January and February 2016 Credit Management

OPINION
LESSONS
FROM LIAISON
When money advisors, creditors and debt collectors
gathered at the annual Money Advice Liaison Group (MALG)
conference at the end of 2015, they noted that consumers
are increasingly struggling with essential bills while public
sector creditors are also facing the squeeze.
Heather Greig-Smith reports.
NO longer are credit cards and
personal loans the biggest reason
people go to advisers such as
Citizens Advice, delegates heard at
the November MALG conference. Instead it
is council tax, rent, energy and household
essentials, with tax credit cuts having a
significant impact on many consumers.
The challenge of tackling these debts
is also taking place against a backdrop of
government spending cuts – meaning there
isn’t much wiggle room on the creditor side
either.
Alistair Chisholm, Creditor Liaison
Policy Officer at Citizens Advice, told the
conference that this poses tough questions.
He said it is not borrowing going wrong,
but day-to-day money management, which
is a different problem to tackle. It also
raises regulatory questions: advisers are
seeing people with debts from multiple
organisations that have different rules (such
as tax credit overpayment and benefit rules).
This makes debt issues more complicated
to untangle.
Delegates discussed whether having one
regulator for all debts would make it easier.
Many felt “that would be a dream world”,
adding that if you don’t address priority
arrears first you’re never going to manage
the secondary debts.
CREDITORS SQUEEZED
If priority debts are harder for individuals
to manage, they can also limit options
for creditors when it comes to offering
forbearance. For example, councils facing
budget cuts need to collect as much as
possible to continue their levels of service.
Peter Wallwork, Chief Executive of
the Credit Services Association, told
delegates that £52.3bn of debt managed
by the trade body’s members has been
purchased. He said this can be beneficial
as purchasers are able to take a longer term
view than creditors as the debt comes off
their balance sheet. “There isn’t the same
urgency and the buyer or a DCA working
for them can take their time to find the right
solution.”
On the other hand, Camden Council’s
Assistant Director of Finance Lesley
Pigott spoke of the challenges facing local
authorities, to whom much priority debt is
owed. The council collects around £1.5bn
a year. Council tax is the third largest debt
collected by the borough – around £107m,
coming behind £518m business rates and
£162m housing rents.
The economic environment and
government cutbacks mean councils are
struggling to raise the revenue needed
for services. In 2010 70 percent of all
Camden’s funding was grant funding.
Since then, its external funding has been
reduced by 34 percent and is expected to
drop by 53 percent by 2018/19. Although
it expects to deliver savings of over £168m
by 2017/18, it anticipates a further funding
shortfall in 2018/19.
“We have to collect this money. It is
the financial situation that all councils find
themselves in. If you don’t there are hard
choices to be made about what services
you can continue to fund for residents,”
said Pigott.
“Taxes are different. When looking at
income you can advise someone to swap
to a lower rate of credit card, cut the Sky
package or give up the mobile phone, but
you have to pay your taxes.
“That makes it very hard because it’s not
something people want to pay. It is difficult
to find a fair, equitable and transparent
way of collecting debts from such a wide
variety of people from different social and
economic backgrounds.”
She added that calls from money
advisers or elected members to take a
more individual approach are not realistic
given the volume of people councils deal
with and the need to treat all fairly. Instead
she said it is vital that people in debt and
their advisers speak out when help is
needed.
“This is about a partnership and network
of support to help people. Local authorities
can’t help people unless they know they
are in difficulties and people are often
very nervous about coming and saying ‘I
can’t cope’. The sooner you talk to a local
authority the sooner we can start helping
find a way forward.”
She added that all the debts the council
collects are very different and are not
covered by one piece of legislation or one
recovery method. Despite this, the local
authority is trying to implement a single
view of debt to get a clearer picture of the
financial situation of its residents.
“We need to get to a point where all our
debt is visible in one place so we know
what every resident owes us. Then we can
offer a schedule of payments that covers
all their debts,” she said. “We want to be
able to see what they can afford and how
we can help them manage and for us to
allocate the debt in order of priority. That is
important so they don’t get several others
chasing them.”
32 Jan/Feb 2016 www.cicm.com
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