When it comes to resolving problem debt, how does the UK compare to other players in the global market? And what can we learn from each other?
In this article, we’ll look at the UK’s Breathing Space scheme and Statutory Debt Repayment Plan (SDRP) proposal and consider them alongside Australia’s Hardship scheme and New Zealand’s Hardship / Financial Relief scheme.
Spoiler alert!
Let’s get to the point. My view is that the front end of the process (the advice element and getting people to a solution) is better in the UK, but the back end of the process (setting up and managing the plans) is better in Australia and New Zealand.
Cultural context
Before we get into my rationale, I wanted to touch on an interesting cultural difference in the way that the different territories think about debt, because it has practical implications.
In the UK, we tend to provide access to debt solutions based on doing the sums to work out the most appropriate solution for the customer.
Australia and New Zealand, however, consider an element of causality for some debt solutions:
- If the debt was unforeseeable and it came about as a result of redundancy, natural disaster, family tragedy etc, then different solutions are unlocked through the Hardship / Financial Relief schemes. The schemes vary by debt type and include:
- Early access to your pension pot (retail, rent and utility debts)
- Varying the contractual terms (retail, rent and utility debts)
- Tax debt waiver (government debts)
- Payment deferrals (all debts)
- If the Hardship process shows the loan was irresponsibly lent, then the legislation allows people to easily challenge the debt in court
- If the debt was considered foreseeable arising because of lifestyle choices, then none of these additional protections are available
This feels very much like an attempt to secure fair debt outcomes for all, insofar as it holds both creditors and debtors to account, while accepting that sometimes, bad stuff can just happen.
The front end – providing protection and debt advice
Getting help is often the hardest part for people in problem debt. Without additional support, it can be tricky to negotiate with multiple creditors, especially if the indebted person tries to approach each creditor individually. Furthermore, if disposable income is not evidenced properly and allocated on a fair, pro-rata basis, creditors may reject the offer. This is exactly why free debt advice exists.
What are different countries doing?
- Australia - moneysmart.gov.au says that people should contact each retail creditor individually.Debt advisors can help people to take a consolidated approach, but the mechanisms sit within the retail credit legislation. As a result, government debt must be treated separately. This doesn’t make for the smoothest customer journey.
- New Zealand – while the advice sector looks very different in New Zealand, the process is more or less the same as Australia, with different debt types treated under different sets of rules.
- UK – there is a single piece of overarching legislation covering virtually all debt, the snappily titled “The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020.”By bringing together the widest possible range of debts, including a lot of government debt types, it becomes much easier for people to engage with the process.
The back end – setting up and managing repayment plans
I was struck by how different the UK is to both Australia and New Zealand in this respect. The UK has a whole range of statutory and informal debt solutions. These all vary in the types of debts that are included, in the level of protection guaranteed, and in the amounts that are repaid. This range of products just doesn’t exist in Australia and New Zealand.
What are different countries doing?
- UK – the solution that proposes the strongest protections and includes the broadest range of debt types (the SDRP) is not yet in place, but we have seen the policy proposal from the UK government. The debt advice provider PayPlan says that only 5% of its customers on a current Debt Management Plan would qualify, and many in the industry believe that inflexibility in the proposal will lead to higher dropout rates.
- Australia by comparison, has relatively little in the legislation; it puts the onus on creditors to ensure arrangements are affordable. If the debtor disagrees, there is a provision to challenge it through the court, which incentivises creditors to get it right.
- New Zealand is similar to Australia; the legislation simply says that the repayments “must be fair and reasonable to both the debtor and the creditor”.
The Australian Tax Office and the Inland Revenue New Zealand both approach tax debt in the same spirit of repayments being affordable, fair and reasonable.
From practical experience, I tend to favour a principles-based approach, rather than narrow, technical rules. Principles allow experts to do what they do best, whereas rules can constrain expertise and lead to people looking for loopholes in the way they are interpreted.
All together now
I like that in the UK as many debts as possible are included under a single piece of legislation with common protections. It is more accessible and easier to understand, and it truly levels the operational playing field across all sectors, including private sector and government.
Yet when it comes to the setting-up the plans, I prefer the more flexible, principles-based approach that Australia and New Zealand take.
So, to finish where I started, if we could have the UK’s Breathing Space upfront protections, with Australia and New Zealand’s principles-based approach to setting-up plans, I think we could achieve a better outcome for debt owners and indebted people alike.
Arum is the UK’s leading independent provider of advisory and professional services within collections and revenue across the public and private sectors. With over 24 years’ experience in over 20 countries, organisations choose Arum to prevent and resolve their problem collections and revenue challenges - whether executing strategic, operational and technical change within their organisations, choosing or implementing collections technology, navigating the inexorable move towards digital engagement, or improving customer treatment to achieve better outcomes.
Please get in touch with me directly if you want to discuss anything relating to this topic.
About the author
Steve Coppard
Group Director of Debt Policy & Strategy
Arum & Just
Steve has been in the debt industry since 2001. He spent most of his career working in government, where he started on the phones collecting VAT debt and ended up being responsible for prompting improvements to the management of over £40bn of public sector debt. He joined Just and Arum in May 2022 where he continues to shape the biggest conversations in the debt market, having been recognised as an Influencer on the Credit 500 list for a number of years. Credit Management Magazine recently called him one of the industry’s genuine thought leaders.