My Lords, the regulations before us today will establish a breathing space scheme for individuals who live in England and Wales. This is a temporary period of respite from creditor action to help people in problem debt consider their options and engage with professional debt advice. To many in this Chamber, the scheme will need no introduction, as noble Lords were the driving force behind amendments to the Financial Guidance and Claims Act 2018, under which the Government present these regulations today. Since then, of course, the Government have had to make unprecedented policy interventions to save jobs and support livelihoods due to the impact of Covid-19, so the need for this scheme is even more pressing.
A breathing space—or, to use the term in the regulations, a moratorium—will pause most enforcement action, creditor contact, and interest and charges on a person’s qualifying debts. There are two kinds of moratorium. The first, a breathing space moratorium, lasts for 60 days and is open to anyone who engages with debt advice and meets the eligibility criteria. The second, a mental health crisis moratorium, available where a person is in mental health crisis treatment, extends those protections for as long as that treatment lasts, plus 30 days.
Professional debt advice providers have a central role in the scheme. They can initiate a moratorium for anyone who meets the relevant eligibility criteria and conditions. They should not do so if it would be inappropriate—for example, if their client could go into a debt solution like an IVA or bankruptcy straight away, or if they could manage their finances without a moratorium. There are other important safeguards to ensure that clients are complying with the scheme’s rules as far as possible. For example, certain ongoing liabilities such as a mortgage or rent must be paid as they fall due during a breathing space moratorium. If they are not, or if the client is not engaging with debt advice, the debt adviser can decide whether the breathing space moratorium should continue.
Of course, the Government recognise that, during mental health crisis treatment, it will be harder to engage with debt advice in this way and that it may be less reasonable to expect the individual to keep up specific obligations on them. The scheme anticipates this, with alternative access for people in mental health crisis treatment to a moratorium with equally strong protections that last longer, and where the conditions on the debtor are relaxed. This type of moratorium can only be accessed once an approved mental health
professional has certified that a person is in crisis treatment. The debt adviser need not provide advice directly to the person but will still check that the relevant eligibility criteria are met and that an AMHP has provided the necessary evidence. A breathing space moratorium can only be accessed once every 12 months, but there is no limit to the number of times that a person can enter a mental health crisis moratorium.
I will now move on to implementation and begin by addressing the recommendations made by the Secondary Legislation Scrutiny Committee. It recommended that the Government consider establishing a comprehensive debt adviser register. Access to professional debt advice is crucial, but our view is that instead of creating a new register, this can be best achieved by working with the Money and Pensions Service and other stake- holders to clearly direct people to free debt advice provision, including on GOV.UK and via MaPS’s existing online tools. In its most recent report on the regulations, the committee also suggested that the Government should bring forward the start date for the scheme to earlier than May 2021, in response to Covid. Simply making the regulations does not give effect to the scheme’s protections; creditors large and small need time to change their systems and debt advice providers need to plan and train their staff. This is against the backdrop of everyone making unprecedented efforts to help people affected by the financial impact of Covid. While the Government appreciate the committee’s intent, they are firmly of the view that May 2021 is ambitious but achievable. The Government continue to work to support implementation next May, and detailed scheme guidance is to be published by the end of this year.
Beyond the committee’s recommendations, there are other areas of implementation that I would like to bring to noble Lords’ attention. A barrier to individuals seeking help with debts can often be fear of the impact any intervention will have on their credit score. The Government have considered this issue carefully. Debt advice providers need clarity on this to advise their clients, and the Government are mindful to avoid unintended consequences for debtors and creditors in the scheme. A moratorium is not a payment holiday or a payment deferral scheme. Other than pausing interest and fees, no new arrangements are made regarding the debts protected in a moratorium, so the Government do not consider it appropriate to ask creditors to pause reporting to credit reference agencies. Credit files take up to 50 days to update, so the impact on an individual during the 60-day moratorium would in any case be limited.
The Government have also considered whether it would appropriate to seek a new flag or code to show a breathing space on a credit file. This could have longer-lasting effects and, in the mental health crisis moratorium, sensitive information about a person’s treatment could be inferred from credit files. This is not acceptable. We therefore propose that creditors should continue to report payments in line with their existing arrangements, encouraging payments to continue during the moratorium wherever possible. The Government will keep this position and its effects under review.
The breathing space scheme will encourage people to engage with professional debt advice and create the necessary space for them to make better decisions based on that advice. Importantly, it will also protect people receiving mental health crisis treatment until they are more able to engage in this way. I hope we can agree that these regulations are a positive step forward in an area that has long been important to many in this Chamber, with the potential to change lives. I beg to move.
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