By Mark Fairlie.
The National Audit Office (NAO) has reported that the government’s weak approach to dealing with personal debt could be raising costs for taxpayers. The NAO made this claim after revealing that people who can’t repay their debts are much more likely to need state-subsided housing.
Additionally, those struggling with debt often experience anxiety and depression which can very quickly ad to the already substantial costs for the NHS which is undergoing its own funding issues.
After making these claims, the NAO said that the UK government have a “limited” understanding of how living with debt affects people both financially and mentally. The NAO went on to say that the government is also experiencing poor co-ordination between various departments.
Amyas Morse, the head of the NAO, told the Mirror, “(p)roblem debt has significant consequences both for individuals and the taxpayer”.
Mr. Morse said that while the government has tried to resolve this issue, they have largely been “insufficient” and that pressure for funding could make debts be pursued “too quickly and aggressively”.
Is the average UK household in debt?
Research by the NAO reveals that “intimidating actions and additional charges” are often used on people who are in debt.
They went on to say that these actions can increase the likelihood of people who are in debt going on to struggle with mental health issues.
Data from the NAO also revealed that 8.3 million people in the UK have personal debt. Citizens Advice said that most problem debts owed to the government in the past five years have been over council tax and benefits.
Estimates by the NAO reveal the extent that problem debts are costing the taxpayer. These statistics suggest that an increase in the number of people who rely on the use of social housing cost the taxpayer £225m while an increase in the use of services provided by the NHS cost £24m.
The NAO went on to add that problem debts cost the wider economy through the increased need for public services, lost employment and informal care. The estimated figure for this comes at £900m.
The chairman of the Work and Pensions Committee, Frank Field MP, said that the amount of private debt owed to the UK government is “a sorry indictment of the benefits policy”.
He added that families with lower earnings are often stuck in “a miserable cycle of debt and hunger, easy prey to loan sharks and forced to resort to food banks”.
How could the government develop a better understanding?
NAO’s analysis suggested that the UK government’s effort to collect debts can become counter-productive.
The firm found that “intimidating actions and additional charges” made debts harder to manage and could increase anxiety or depression in people who are struggling with debt by 15% to 29%.
The NAO did say that they found “examples of good practice but it is not adopted consistently” suggesting that the government’s approach was inconsistent across different departments.
They explained this further stating that
“for example, established best practice in how to assess the affordability of repayments, promoted by The Money Advice Service, is used by only 19% of local authorities and is not used as a standard by government departments”.
StepChange, a debt charity completed research that revealed a lot of people felt that they hadn’t been treated fairly when dealing with payday lenders and local authorities.
This research went on to suggest that treating debtors more fairly could result in a saving of £730 per person for creditors who are owed money.
Phil Andrew, the CEO of StepChange said:
“The National Audit Office hits the nail on the head.
“Poor debt collection practices that fixate only on getting as much money back as quickly as possible are counter-productive and ultimately harmful.
“The government is simply robbing Peter to pay Paul, as the wider implications of government debt collection practices are costing taxpayers almost a quarter of a billion pounds every year”.