The Government has confirmed that they intend to widen the qualifying criteria of the “Debt Respite Scheme” (which is more commonly known as Breathing Space) so that more people can take advantage of it. We believe this is a bad idea and here’s why.
In 2002 Gordon Brown brought us the Enterprise Act, which, in our view, has proven to be a massive mistake. Bankruptcy and debt almost became respectable.
Since then, there has been a growing misconception that the fault of debt is with the lender and has absolutely nothing to do with the borrower. Other ‘amazing’ misconceptions have since followed suit with people believing that debt doesn’t have to be paid back if repayments aren’t manageable, and any outstanding monies will be completely written off - with the borrower completely protected.
The Government’s new “Debt Relief Scheme” is similarly quirky and is just another way of dressing up the ideology that no-one has to combat their debts. The basic idea behind it is that for anyone that has been referred for help with mental health issues relating to debt with qualify for something called breathing space.
It’s fine to protect certain individuals and write off debts to get them back on an even keel, but what about the bigger picture? What about the incentive for paying back money that isn’t theirs?
You do it for one person, everyone will want a piece of the action.
These hair brain schemes could have a significant impact on the industry and on other hard-working and honest individuals.
The first scenario that could occur is that if people no longer fear the consequences of not repaying their credit – no-one will ever make a repayment ever again. Why would they? If nothing bad is going to happen, why bother paying any money back? Lenders will not want to lend if this becomes the norm.
The second issue is that the cost of freezing the debt will be passed onto those responsible borrowers who are now being asked to subsidise those that have hit hard times. This makes their debt less affordable and, in turn, brings them into the spiral of debt - they then need help which brings about a whole new cycle of problems.
We have no wish to see people struggle mentally with debt. But helping people with mental issues after they already have debt is shutting the stable door after the horse is bolted. In our view, we need to stop people getting into unaffordable debt agreements in the first place.
The one and only way to do this is to bring back consequences - tough consequences that the borrower must be aware of before they apply for credit.
One of the ways to do this should be by informing them that they will go to prison should they fail to keep up with repayments. It sounds tough, but it would be for the borrower’s own good. They would then, probably for the first time, seriously consider whether they could afford repayments.
Surely this would be a better way of keeping most people away from getting into unaffordable debt in the first place. It would also keep the cost of credit cheaper for the majority. A win-win for everyone. Lenders and borrowers alike.
Unfortunately, the do-gooders are out in force today to cheer on a victory, but have you ever wondered that after 15 years of these people claiming victory, things are still getting worse for people? So is it victory for them or victory for you?