WESTMINSTER is clueless about ordinary people’s debt problems – and their impact on the public purse, the spending watchdog says.
And government bodies are worse than the retail lending sector on chasing collections and sharing information, according to the National Audit Office (NAO).
It estimates that people in the UK owe at least £18 billion.
The monies are due to energy firms, landlords, housing associations and more, with around 8.3 million affected by problem debt, which renders them unable to settle bills and repay borrowings.
The issue is linked to anxiety and depression and the NAO says around four in ten people cannot manage their money well on a day-to-day basis, with a lack of financial knowledge fuelling their troubles.
According to the body, the increased use of public health and housing services by those with problem debt costs taxpayers and additional £248m a year, and around £900m for the economy as a whole.
But gaps in government data and weaknesses in the strategy for tackling problem debt mean it is impossible to work out other impacts, such as on employment and benefits.
The news comes in the week that payday lender Wonga, known for its high interest rates, collapsed.
NAO head Amyas Morse said: “Problem debt has significant consequences both for individuals and the taxpayer. While Government has made progress in seeking to address this issue, its attempts so far have been insufficient.
“The Treasury needs a better understanding of the scale of people’s debt problems and how it is impacting their lives and the taxpayer so it can effectively resolve the problem.”
The Treasury has overall policy responsibility for problem debt and works closely with others in trying to tackle the issue – but must address the “weak links” hindering its ability to respond effectively, according to a newly-released NAO report.
Though the Treasury is said to be taking a “thoughtful and well-intentioned approach” to excessive indebtedness, the retail lending sector is said to be outperforming the government on debt management practice.
Although some citizens may owe cash to more than one department due to council tax arrears or benefits overpayments, a lack of data-sharing means several debt recovery teams can be left competing for repayments from the same individuals.
And funding pressures are said to be driving the aggressive pursuit of repayments.
The Treasury said it is “taking action” by increasing funding for the Money Advice Service and introducing “breathing space” from problem debt to “give people time to get their lives back on track”.
But StepChange Debt Charity chief executive Phil Andrew 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.”
And Gillian Guy, chief executive of Citizens Advice, said: “Daily, we see the impact that falling behind on essential bills has on people and the NAO’s findings around this are concerning.
“The NAO is also right to say the Government is lagging behind industry by persisting with poor collection practices.”
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