PARLIAMENTARY DEBATE
Covid-19: Household Debt - 8 July 2021 (Commons/Westminster Hall)

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I beg to move,

That this House has considered the effect of the covid-19 outbreak on household debt.

It is a pleasure to serve under your chairmanship, Mr Bone. The effects of covid-19 have been uniquely lopsided. We hear a lot about people making savings during lockdown; the Bank of England apparently estimates that at £150 billion overall and says that many people are able to pay off debt using income they have saved. That is all very well, but it glosses over the at least 11 million people—perhaps the most vulnerable in society—whose debt has increased because of covid-19. That is 11 million people who, by March 2021 according to StepChange, had built up £25 billion in arrears and debt to pay.

About 4.3 million people are now behind on bills such as council tax, rent or fuel, and the average debt is higher too. According to independent polling, 14 million people have suffered an income shock over the course of the pandemic, with almost half of those people turning to crisis borrowing to cover essential expenditure. The Money and Pension Service found that 9 million people have had to borrow money in the last year to buy food and to pay essential bills—whether via credit cards, overdrafts or, if they are very lucky, family and friends. According to Standard Life, one in 10 of all households were facing serious financial difficulty, with the majority in arrears on at least one bill.

Loss of income is, of course, at the heart of the increase in debt. StepChange says that more than 19 million adults experienced some loss of income during the pandemic. The package of help from the Government has been a lifeline for so many in crisis, because of lost incomes and loss of jobs. However, welcome as they are, in many ways they are going to simply delay the inevitable because they are expiring or due to expire in September. When the various schemes come to an end, we can only expect the situation to get worse. Some advice agencies are talking about a tsunami of debt. It is a highly dramatic image, but maybe not far from the truth.

We like to think that covid-19 has been a great leveller—that we are all in it together—but the fact is that the increased debt burden has had a disproportionate impact on the least well off and most vulnerable in society. The Institute for Fiscal Studies has found that the poorest 20% of the population saw a decline of £170 per month in their savings during the pandemic, while research from Citizens Advice showed that young people, people with dependent children, black, Asian and minority ethnic people, disabled people and renters were far more at risk of falling behind on essential bills such as council tax repayments. People living in places with average earnings lower than £28,000 a year—such as my own constituency in the Wigan borough, where average earnings are just over £18,000—are, according to the Centre for Cities, significantly more likely to be indebted than the more affluent areas in the south. How are the Government proposing to deal with this disparity?

Families with children have been perhaps the hardest hit of all. Again according to StepChange, one in five parents who has suffered a hit to their income from covid says that they or their children have had to skip meals, ration utilities, or go without some appropriate clothing for the weather. That debt also comes from increased expenditure: families with children, especially those whose children have been at home rather than school, found themselves spending more money, not less, on food and other essentials.

Poorer households who spend the majority of their money on essentials did not experience the drop in non-essential expenditures that others reported during the pandemic, and these people quite often pay more for their goods and services than the better-off. As Fair By Design has demonstrated, a clear poverty premium is in operation. It has calculated that this costs the average low-income household £490 a year and, for more than one in 10 low-income households, at least £780 a year.

Low-income households have also been more impacted by another covid-19 trend, namely the move away from cash. Some commentators speak as if its demise is a wholly good thing, but the fact is that many millions of people rely on cash for daily transactions, especially those on low incomes who see it as an excellent budgeting tool. I am pleased that the Treasury is now consulting on giving the public the legal right to access cash a reasonable distance from their home. I will be interested to see how that will work, and I am sure that the hon. Member for Blackpool North and Cleveleys (Paul Maynard) will have much more to say about the issue. I also welcomed the announcement in the Budget that £3.8 million will be available to fund a no-interest loan scheme. Again, the devil will be in the detail, but the fact is that such a scheme needs to be rolled out quickly if it is to help with the fallout from covid-19.

I have been a vocal critic of the harm done by both payday lenders and rent to own. More recently, we have seen the rise of a new product—buy now, pay later—whose products, I note, have been rebranded as a naughty little treat for women. Research from Which? has disproved the myth that the biggest users of this type of credit are young single women: it found that the biggest group are women with children who have other forms of credit debt and who are using it to buy essential items. The Financial Conduct Authority has said that it will regulate this industry, too: the sooner it does so, the better. I urge the Minister to look at the remit of the FCA to allow it to be proactive when new products emerge that may cause consumer harm, rather than having to wait until harm has been demonstrated. We also need to encourage a savings culture—there could be a whole other debate on how we encourage people with low and fluctuating incomes to save.

I have spoken on a number of occasions about the need to regulate the bailiff industry. With debt to both national and local government increasing during the pandemic, now is the time to tackle this issue. The Government should lead by example by reforming the way in which they recover debt such as council tax arrears, so that local authorities put a clear focus on affordability and fair treatment. We need nothing less than a new debt management Bill to write off historic tax credit debts, embed fairness principles in statute, and establish a bailiff regulator with statutory powers to protect financially vulnerable individuals. I hope the Minister agrees with that.

There are some measures that could be taken to reduce the amount and impact of debt. Enforcement action should be halted for debts built up as a result of coronavirus; non-priority benefit deductions from universal credit should cease; and plans should be brought forward to extend repayments over a longer period, as well as making the £20 uplift to universal credit permanent in order to give people the certainty and security of having enough to live on. Does the Minister agree that removing any money from those on the lowest incomes would inevitably create more debt and hardship?

I also believe that now is the time for a full holistic review of all debt solutions to be undertaken. We need a simple, straight-forward system that, crucially, ensures that people in debt are able to access the solution that best suits their needs. The system has grown in a piecemeal way; we need to fully reform it.

Breathing Space is really welcome, but the 60 days should be flexible to allow people more time to recover if they have reduced income or debts because of covid-19. Other measures that could help include targeted debt write-down of priority arrears—rent, council tax and so on—and longer-term protections so that households can safely address covid-related debts over a more sustainable timeframe.

Some have suggested establishing a special Government fund to provide grants to pay off and cancel all unavoidable debt accrued by households during the lockdown period. Reset The Debt argues that such a fund would make the money already spent on economic recovery worth it for many families, and would release them to be more economically productive in the future. StepChange suggests a covid rent debt fund specifically for private renters, to ensure that the Government honour their pandemic promise that no renter will lose their home. I would be interested to hear the Minister’s views on both schemes.

We also need to better fund our advice agencies, which expect to see an enormous increase in demand for their services once furlough ends. They are now struggling with a serious income shortfall because people have not been visiting them while measures have been in place to mitigate the problems with finance, but those people are building up problems for the future. Such advice agencies offer free debt advice services based on a comprehensive assessment of a person’s situation and then provide practical help and support for however long it is needed. The increase in funding from the Money and Pensions Service is welcome, but applying contract rules rather than grant funding will impose VAT and remove most of that benefit. Could that be looked at again, as it appears to be giving with one hand and taking back with the other?

It would be a scandal if the Government’s package of support merely delayed the onset of unmanageable debt. If we truly want to help struggling people to get back to normal life when the crisis is over, we cannot simply abandon them when support ends.

