headlines but what we discovered was that, on a conservative estimate, the levy only represented a third of the funding coming into debt advice. Back in 2018, the total was something like £172 million. With a stratospheric increase to the levy to some £90 million, that cumulative figure will comfortably exceed £200 million from various sources including the levy.

Wide of the Mark? Assessing the Value of Free to Client Debt Advice asks a number of important questions; what value is actually being delivered? Are we seeing the greater efficiencies that the Wyman review talked about in 2018? Are we seeing people better equipped to deal themselves with financial difficulty at an earlier stage rather than waiting? Has the massive increase in funding genuinely delivered greater capacity so far?

As one of a number of trade associations whose members bear this substantial cost, it is only natural that we should ask whether this approach is delivering value for money. While MaPS is accountable for how the money is spent, there is zero accountability for how that money is raised in the first place.  Three years ago, what was astonishing was how little reliable data there was to consider, and more particularly, what the limited data that was available seemed to show.

So, what did we find? 

Precious little that a hat could be hung on, unfortunately.

The advice sessions delivered as a result of funding allocated by MaPS correlates very loosely to increases in the level of levy funding over time. There were hints of improved efficiency, but they were extremely faint and inferred rather than obvious. There were also equally faint hints that the monitoring and reporting was being gamed to some degree. 

Clearly, and however strong feelings are about the current MaPS approach to how advice is delivered on its behalf and what is recorded and reported, it is evidently right that MaPS takes robust steps to evaluate whether money spent on the public’s behalf delivers the right value. It is also right that MaPS avoids falling into the trap of seeing regulation by the Financial Conduct Authority (FCA) as a proxy or alternative for its own oversight. It isn’t and never will be.

But take a step back and start to consider the wider perspective. Consider the effect of all of the funding in debt advice. The picture looks considerably less rosy still.

In 2011, it was estimated there were about 1.4 million debt advice sessions each year, a figure which seems to accord with the claims made by free-to-client advice organisations at the time. By 2018, (Wyman review), this capacity figure had fallen to an estimated 1.1 million despite significant uplifts in funding. In reality, the figure appeared to still have been around 1.4 million judging from the claims made by advice organisations themselves. More money but seemingly standing still in terms of advice sessions.

By the time of the FCA’s Financial Lives Survey in 2020, the global figure had risen to 1.6 million, with a further estimated rise during the pandemic. Setting aside the curious survey anomaly – increased debt advice at a time of decreased demand – the pattern is remarkably clear. Funding has increased markedly from some sources, but free-to-client advice sessions have not remotely kept pace. So why is that?

There could be many reasons. The fundamental lack of reliable data makes drawing conclusions extremely difficult. Moreover, it is becoming ever more apparent that survey-based data is insufficiently reliable to provide substitutable conclusions. If ever value for money is to be reliably judged, far more reliable data is required. MaPS is absolutely right in that.

MaPS is also right that it must ensure both quality of advice and reliability of outcome for the recipient. It is not sufficient that a person gets advice – what matters is that they get the right advice as early as possible whatever that might be relative to their circumstances.

In that, the FCA’s imminent Consumer Duty requirements will prove a boon to planning and delivery for MaPS. Firms – including debt advisers – will be required to consider and monitor the outcomes that their customers experience. It will no longer be a binary question of whether advice was or wasn’t received, but a far deeperde understanding of what outcome they experienced and what might need to change as a result.

The deeper question is whether the framework in England is really fit for purpose and or whether MaPS should begin to more actively consider becoming the provider and not just a contractor for a good proportion of the advice given. That should surely give it a much more reliable perspective of demand rather than short-lived and subjective ‘need’. 

There will still be circumstances where local or specialist knowledge requires subcontracting or funding but throwing more money at what appears to be proportionately less output clearly isn’t going to work. 

The other driver for change? The current funding structure is on increasingly shaky ground. While the Department of Work and Pensions may, like Charles I, be currently able to simply demand Ship Money with impunity and no accountability from a narrow cross section of the economy, that is unlikely to last for much longer. As Government takes from one place, elective funding will increasingly fall away and sooner or later arbitrary demands are always challenged. Costs will likely percolate into the wider lending cycle with increased cost and/or decreased availability. Real life certainly isn’t as simple as the rhetoric. 

For something that has such clear elements of social policy and social benefit, can any elected official really justify the existing strategy and levying a narrow band of firms who cannot in all conscience be held responsible for today’s cost of living pressures, nor for the entire advice needs of the UK population? MaPS has shown it can get some results. Perhaps it is time MaPS acted less as an observer and started being a player, and for Government to recognise that at issue is social policy and wellbeing. With real data about demand and outcomes, and genuine efficiency, what funding there is already could go much further.

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