Easing public debt forbearance responsibly
The Prime Minister announced a strategy to replace the lockdown with “smarter measures” so we can “with the utmost caution, gradually begin to rebuild our economy and reopen our society”. In time, that will mean easing forbearance on public debt too. Doing that fairly and responsibly is complex so will need smart measures of its own. The planning needs to start now.
Indesser has set out recommendations in evidence to the Treasury Select Committee about how to ease forbearance on public sector debt collection.
Before the crisis, public bodies were owed £23.5 billion of debt by individuals and businesses. This includes, among other debts: unpaid taxes and fines, NHS charges, benefit overpayments, social fund loans, court confiscation orders, rent arrears and child maintenance. Collecting that debt effectively raises revenue for public services.
So what smarter measures should the government adopt to make sure it eases forbearance in a way that protects vulnerable people in debt and gathers the revenue it needs to fund the public response to the pandemic?
Applying the government’s principles from its COVID-19 recovery strategy, Indesser recommends the measures should be:
- Informed by science: the planning to ease forbearance should be informed by data and analytics and modelling to understand how the crisis has affected the ability of those in debt to meet their financial commitments, and how this could change in future. This analysis should be undertaken as soon as possible.
- Proportionate: a proportionate approach should recognise the critical contribution debt collection makes to funding public services. With the right analysis and approach, forbearance can and should be eased for those who can afford to pay what they owe.
- Fair: treating people fairly means proactively offering different paths that reflect people’s individual circumstances. Ongoing blanket deferrals will not lead to the best outcomes for all households and businesses in debt.
- Transparent: the plan to ease forbearance should be communicated clearly and in good time to those affected.
Rhona Parry, CEO at Indesser said, “Recovering government debt in a fair and effective way is likely to become increasingly important as we expect to see more people in debt than ever before and increasing levels of financial vulnerability as the country gradually comes out of lockdown. Estimates suggest there could be as many as 9 million people who feel the effect of problem debts as a result of COVID-19.
It will be vital that government organisations are able to identify consumers who are finanicially vulnerable, based on a full financial picture, and allow appropriate breathing space for those that need it.
Current economic forecasts make it equally important to recover debts from those who can afford to pay, as local and central government budgets are going to be under more pressure than ever before to fund vital public services. Data and analytics hold to key to understand the impact on consumers in debt”.