Just last month, the financial service provider Auden Financial published its “Pandemic Penalty” report, which contained a number of troubling statistics. Some 50% of its clients now have savings of less than £100. The report found that single-parent families are the most likely to resort to short-term loans, and a third of them rely on food banks. The 18-to-35 age group is the most likely to apply for short-term credit, but also the most likely to be rejected. Only half those in financial difficulty have actually made contact with money advice providers. Surely those who turn down those borrowers need to do a better job of signposting them to the help that they clearly need.

All those statistics show just what an endemic problem debt is in this country as we reach, I hope, the end of the covid pandemic. It is no wonder that people find themselves in financial crisis when the unexpected strikes—from a fridge no longer working to a family bereavement. I congratulate the hon. Member for Makerfield (Yvonne Fovargue) on securing the debate and setting out such a broad spectrum of views and considerations.

Debt advisers do a fantastic job, as the hon. Lady said. I welcome the increased funding from the Money and Pensions Service, but I am also aware that debt advisers may not have the specialist knowledge needed to interrogate tax debt and to ascertain whether or not debt that an individual is informed about is actually owed in the first place. TaxAid and Tax Help for Older People, two charities that help with tax cases, looked at the data from 66 cases on their system from August 2019 to just before the covid pandemic started. The total debt for those 66 cases when they first approached TaxAid was more than £230,000. After Tax Aid had done its work, only £46,000 of that debt remained: only 25% of what was originally cited.

To me, that illustrates powerfully the point that checking that a debt is owing in the first place should be the first step. However, that requires specialist tax knowledge rather than general debt knowledge, which is relevant to the latter stage once the actual amount of the debt is established. It is all very well for us to have the finest system in the world for arranging debt repayments and dealing with debt, but why do we not aspire to similar excellence in checking whether debt is due in the first place?

Like the hon. Member for Makerfield, I welcome the introduction of the Breathing Space initiative, but, as the We Are Debt Advisers network has observed, 60 days may not be long enough to exhaust all other potential sources of income, particularly when we can see that Department for Work and Pensions decisions around extra benefits, such as the personal independence payment, are taking far longer than 60 days. Can the Government look again at whether they can be more flexible about that 60-day period, to recognise when people are in the process of securing extra income?

May we look again at debt relief orders? As a former Minister for legal matters, I know that such legal instruments can be made available and charged for only on a cost recovery basis. Some £90 to obtain a debt relief order is a burden on those already in debt. I would welcome a proper Government review of whether that truly represents nothing more than cost recovery.

On the issue of the no-interest loans, which I very much welcome—not least because of my interest in reforming local welfare assistance schemes—may I ask what progress has been made? In my view, this should not be rocket science. The original idea came from Australia, where Good Shepherd Australia has been operating microfinance for many years. To introduce it here must be a matter of cut and paste, rather than starting from the beginning to build a programme from scratch. This type of project is important, because the cost of replacing white goods is terrible for many families, who fall into debt as a consequence. We need only listen to the Liverpool-based End Furniture Poverty campaign and look at the pilot schemes that Fair4All Finance are launching to tackle what they term “appliance poverty”.

With so many people living in unfurnished, private rented properties and on low incomes, over 1 million people are lacking either a cooker, fridge freezer or washing machine. No cooker may mean a focus on costly takeaway meals for those who are time poor and no washing machine might mean a £7 trip to the launderette for a single load of washing. Getting into debt to pay for these essentials is simply not the answer.

If we are to tackle the issue of problem debt more fundamentally, we must also address the tools that people choose to manage that debt through the various forms of credit open to them, often at the highest cost to those with the greatest debts. That means the Government have to react promptly to the Woolard review, which looked at the wide picture of financial resilience, rather than just the promise of regulation for buy now, pay later that much of the media fixed on.

That wider objective should be helping those in debt out of it, and preventing those just about managing from going into debt in the first place. As Theodora Hadjimichael, chief executive of Responsible Finance, said recently,

“Withdrawals from the subprime market mean a vacuum in access to credit. Without responsible lenders stepping in to fill it, the options available to individuals who need to plug a gap in income or pay for one off expenses may become increasingly dire”.

That is very much the situation I believe we are looking at. At the moment, the least well-off are disproportionately penalised within a poverty premium that sees them subjected to higher insurance premiums and a much smaller range of affordable credit products, if any at all exist for their particular financial circumstances.

I do not believe the answer is a whack-a-mole approach that knocks out every credit option one by one. People on whatever level of income should be able to choose to pay for goods using credit, including buy now, pay later. The challenge is to ensure that those products are transparent and affordable. We need to move the focus to the behaviour of the borrower over a lifetime—looking at all their borrowing, rather than just a single test of their credit risk or a single affordability assessment. People might be able to afford a loan at a particular point in time, but then be hit by a family bereavement, which ends up changing their entire financial situation. Doing that requires much speedier progress on open banking than we have seen so far and for our lenders to see a wider picture of spending habits.

We also need greater diversity in the market. Community, voluntarist solutions exist but cannot be scaled up quickly. The arguments get quite techy quite quickly—community development, financial institutions, FinTech and how the Financial Conduct Authority regulates the sector. It is much harder to get political purchase here because it gets so complex. MPs get stuck into a “something must be done” rut that expresses itself in attempts to stop things rather than starting better alternatives.

The Government have introduced initiatives to help people build up their savings, but the payroll-based Help to Save scheme is not as transformative as it could be and perhaps needs supercharging. There are a numerous savings schemes for those on lower incomes, but all are voluntary and do not have people nudged into them in the way that occurred with workplace pensions. Ministers have spoken of replicating the contracting-in model of the workplace pensione scheme to create what are known as sidecar savings schemes for those in work. What is actually happening with that?

We need to offer a route to asset accumulation for everyone, and those in poverty three years in three should have access to the same nudge as everybody else to start building their own safety net, which would be their first recourse if misfortune struck. Government support for that nudge would reduce demands on other streams of Government welfare assistance and create a pathway out of indebtedness. So yes, we need to deal with today’s covid-related debt, but we should use this opportunity to fashion new approaches that enable a better credit market and better systems to deal with those who will inevitably, sadly, fall into debt. We will never have a world without debt, but we can help to prevent people from falling into debt, help people out of that debt, and above all create a world without destitution. That should always be our first goal as a responsible Government.

It is a pleasure to take part in the debate, and I pay tribute to the work that my hon. Friend the Member for Makerfield (Yvonne Fovargue) has done on these issues for many years.

I agree with every word from the hon. Member for Blackpool North and Cleveleys (Paul Maynard); I fear that consensus will break out in the House on the need to act. Whether we have different ideas on how we should act may be another matter, but I think the concern that debt has been the quiet winner of the covid crisis is widely shared across the House. The two excellent previous speeches reflect that. The talk of people saving more may well be true, but we know that, in our communities, many people are drowning, not waving. Frankly, they were already in deep water before the pandemic hit.

