One step back, two steps forward?

Recently the government has confirmed it is no longer proceeding with the new Statutory Debt Repayment Plan (SDRP) regulations, instead now awaiting the outcome of the Insolvency Service’s Personal Insolvency Review. Many have welcomed the decision but it still remains a moment where the heart sinks a little.

It’s arguably the right decision to take a step back on SDRP. A repayment-based option might have been the right new solution to prioritise 10 years ago, but not today when deficit budgets clients are one of the hottest topics in the sector. That heart sinking feeling exists though for potentially missing out on some precious wins that had been secured – the more equitable funding across all creditors types, the reliable and consistent protections for consumers, regardless of who their creditors are, and the potential benefits of a universally adopted affordability assessment and digital portal used by all advice agencies and creditors.

We also lost something pretty rare too, both the government appetite and parliamentary time to change the law for people in problem debt. This, I fear, is the real missed opportunity. It could now be several years before it comes around again.

There may be a lesson to be learned here about more joined up working across the sector – many worked together well to highlight the issues with SDRP but I wonder if there was more to be done in pro-actively proposing an alternative to the government. No doubt it is easier to unite on what we don’t like than it is to produce something new and wide ranging, but did we miss an opportunity in not doing so?

That question aside, while we have taken a step back from the SDRP, there may still be the chance to take two steps forward in the shape of the Personal Insolvency Review. We need to avoid history repeating itself however – I expect they’ll be fairly consistent feedback calling for changes on the things many stakeholders don’t like – the public registers, the allowable debt level for DROs, the barriers created by the fees for entering bankruptcy and DROs and the funding of IVAs. Changes in these areas would be very welcome but alone might represent another missed opportunity, as I can’t help but feel we need something more fundamental. We need a material shift that really delivers what consumers need in today’s landscape. The goal should be to make us the world leaders in operating debt solutions and personal insolvency.

For me this means reducing the number of recognised debt solutions, not adding more. Indeed, the closer we can get to a single solution the better. I’d welcome a recognised government scheme which those in problem debt qualify for using a few core criteria. From there it would a sliding scale from full debt relief at one end to full debt repayment at the other, with manoeuvrability anywhere in between based on affordability and a handful of other personal circumstances. Ideally it needs some flex to recognise people’s circumstances and income can change regularly. As ever, the devil would be in the detail but it would mean a singular and more simple approach to things like funding, the process, the protections offered and, importantly, reduce complexity for people considering a debt solution.

Getting to something like this will likely need that step up in cross-sector coordination I described above. Easy to say, harder to do I recognise.     

Either way, what the new personal insolvency regime cannot alone be expected to resolve is people’s deficit budgets, which as we know have hugely increased in recent years. Equally, it is unlikely that debt advice by itself will ever be able to resolve persistent deficit budgets either. If you can’t sustainably meet your essential expenditure after going through all the tools debt advisers have, going insolvent is at best a sticking plaster, as might be getting further debt advice. The government therefore also needs to think about what can be offered to supplement the new insolvency regime to help reduce or eliminate the issue of deficit budgets.

Craig is Lead Consultant at Clear Consultancy Services & formerly worked at HM Treasury advising on the Debt Respite Scheme (Breathing Space) Policy.