The two previous speakers gave some excellent statistics on the debt in our country. I am mindful that StepChange tells us that more than 19 million adults have experienced a loss of income during the pandemic, while 11 million people have built up £25 billion of arrears and debt—not because they have been sat at home ordering consumer goods to entertain themselves, but to pay for essentials. As we know, those debts are not equally distributed within our communities. In particular, renters, those from minority ethnic communities, and women and mothers, as Women’s Budget Group research shows, have borne the brunt of the debt crisis that is building up in our communities. In April, a quarter of mothers from black and ethnic minority community backgrounds reported that they were struggling to feed their children, and 32% of young women said that they were finding it hard to pay for essentials.

So, the question for us all is, what are people doing to make ends meet? Some 26% of those affected by coronavirus have borrowed money to make ends meet, most commonly through credit cards or an overdraft facility, and a million of those people have used some form of high-cost credit product. Crucially, Citizens Advice research also shows that people from shielded groups are four times as likely as others to be behind on utility bills such as council tax.

Understanding the nature of the credit tsunami that is coming towards us due to the debt that underpins our economy and underpins the response to credit is vital not only for people’s individual lives, but for our public sector. The reality is that research increasingly paints a grim picture for many of our constituents. Some 48% of consumers told the FCA review of high-cost credit that they had to cut back on other spending to make their loan bills, while 37% said they missed payments on their rent or mortgage or on utilities, with council tax the top payment that many are forgoing. Some 16% of customers reported that their most recent borrowing was to repay debt that they had already taken on. People were being drawn into a spiral whereby they were borrowing from Peter to pay Paul, from Paul to pay Sarah, and from Sarah to pay Peter.

The truth is that this is not a new phenomenon in our country. We have always had an economy that was increasingly reliant on consumer debt, and we have always had millions of people for whom that reliance was toxic. As my hon. Friend the Member for Makerfield set out so well, it is very expensive to be poor in this country. Credit cards and high-cost credit, whatever form it takes, are expensive for people on low incomes. Indeed, a sub-prime credit card costs around £200 more a year, and personal loans cost around £500 more a year. The issue is not just about the credit that people can access, but about the way utilities are sold. Being on the best energy pre-payment tariff could still be £131 more expensive than the best online-only tariff.

We must not be complacent—I know the Minister is not—and we must not encourage a consumer spending bubble. I urge the Treasury to change tack and be like the Grinch, but for good cause, owing to the problems in our communities. The debt advice services tell us that they have not yet seen hundreds of thousands of people coming to them, but we know it takes time for people to get to the point when they admit that they need help. The true impact of the pandemic on debt advice is yet to be seen, although we are already seeing some incredibly worrying trends. The Financial Wellness Group tells us that around 24% of the customers it has advised on utility debts each owed about £1,000 in arrears, but that has risen to £2,000 over the last year. We can see that when people seek help, they are already in a position whereby it is much more difficult to help them. In particular, they flag up housing costs.

I recognise the point about incomes made by my hon. Friend the Member for Makerfield, but I represent a community in London—supposedly an affluent area—that has the 10th-highest level of child poverty in the country due to the cost of housing and of keeping a roof over people’s heads. We must focus on the poverty that we see in our communities and on the impact it has on people’s spending. With the eviction ban ending, with no end in sight for high rents and with no action taken on them, it is clear that people will struggle to manage the cost of trying to stay in the community where their children go to school and where they can be as close as possible to whatever work they can get, especially if they have experienced unemployment during the epidemic. Indeed, the Financial Wellness Group tells us that more than one in three customers to whom it has provided free debt advice have had negative disposable incomes—their priority living costs exceed their income. For many of those people, it is about housing costs.

Like others, I welcome the Breathing Space process, but I believe we need to have a much more fundamental rethink of how we help people to manage their finances and how we put consumers front and centre in what is often an unfair fight. I recognise the point made by the hon. Member for Blackpool North and Cleveleys about not taking a whack-a-mole approach, but I hope he will forgive me if I take a bite out of some legal loan sharks that I have been concerned about and spoken about to the Minister for some years now—the “buy now, pay later” industry, which has been one of the overall winners in the pandemic.

Since the pandemic started, there has been a massive increase in people using “buy now, pay later”, because they have been able to do online shopping. It has even been suggested that £1 in every £4 spent last Christmas was “buy now, pay later”. Several years ago, few of us had heard much about that industry. It is now huge.

As my hon. Friend the Member for Makerfield said, the impression being given is that the issue is all about fast fashion and young women buying too many pairs of shoes, but the brutal reality coming from the research is that it is not about that at all. People are using the options provided by websites to make ends meet because there is too much month at the end of their money. In particular, families are suffering and having to use that form of credit. As my hon. Friend said, the Which? research is incredibly compelling. People are using “buy now, pay later” to access credit at a stressful and challenging time in their life—for example, when they face redundancy, or when they might not have been able to access help because they are one of the 3 million excluded in our country, in particular those who have children to keep clothed, fed and warm.

Missing a credit bill or payment can be a major life event. The odds of using “buy now, pay later” go up by about a third when someone is made redundant, has a baby or has to move because they can no longer afford to live in their home. We know that, as a result, those people’s credit records are affected. We know they have been referred to debt collection agencies and that they have experienced mental distress. We know that it does not have to be that way.

I welcome the fact that, over the past year, the debate has changed from the idea that this is somehow just a new wacky way to use the internet to shop more simply to a recognition of the damage and the danger that this form of credit, which is unregulated—and still is unregulated today—represents. The FCA report was clear about that.

We know from Citizens Advice that almost 40% of people who have used “buy now, pay later” did so without realising, as a lot of the retailers push people to use that as the first option on their sites because they are officially paying the fees for it. Almost the same number of people thought it was not proper borrowing and really did not understand what they were signing up for. If we consider the research from the Money and Mental Health Policy Institute, which shows that 3 million people with mental health problems have found it much harder to control their online spending since lockdown, in part because of the design of online retail sites, the need for urgent action grows ever stronger. As I have repeatedly said to the Minister, we have to learn the lesson of the payday lending industry. We did not act quickly enough, so even now we are seeing millions of people who still have problems as a result of borrowing seven or eight years ago through payday lenders.

The public know that we need to act because they do not believe the adverts. They know this is a problem. Indeed, the Hastee Workplace Wellbeing Study showed that 59% of workers had applied for high-cost credit knowing that they would struggle with repayments, but feeling that they had little option. Yet over the past couple of months, rather than the industry recognising its responsibility to its consumers and recognising the support from across the House that the Government would have for regulation, we have seen it simply changing the wording. Such entities no longer call themselves “credit”. They call themselves “a money management tool”. They offer debt advice themselves. It really is turkeys talking to us about how going vegan at Christmas is a good idea. The industry is moving quicker than the Government. That is why I urge the Minister, when he knows he has cross-party support and when he has the evidence, that there should be no further delay in regulating those companies on the issue.

We need to tackle the way in which the companies see affordability. It is clear from the evidence that their definitions of affordability are not ones that we accept in other industries. We need to challenge the product design and how those companies are evolving so quickly to evade what is commonplace evidence about credit regulation—many of the things the Advertising Standards Authority has tried to pick them up on. However, they are moving quicker than Government. We need to make sure that we have a proportionate regulatory process.

One of the things I am extremely concerned about is hearing Ministers suggest that somehow these companies would not have to follow the same rules around credit regulation as other companies, as if they were special and as if they were not as bad as some others. There are two things about that. I hope the Minister will set out for us why he thinks there might be exemptions. What particular elements of our consumer regulation would he not apply to “buy now, pay later” industries? Why does he think that would not create a race to the bottom across the consumer credit industry, as companies variously tried to argue that they were not the bad guys ripping off our constituents? Has he spoken to the Competition and Markets Authority about this? Setting out a situation whereby we allow companies to pick and choose which regulations they abide by is not going to help our constituents.

On that point, I agree with my hon. Friend the Member for Makerfield that we need to review the FCA. The failure to act quickly enough on Wonga, BrightHouse and Amigo Loans is an example of why we need the regulator to be better. Too often, the Financial Ombudsman Service has intervened on behalf of our constituents, rather than the regulator, which has been working with the companies. It is right to review now the FCA and whether it is working effectively, when people are without the compensation they are due from those companies, many of which have gone bust. Some people are not going to get the compensation they are entitled to, but they are also being chased by the creditors of those companies because they owe the companies money. Something is fundamentally wrong in that balance.

Finally, I again agree with the hon. Member for Blackpool North and Cleveleys that we need to ensure that there are good credit options, which is why I urge the Minister to talk to his colleagues—not just in the Treasury, but in local government—about our credit union movement, which is on its knees as a result of the pandemic. As a proud Co-op MP, as well as Labour, I believe that social finance initiatives are critical to helping people out of this crisis. Minister, the people who are drowning, not waving, need us to offer more than a life raft such as Breathing Space. They need us to deal with all these legal loan sharks, which are circling them and pulling them down—once and for all, in truth. The Minister will have my support, and I know the support of Members across the House, if he takes that robust, proactive approach, but right now all we can see is more fins in the waters ahead.

It might help Members to know that five Back Benchers want to get in before I have to call the Front Benchers at half-past the hour; if people keep their remarks to five minutes or less, we will get everyone in.

I congratulate the hon. Member for Makerfield (Yvonne Fovargue) on securing today’s debate.

Being British, we do not tend to talk much about debt, or money issues at all, but I showed an early interest in the subject by explaining to my first primary school teacher that my parents were worried about their overdraft—I think my parents were most surprised to have that discussion at school.

Debt in whatever form is a worry. I have direct personal experience of it, and of the invaluable support available from charities such as StepChange and from our churches through organisations such as Christians Against Poverty. I have a maths degree, yet when I lost my business, I still needed help to sort through creditors, understand which bills really were essential, properly to sort out my budgeting and to get my finances back on track.

As the pandemic has progressed, our understanding of exponential growth has also improved. One suspects that this is the same growth rate for both the number of our constituents in debt and the debt they carry. I already have constituents being evicted because of rent arrears and, as there is no temporary accommodation in North Devon due to the surge in the number of holiday lets, the nearest is up to 100 miles away in Bristol. That is clearly unacceptable, as local people will be uprooted from their communities.

Debts have built up where rent or council tax has not been paid, and through credit cards and overdrafts being used to buy everyday items to make ends meet. Far too many families do not have savings for a rainy day, and the pandemic has been positively torrential. As a former maths teacher, I find alarming the number of people who do not understand compound interest or who are unable to budget, which I think stems from not having enough financial education at any stage of the school curriculum.

Given the scale of the issues with which so many families living in our constituencies are dealing with, we need to put extra resource in debt management and give people and companies more time to get their businesses back up and running after the last year and a half of restrictions. Although we did an excellent job deploying extra staff to help to get those who needed it on to universal credit at the start of the pandemic, I worry that we have not seen a comparable increase in the number of debt counsellors in our excellent citizens advice bureaux, for example, so that new claimants could turn their finances around.

While the focus is rightly on getting people back to work, we need to recognise the level of debt that they might have built up during their time not working. Many vacancies are becoming available for jobs that might not pay enough to cover that additional debt on top of a family’s cost of living. Many people have had to retrain and are starting again. We should encourage them back to work by doing everything we can to help them to spread out their repayments and balance their books. Many people who moved on to universal credit during the pandemic will have also found that they have historical tax credit debts, which they now have to repay, along with any advance they may have received ahead of their first universal credit payment.

Universal credit is a working benefit, so many claimants are working, and while additional hours might now become available for some families, for others the numbers do not add up. Although I have heard and understand all the arguments as to why the £20 temporary uplift to universal credit will end in September, I hope the Minister will have some explanation as to how families who already cannot make ends meet are supposed to do so when it goes. For many families who are unable to work, the uplift may represent 20% of their weekly income. How many people have household budgets that will tolerate a 20% drop in income?

The pandemic has already produced a health crisis, and the debt crisis it is generating cannot simply be brushed away by us hoping that everyone can work their way out of it. Many can and will, but debt accumulates. The impact on mental health is devastating, but the relief of resolution is immense. I urge anyone worried about debt to seek advice as soon as they can. I did not become an MP to see families in my North Devon constituency and across the country become destitute. Levelling up, to my mind, is about ensuring that everyone, in every community, has a fair chance to get ahead and that our economy raises the standard of living for everyone. I fully recognise how much the Government have already spent and the work undertaken by the Treasury team to save businesses and jobs. We are now a nation in quite a lot of debt, but we know it will not be repaid immediately. With so many families in the same position, can they not be afforded the same luxury?

Debt and poverty are about families and people. It is not about the billions we have already spent or how much it will cost to give those people a leg-up; it is about doing the right thing to help those families to build back better. The Minister knows as well as I, albeit on a macro level, that debt cannot be repaid if outgoings continue to exceed income. We cannot allow bigger gaps to open up in our society. That is not levelling up, which the Government set out to do. I hope we can still deliver.

It is a pleasure to serve under your chairmanship, Mr Bone. I thank my hon. Friend the Member for Makerfield (Yvonne Fovargue) for the securing this important debate and for her brilliant contribution.

Although the Government trumpet the billions spent so far during the pandemic on support such as on furlough and business support grants, we all know that millions have been excluded from support, or worse, have lost their livelihoods. As each day goes by, many fall further and further into debt. As we have heard, StepChange estimates that between the start of the pandemic and March this year, 11 million people built up £25 billion of arrears and debt. Unsustainable household debt is not just devastating for those involved; it damages the economy. Economic activity declines as households in debt cut back their spending, and the banking system is affected when there are loan defaults. Without a clear covid recovery plan that tackles the household debt balloon, our ability to recover economically from the pandemic will be in peril.

I will outline briefly a few elements that I would like the Minister to consider. For immediate support to repay council tax and rent debt, the Jubilee Debt Campaign and other organisations advocate providing grants directly to households to help clear rent debt and council tax arrears. I agree with other speakers that the £20 uplift in universal credit must be maintained and should be extended to those on legacy benefits. There must be an emergency grant for the millions who have been excluded from any Government support and complete parity with the extension of the coronavirus job retention scheme and the self-employment income support scheme. Payments for those excluded should also be backdated.

To manage long-term debt, the Government must first remove barriers to insolvency procedures such as debt relief orders. There should also be fair debt write-down. Many lenders sell on their problem debts for a fraction of their value, only for debt collectors to enforce them at their full value, which places debtors under increased and unnecessary pressure. The Government could tackle that by creating a consumer version of UK Asset Resolution, the public finance company that was set up to purchase problem debts from the banks during the financial crash. Such a public vehicle would allow the offloading of many problem debts, to be refinanced at affordable rates for borrowers. Only the Government can borrow at low interest rates to make that happen effectively.

Finally, is the option of a debt jubilee must be examined —writing off some debts for households and businesses that will simply never be able to repay them, even at more affordable rates. Even former Chancellor George Osborne has called for all coronavirus emergency debt taken out by small and micro-businesses to be forgiven. In practice, that would need to be carefully and strictly limited to specific types of problem debt. An example of how it could work is if a lender decided that an outstanding loan was simply not going to be repaid, they could discharge the debt and be offered a tax break in return.

The Government must heed the warning signs. Responding to the growing covid debt crisis is not just morally the right thing to do, but essential if we are to have any chance of rebuilding our economy as the pandemic ends.

It is a pleasure to serve under your chairmanship, Mr Bone. I thank the hon. Member for Makerfield (Yvonne Fovargue) for securing this important and timely debate.

I am not alone in seeing the impact of covid-19 on household debt in my mailbag and through surgeries. I suspect I am also not alone in this place in seeing the divergence between those who have managed over the past year to cut their costs and increase their savings and those who are just about managing, who now find themselves in an even more perilous position. Data from the Office for National Statistics backs that up, with evidence that some households, particularly those with low incomes, have run down their savings over the past 12 to 18 months and increased their debt during the pandemic. We have to be keenly aware of that divergence as we emerge from covid.

As I walk around Barrow, Dalton or Ulverston in my constituency, I see the households that have spent some of the past year fixing up their gardens and houses—I have to say that I am a little jealous of them—and those who have allowed their houses to fall into disrepair. Of course, it is no official measure, but it is clear that in the same streets we are seeing families rubbing up against each other, some of whom are thriving and some of whom are struggling. Renters, parents, carers, disabled people and many of those who shielded over the past year are the people we must ensure are not left behind as we move through covid. We must be ready to ensure that that schism is not permitted to widen further or their debt burden to increase even more.

I pay credit to the Government for their significant efforts to support families through the pandemic. Furlough, the universal credit uplift, the national living wage increase, the local housing allowance uplift and the hardship fund are all measures that have not just kept families afloat but kept them going in these uncertain times. Extending the UC uplift was the right thing to do. I am grateful to the Chancellor and his team for listening to Back Benchers such as myself when we made the case for it, but we are about to go into a period of uncertainty. I would be very interested to hear the Minister’s views on what a further extension of that programme might look like and how it might support vulnerable people.

We are right to focus on jobs now—getting people into work, earning more and getting the skills they need to get back on the ladder. We should also look at the support schemes that are working and how we can support them. Christians Against Poverty is a great example, as is StepChange. Yet the fact remains that not everyone will be able to make the jump into a job, or to make it as quickly as others. A robust safety net has to be in place to support them, otherwise we are derelict and failing in our duty. The Kickstart and Restart schemes targeted at young people and those at risk of long-term unemployment will be key to that. I pay tribute to the Department for Work and Pensions team in Furness, which is working so hard and with great enthusiasm to deliver those schemes. Only a few days ago, my local DWP team announced that Lisa, our local youth work coach, will be working in a different office—in a place called Drop Zone in the centre of town—alongside local council officers, job providers and others. That visibility and change in circumstances is really innovative and great to see. I want more of that as we try to help those who really need it right now.

We cannot allow household debt to rack up. The Breathing Space scheme is welcome. Many of my constituents have sung its praises to me. It provides important short-term relief, and we must take this time to look at the principles behind it and how we can sympathetically help families who may be building up problem debt. I declare an interest as the former chair of the Barrow and District Credit Union, but I think there is a role that such organisations can and should play to help individuals and families as we emerge from this crisis. I hope that the Government will consider supporting them in order to support our communities more. They are well connected to debt advice charities, they work very closely with the local third sector and, perhaps most important in this regard, they help to steer people away from short-term lenders and loan sharks. In many ways, they are some of the very best parts of our civil society and some of the least known.

You will be relieved that I am coming to the end of my speech, Mr Bone. We have to be alive to the fact that gaps exist, and the road ahead for many of our constituents will be difficult, especially as we try to keep them out of debt. We have to rise to that challenge. Some of the issues related to this topic are crucial; they worry away at the fabric of our society. By focusing on debt, financial exclusion, dependency, loneliness and skills, we are providing people with a ladder. We have an opportunity to make a real and lasting change for those in our communities most in need. We have to grab that opportunity and take it.

Let me try to zip through this so that we can accommodate everyone. I thank my hon. Friend the Member for Makerfield (Yvonne Fovargue) and the hon. Member for Blackpool North and Cleveleys (Paul Maynard) not just for securing this debate, but for the serious work they have put in throughout on this issue. They work effectively on a cross-party basis:

I apologise for straying slightly from that cross-party approach, but I listened to the Chancellor on the “Today” programme this morning and, to be frank, he exuded complacency about the scale of problems and hardships my constituents and many others face. The Chancellor quoted selectively from today’s IFS report and the recent Resolution Foundation report. What he did not say is that the IFS reports that 700,000 more children have fallen into poverty over the last eight years. In my constituency, 42% of children are now living in poverty. What he did not quote from the Resolution Foundation report is the potential for 4% inflation by the end of the year, which will have an impact on those families.

We have to put this in the political context. A series of regressive Government policies will drive this debt and poverty crisis deeper. The scrapping of universal credit has already been mentioned, but we will have the freezing of the income tax thresholds from next April and the 5% council tax rise this year. For people on the minimum wage or working in the public sector, their pay rise this year will be below inflation, leaving them worse off in real terms. It is no wonder that the lives of many of my constituents are plagued by insecurity and stress. This leads many of them to have mental health crises, so I fear that, alongside the covid pandemic, we will experience the equivalent of a mental health pandemic, but it will be quiet and it will often be secret, because the stigma attached to debt is so heavy in our society. That is why I believe that lifting the worry of debt off people’s shoulders has to be a priority, exactly as hon. Members have said.

I welcome the combined briefing we have received from StepChange, Generation Rent and other bodies, which sets out a financial package to support and help tenants to clear covid-related rent arrears. It is a sensible and practical approach, and I hope the Minister gives it serious consideration and also takes urgent action.

The time has come to look beyond the covid-related debt crisis and to address the systemic debt burden that always weighs down so many families in our society. Tackling personal debt, as others have said, has social, economic and health benefits. One solution is to cap interest rates, and other proposals include capping the total amount that can be paid in overdraft fees on interest payments.

I also want to refer to what my hon. Friend the Member for Walthamstow (Stella Creasy) has said. The UK lending market and secondary debt market requires much stronger regulation from the Financial Conduct Authority if we are to protect consumers and businesses. As my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey) said, one wider solution to debt—as proposed by Johnna Montgomerie—could be the creation of a company like UK Asset Resolution, which purchased problem debt from the banks during the banking crisis, to do the same for consumers to clean up their financial situation once and for all.

This has been an important debate and I hope that the Government’s response will be positive. We will need to return to the wider question of systemic debt fairly promptly.

Unsustainable debt destroys lives, marriages and couple relationships, and causes misery to families up and down the country. As in so many areas of life, prevention is always better than cure. That is why we need to start by looking at the reasons why people end up with unsustainable debts.

Dealing with the causes of debt is at the heart of preventing the misery that unsustainable debt is responsible for. The United Kingdom stands as a real outlier internationally in that so many people who start their lives in entry-level jobs end their lives in entry-level jobs. Why is that such an issue for the United Kingdom? Why is it less so for other countries? What can we do about it?

When I served on the Work and Pensions Committee, I was taught about the ABC approach to eradicating poverty. In the Church circles that I move in, that acronym stands for our current wonderful Archbishop of Canterbury but in this context it stands for a job, a better job and a career. That is the mindset that we need to encourage and enable so that people have the opportunity perhaps to go to night school or study at weekends while they work in order to improve their skills and earn, say, £22.50 an hour rather than £9 an hour. That is exactly what the Government’s newly introduced lifetime skills guarantee sets out to facilitate, and what programmes such as the nursing associate scheme enable. Helping as many people as possible to get into work in the first place and recreating that British jobs miracle that the Government have done before is absolutely key.

Secondly, we have to do something about the ridiculous cost of housing for far too many people. That is more of a problem in some parts of the country than others, but I have long been convinced that the unavailability and unaffordability of housing is the root cause of debt and poverty in this country. Of course we need to build the houses we need in the right places and with the infrastructure going in at the same time—we have not always had the best record in achieving that—but quite simply, far too much of people’s income goes towards housing costs, which leaves far too little for food, utilities, clothing, transport and other items.

That brings me on to zero energy bill homes—precisely what we need to do now to expedite our journey to net zero but, equally important, to eradicate poverty now. Yes, we can have a home today where we do not have gas and electricity bills because the house sends more energy back to the grid in the summer than it draws down in the winter. British architect Bill Dunster OBE is already building houses that do exactly that, and no, they are not more expensive than conventional houses.

Financial literacy also matters, and we need to make sure that people have the skills to make sure they do not get ripped off with overpriced deals on all manner of items. We are doing more in this area in our schools, but we need to keep going to make sure that those skills are ingrained among the whole population.

When money is owed to local authorities, it is especially important that a reasonable and compassionate approach is taken. Some people can afford to pay and I have no problem with the full panoply of the law being used against those who can pay their bills but choose not to. Other people simply cannot pay, and local authorities have a particular duty to behave well in those circumstances. I welcome the proposal for an enforcement conduct authority to make sure that bailiffs behave reasonably as well. It is overdue and I look forward to its establishment.

I am also a strong supporter and indeed a member of a credit union, the Chalkhill Blue, in my constituency. More people should use them. For those who are in debt, amazing help is available if only people know it is there and choose to take it up. Over the last year or so, I have watched at close quarters in awe and admiration the work of a debt coach for Christians Against Poverty. I have seen—anonymised, of course—examples of people with debts of £30,000 or so who have become debt-free and able to save a little every month and live within their budget.

The tragedy is that too many people do not know that help is available or do not use it. The citizens advice bureau and the Salvation Army have a similar brilliant service in my constituency, and I am aware of other amazing charities such as Crosslight working in this area as well. If someone is suffering with problem debt that they cannot manage, they should immediately seek help from organisations such as those. Help can be at hand and people can be free of their debts, as many people are able to testify.

Like so many, I begin by paying tribute to the hon. Member for Makerfield (Yvonne Fovargue) for securing this important debate. We can all agree that with many households having suffered a prolonged fall in income as a result of the pandemic and with unemployment rising, the problem of household debt is increasingly worrying, with 14 million people having undergone an income shock over the course of the pandemic.

We have heard much today about the charity StepChange, which I am sure we all want to pay tribute to. That charity has found that 4.3 million people are now behind on basic bills such as rent, fuel or council tax, with 2.8 million people now borrowing simply to make ends meet, accessing high-cost credit that means they are more likely to be locked into a cycle of debt in the longer term. Indeed, 2.4 million people are facing long-term debt problems, which inevitably means that increasing numbers of people will face the threat of eviction and homelessness down the line.

One of the great injustices that people face in every constituency across the UK is having to pay more for their essentials, and we have heard much today about the poverty premium. The cost of accessing credit can be considerable for some people in our communities, trapping them in high-interest debts that so many of them will find difficult to manage and almost impossible to escape. As we work to emerge from this health pandemic, it is very important that inclusion is baked into all essential services, so that the pricing of all products and services is fair to all users. When necessary and appropriate, the Government should regulate the market to make sure that that happens. The poverty premium is simply an unacceptable burden on those who are already struggling. The capping of interest rates is a very interesting idea, and I hope that the Minister will look carefully at it.

As we all look forward to a return to some kind of normality, those who have fallen into covid-related rent arrears face the very real prospect of losing their homes, and some are already facing eviction notices. With household debt linked to covid soaring to crisis levels, the chief executive of the debt charity StepChange has urged the Government to bring forward a long-term vision for those financially affected by the pandemic, to avoid the danger of lasting economic and social damage that will deepen inequality and act as a drag on any economic recovery. If there is to be the kind of covid recovery that we all want to see, it must be a recovery for all of us. We have a real opportunity to use the experience of this health pandemic to look again at how we do things; how we deal with the glaring inequalities that we all know exist; and how we can be more inclusive.

However, we cannot do that when so many people in my constituency of North Ayrshire and Arran and across the United Kingdom have lost their jobs or suffered an income shock that has driven them into debt—sometimes unmanageable debt—to help pay for essentials, which now threats to overwhelm them. Let us be clear: when people get into debt to pay for essential items, that debt is not born of profligacy, but of poverty. With many navigating the income shock that they have suffered and doing the best that they can—not least the 3 million who have been excluded from all financial support by the Government—this is not the time to pull back on the £20 per week universal credit uplift, nor is it the time to withdraw furlough payments before businesses have had the time to properly scale up their operations post-lockdown, which threatens potentially thousands more jobs.

Creativity and compassion are needed to ultimately address the debt and poverty crisis. In Scotland, the re-elected Scottish Government are using all the powers they have to alleviate poverty, which so often drives people into debt. For example, they have reached an agreement with local authorities to introduce universal free school meals for all primary 4 children, starting in August, as part of a £520 support commitment made to low-income families. A further £100 payment was made to coincide with the start of the summer holidays—which, in Scotland, is at the end of June—in addition to the £100 paid at Easter. A new school clothing grant has been announced to help low-income families with the cost of school uniforms: available each year, it has been increased from £100 to £120 for eligible parents with children in primary school, and to £150 for secondary school pupils.

A new £10 million grant fund has been established to support tenants who have fallen into arrears as a direct result of the pandemic. That is a unique scheme established to address this problem and a doubling of the game-changing Scottish child payment and the extension of free school meals in this Parliament, using every power at our disposal to tackle child poverty, which will disgracefully be undermined by the universal credit cut of £20. It is the kind of creative response that we need in order to help hard-pressed families. As the Scottish Government use all the limited powers that they have to address these issues, how much more could the UK Government do, with their control over a full gamut of powers, to create a more equal and socially just society? If that does not happen, the substantial inequalities that we currently see all around us will become even more marked, making our society less cohesive.

We are sitting, as a society, on a debt time bomb. In every constituency across the UK, people are living with constant worry about debt that they simply cannot see their way clear to paying off, not because they have been profligate or are living an enviable lifestyle, but because they have suffered an income shock through no fault of their own. They still need to feed their children, to consume energy and to pay for essentials. It is important that support is put in place for such people. Alongside this, the current plans to start withdrawing support, such as the universal credit uplift and furlough, are very worrying, as that can only exacerbate the current pressures and hardships that so many people are facing. I therefore urge the Minister to look carefully at all the concerns raised today and to bring forward the measures necessary to mitigate the misery that debt causes to families and, ultimately, wider society. Otherwise, the mantra of “building back better” will be empty and hollow words when so many are left behind.

Thank you for your chairmanship, Mr Bone. I begin by paying tribute to my hon. Friend the Member for Makerfield (Yvonne Fovargue) and the hon. Member for Blackpool North and Cleveleys (Paul Maynard) for tabling this debate. I also welcome the contributions from all the right hon. and hon. Members who have taken part.

As my hon. Friend the Member for Makerfield said at the start, any consideration of the pandemic’s impact on household finances and debt has to take into account not just the overall effects that we are hearing about, but the impact on particular income groups. In this case more than many others, averages and overall outcomes can conceal very different outcomes for different groups of people. For those on secure incomes who have continued to be paid their full salary—or most of it through furlough—long periods of lockdown and the inability to spend on travel, tourism and so on during the pandemic have resulted in rising levels of savings. We hear some big numbers from the Bank of England—up to £200 billion in the course of the pandemic. That of course has led to a big increase in bank deposits, not only in this country but in most developed countries.

However, behind the overall figures lies a tale of two cities—or perhaps this week, we should say “a game of two halves”. The biggest increases in savings have come for those who were better off in the first place and for retirees. Those on low incomes and the unemployed have seen savings decrease, and that is if they had any savings at all in the first place. For many people on low incomes who had nothing to spend on holidays or restaurants in the first place, the cost of essentials has gone up over the past year. Families have been spending more time at home. That has seen heating bills rise. There have been increased food bills from children spending long periods off school. And there have been other extra costs.

This morning’s report from the Institute for Fiscal Studies says that the proportion of low-income households in arrears with their bills rose from 15% to 22% in the early months of the pandemic. Among the self-employed, the rise was even more stark. The proportion of the self-employed falling behind on household bills rose from just 2%, at the start of the pandemic, to 13%. There was also a rise in this figure among some ethnic minority-led households, where often there is just one income earner.

The charity StepChange, which we have heard a lot about today, reports that 11 million people have built up debts of £25 billion during the pandemic and that 4.3 million are now behind on things such as council tax, rent and fuel. It reports a 40% increase in the number of people facing severe debt problems, and that half a million private renters are now in arrears—that is twice as many as before the first national lockdown—at a time when the ban on evictions has just come to an end. Combined, those effects have led to the campaigning organisation Generation Rent to fear that thousands of tenants could face eviction just as the country tries to emerge from the pandemic. The number of renters on universal credit has already doubled during the pandemic.

There has quite rightly been a focus on universal credit today. I acknowledge that the Government’s support has helped household incomes during the pandemic. The furlough scheme, grants for small businesses and the £20 a week uplift have all made a big difference until now, but as even the Prime Minister confirmed earlier this week, although restrictions will be lifted in the coming weeks, we cannot say the pandemic is over.

That is why six former Conservative Secretaries of State for Work and Pensions have taken the step of writing to their own Chancellor to say that the £20 a week universal credit uplift should not be withdrawn in September. Their letter says:

“A failure to act would mean not grasping this opportunity to invest in a future with more work and less poverty and would damage living standards, health and opportunities for some of the families that need our support most as we emerge from the pandemic.”

That is what the Chancellor’s own former colleagues are saying. Going ahead with this cut would mean a loss of £1,000 a year in income for 6 million of the lowest income households in the country.

On the radio this morning the Chancellor tried to justify the cut by referring to incentives to work. Leaving aside the callous implication that poverty has to be increased to persuade people to work, we have to remember that two in five universal credit claimants are already in work, and the proportion of in-work households dependent on universal credit is expected to rise over the course of this Parliament. It is a myth to portray universal credit as just an out-of-work benefit. It supports many people who are in work, too.

The regional impact of the proposed £20 a week cut is deeply uneven. In the region I represent in the west midlands, the cut is expected to hit one third of households. Similar proportions of households will be affected in Yorkshire and the north-east. How can the Government talk about levelling up when they are about to proceed with a cut in income that will hit the poorest hardest and will hit the north and the midlands hardest? Equality is not just about a few new buildings or a few pots for capital spending; it is about incomes and opportunities, too. It is not just about bricks and mortar; it is about families who are struggling to pay the bills.

Although some of the Government’s interventions have made a big difference overall, for some people the past year has meant debt increases and a big strain on household budgets. It would be grossly complacent of the Government or anyone else to look just at the overall figures and averages. The Government must get underneath these figures and consider the impact on those who have the lowest incomes. In particular, the Government should reconsider the cut of £20 a week that they plan to make for the 6 million poorest households in the country in just a few months’ time.

This issue, perhaps more than any other, points to the need to come out of this pandemic in a better position than when we went into it. We need to tackle inequalities, which, although not created by the experience of the last 18 months, have certainly been exposed by it. We have to be more ambitious than just trying to recreate what went before. If build back better means anything, it means tackling some of those problems and building something that really is better for the future. That is what we have to do, starting with household debt.

It is a pleasure to serve under your chairmanship, Mr Bone. I congratulate the hon. Member for Makerfield (Yvonne Fovargue) and my hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard) on securing this debate. I know that both Members care a great deal about the question of how best to protect the personal finances of the most vulnerable. They have made many valuable contributions in Parliament on this matter, including through the hon. Lady’s role as chair of the all-party parliamentary group on debt and personal finance and my hon. Friend’s Local Welfare Assistance Provision (Review) Bill, which has been mentioned today.

I thank all Members who have contributed this afternoon for their deeply thoughtful and considered speeches, especially my hon. Friend the Member for South West Bedfordshire (Andrew Selous). Our thinking may diverge in some areas, but I believe that there is a great degree of commonality between us. We have a shared desire to tackle problem debt and a shared understanding that this complex issue cannot be wished away with quick fixes, much as we might like it to be. We also have a shared recognition that we must tackle this issue strategically. As a number of Members highlighted this afternoon, the covid-19 pandemic has meant that action in this area is required now more than ever before.

The Government have responded to the crisis with one of the most comprehensive economic plans in the world. I reject the assertion that that somehow means that there is a degree of complacency: that is not the case. With the furlough scheme, the self-employed income support schemes and substantial welfare support, including the £20 universal credit uplift, a suspension of the universal credit minimum floor and an increase to local housing allowance rates, the Government have sought to make a range of interventions across society. I believe that that plan is working.

We also recognise that even when the economy bounces back, and there are very encouraging signs in that direction, there will still be people living in fear of a knock from a debt collector or another payment demand. That is why we have introduced the numerous policies that have been mentioned this afternoon. I would like to respond to Members’ points about the policies that we have introduced to help people escape debt. As has been highlighted today, we are maintaining record levels of funding for free debt advice in England through the Money and Pensions Service this year, with a budget of £96.4 million. I recognise that there is still some uncertainty about the nature of that demand as people’s situations become clearer, but that includes funding for the Money Adviser Network pilots, which simplify access to debt advice. I am pleased to say that more than 40 different creditor organisations are now signed up, including HM Revenue and Customs.

I recognise hon. Members’ concerns about the complexity of tax debts, but consumers referred via the network will first have a conversation with an HMRC adviser, which should minimise the risk of misunderstanding over what is owed. The Money and Pensions Service budget also includes funding for the administration of debt relief orders. A number of colleagues have raised that this afternoon. We know that DROs can be an important solution for some, which is why we worked closely with the Insolvency Service to raise the monetary eligibility limits for DROs from the end of last month, a step that will help more people take advantage of this valuable option.

I recognise that some Members would like the Government to review the £90 DRO fee, as the Woolard review recommended earlier this year. I acknowledge those concerns but the Government believe that further changes to DROs should not be considered in isolation. A number of Members have made the point that we need joined-up solutions, so we will undertake a wider consultation on the personal insolvency framework. We will in due course launch a call for evidence to help us gain a deeper understanding of the situation.

I want to talk about Breathing Space. The steps we have taken are significant, because we recognise that the barrage of letters, calls and bills can be overwhelming, leaving borrowers unable to tackle what they owe. We launched the Breathing Space scheme on 4 May, just two months ago, whereby lenders agree to hold off fees and payment requests for 60 days. That relieves the pressures on borrowers and gives them time to tackle their finances with the support of a qualified debt adviser.

I will address the point, made by several Members, about whether 60 days is long enough. We believe that that period finds the right balance between debt advice, clients’ interests and their creditors’ rights. It has only been there for two months. However, we should also recognise that greater flexibility is built into the system for those experiencing mental health crises, reflecting the nature of the treatment and the challenges that might arise in supporting those clients. We will use a similar model of respite from bills and demands for our statutory debt repayment plan, which is currently being developed to work alongside the Breathing Space scheme. Under the plan, people struggling with problem debt will enter into formal agreements with creditors to repay their debts over a more manageable timeframe. Our aim is to lay legislation at the end of next year and introduce the scheme thereafter in 2024.

As my hon. Friend the Member for Blackpool North and Cleveleys so aptly put it, debt should not mean destitution. Income that could be spent on essential items, such as cookers or washing machines, or that could build savings, should not be swallowed up by sky-high interest rates. Fair and affordable credit should be available to all those who need it. I will turn to our work in this area. As has been highlighted, at the Budget we announced plans to provide up to £3.8 million to work on a pilot for no-interest loan schemes. I care passionately about this area, and I think it could make a real difference to many vulnerable people’s lives.

I note my hon. Friend’s comments about a cut and paste from Australia. He is right that we can learn a lot from the equivalent Australian scheme, especially in terms of partnership. Their scheme has been so successful because hundreds of socially minded organisations have played their part alongside the Government. We hope to follow that model and develop a scheme that is sustainable and properly supports vulnerable customers. I hear the urgency around that, and indeed I spoke to my officials just yesterday about securing an update on it in the coming days. Our next step is to appoint a delivery organisation with suitable expertise. Further details will be announced soon.

My hon. Friend is also correct to point out that greater market diversity is critical if we are to achieve our goals in this area. That is why we have used a significant part of the £96 million dormant assets scheme—money that would otherwise have remained idle—to boost financial inclusion. We have also committed to legislate to enable credit unions in Great Britain to offer a wider range of products and services; my hon. Friend the Member for Barrow and Furness (Simon Fell) mentioned his involvement in a credit union. There are, I think, 411 credit unions across the country, of wide and varying expertise. We have worked closely with the Association of British Credit Unions Ltd, one of the significant trade bodies for credit unions, to develop that approach. While legislation will play an important part in widening access to affordable credit, innovation is also key, as some Members picked up on. That is why, in this year’s Budget, we announced a number of actions in response to the independent Ron Kalifa review into FinTech, including measures to make it easier for firms to attract staff and develop new concepts.

I will make a final point on two other issues that I know are of real interest to contributors this afternoon. First, it is true that buy-now, pay-later agreements can be a helpful way of managing finance, but we need to make sure that consumers are protected. As we indicated during the passage of the Financial Services Act 2021 earlier this year, we will bring buy-now, pay-later under regulation, as the Woolard review recommended. However, any future regulation must be proportionate so as not to fundamentally damage those products that are innovative and low cost. There is a distinction between smoothing lumpy expenditures and multiple, unsustainable deferred payments. We must get that right, but I recognise the urgency around it.

I appreciate the positive words about our recent “access to cash” consultation. I assure Members that the Treasury is working closely with the private sector—indeed, I had meetings just this morning—to ensure that we get that right, and that cash services are provided for people in an environment where the use of cash is diminishing significantly.

I reiterate the acknowledgment that there is a real desire to provide urgent help to those who are dealing with significant debts. I share that strength of feeling, as I hope my track record in this role demonstrates. It is vital that these policies improve the lives of as many people as possible, so I welcome the range of speeches this afternoon and the constructive spirit that was relayed in many of them. I look forward to further collaboration to deepen and improve our interventions in this area.

Thank you for your chairmanship this afternoon, Mr Bone. I thank all the Members who contributed for their passionate, well-informed speeches on this issue, and I thank the Minister. Many good initiatives have been put forward, but there is a lot more that we can do. We do not want the debt crisis to turn into another symptom like long covid—a long debt crisis. We need to turn this into an opportunity. There are opportunities—to remove the shame from debt; to look at the causes of debt; and to look at creative solutions, many of which have been mentioned this afternoon. Not all of them should be loans. There will be a need for grants for people who are so mired in debt that they cannot see their way out. There is an opportunity to look both at how we can prevent debt and how we can help those who fall into debt.

I fear that if we do not seize those opportunities we shall be back here repeatedly, having this debate for many years ahead. While we debate this subject in Parliament, my constituents and people across the country will be suffering. As my hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard) said, they will be finding that debt has turned into destitution, and that is something that we all need to be aware of.

Question put and agreed to.

Resolved,

That this House has considered the effect of the covid-19 outbreak on household debt.