|
[our aims] [foreward by the chair] [the national picture] [an overview of thurrock citizens advice bureau]
[staff & volunteers 2007/2008] [volunteering and the citizens advice] [the schedule]
[debt advice] [welfare benefits and tax credits advice] [advice on housing issues] [advice on employment issues]
Annual Report 2007/2008:
Debt Advice
An Overview of Problem Debt
Total personal debt in the UK currently stands at £1.3 trillion and increases by £1 million every four minutes.14 However, not all debt is problem debt. Citizens Advice defines overindebtedness as when people "are unable to pay their current credit repayments and other commitments without reducing other expenditures below normal minimum levels."15
Keeping up with bills and other commitments is either a constant struggle or worse for 9% of the population, with 3% falling behind, sometimes severely.16 Data from Citizens Advice bureaux suggests the problem is growing. The number of clients that bureaux advise with debt issues is rising year-on-year. In 2006/07, 540,000 Citizens Advice Bureau clients sought advice on debt problems, a 15% increase on the previous year.17
The causes of over-indebtedness are most commonly an unforeseen change in circumstances (such as illness or divorce) or unrealistic repayment expectations on the part of the creditor or the lender. 18 & 20 Citizens Advice also cites the effects of changes in government legislation as a contributory factor.16
Debt problems rarely exist in isolation: many people face clusters of problems, of which debt may be the main or simply a component part. Over-indebtedness can be caused by, and contributes to, social exclusion, financial exclusion and poverty.18 Low-income groups are three times more likely than the general population to be in arrears with rent, council tax, utility bills or mortgage arrears19 and research suggests 35% of low-moderate income families are unable to meet repayments on at least one bill or credit commitment.20
The impacts of problem debt on the individual can be severe. In-depth research conducted by the Legal Services Research Centre suggests 89% of debt clients worried about their problems most or all of the time. Around 43% of clients felt their health had suffered to some extent, while around 60% said they had received treatment, medication or counselling as a result of their problems. Further, it was identified that problem debt can impact on an individual's relationships, employment, education and plans for the future.21
Problem debt also has a range of impacts beyond the individual. The Consumer Credit Market White Paper of 2003 concluded as follows: "The costs of over-indebtedness... [affect] financial institutions or creditors, and the State as a whole. Over-indebtedness, particularly among lowincome groups, also has a significant negative impact on a number of Government objectives - for example, on eliminating child poverty, welfare to work aims, health inequalities and neighbourhood renewal." 22
How do individuals benefit from debt advice?
Detailed research on the impact of debt advice was published in 2007 by the Legal Services Research Centre, entitled A Helping Hand: the Impact of Debt Advice on People's Lives.23 The research "provided clear evidence of a positive impact of debt advice."
The research found that financial improvement is greater when advice is given than when no advice is given at all. 70% of clients felt they had made headway against their debt at a twelvemonth follow up. 33% stated that they owed a lot less; in fact, a year after receiving advice, clients owed, on average, £7,585 less.24
Clients' financial situations were also found to have improved through better budgeting and improved negotiations with creditors. There was also evidence that advice improves people's understanding of their personal finances and, seemingly, helps them to better target 'priority' debts. At a twelve-month follow up, more than 50% of clients in the advice agency study (one of the four strands of research undertaken by the LSRC) believed that advice had helped them avoid or curtail legal action.
Individual benefits extend beyond purely financial gains. The research found that a year after receiving advice, 90% of clients reported improvements in their health; citing cases in which doctors have 'prescribed' debt advice in favour of medication (in the context of a proactive debt initiative), where this has been seen as a more effective route to addressing poor health brought about by debt.
The advice agency study also found that advice positively influenced clients' perception of their ability to cope and their outlook. 84% of clients reported feeling more in control of their finances following receipt of advice. The number worrying all or most of the time about their debts reduced from 89% at initial advice to 31% a year after receiving advice. A related outcome was that 70% of improvements in relationships were attributed to advice.
How do communities benefit from debt advice?
The average cost per debt problem to the public (including lost economic output) is estimated to be over £1,000, with more serious problems costing many times this amount.25
The LSRC researchers arrived at the figure of £1,000 per debt by considering a variety of costs to communities, including a £270 cost to Local Authorities of providing temporary accommodation to people who lose their homes; and the stress caused by 'difficult to solve' debt problems, which costs National Health Service around £50.
Health problems that result from problem debt cost not only the NHS but local businesses too, leading in some cases to "...absenteeism and loss of productivity for those in work."26 The decline in productivity associated with over-indebtedness is conservatively estimated to be 30% of salary. The cost of its workers' financial problems to a company can be estimated by multiplying 30% of a worker's salary by the percentage of the workforce with such problems.27
The cost of funding debt advice is considerably less than the cost of dealing with problem debts. The provision of debt advice is estimated at costing between £67 and £454. The Legal Services Commission has valued the cost of face-to-face debt advice at £196.28 These figures suggest that timely debt advice leads to significant longer-term savings to the community.
Contribution of debt advice to wider social policy and Central Government
Over-indebtedness presents a barrier to delivery of objectives across Government, from tackling child poverty and social exclusion, to reducing barriers to work, and encouraging appropriate saving and investment.29 Access to free face-to-face money advice is crucial to enable vulnerable consumers to deal with financial distress.30
As part of their Promoting Financial Inclusion Strategy, the Government created a dedicated Financial Inclusion Fund of £120 million for the 2005-08 spending period. £47.5 million was to be used for free face-to-face money advice in England and Wales. £33 million went to Citizens Advice Bureaux, which paid for an additional 300 specialist money advisers.
What has Thurrock CAB delivered to its debt clients?
Our volunteers deliver generalist debt advice to Thurrock CAB clients. We also have LSCfunded debt specialists located in the principle bureau office and in Castle Point CAB. In April 2006 we were awarded Financial Inclusion Fund funding for a debt specialist, which has enabled us to open a new outreach the borough's most economically deprived area in which Thurrock CAB previously had no direct presence. 31
In 2007/08, Thurrock CAB advised more than 1,456 debt clients presenting 8,329 debt problems. Of those 8,329 issues, 6,500 concerned credit cards, store cards, charge cards or unsecured personal loans—representing more than 10% of all issues presented to the bureau on any topic. More than half of the time, the problem was dealing with repayments.
Thurrock CAB is actively involved in local social policy. Prompted by a number of issues reported by clients, in 2006 we conducted a county-wide survey into the selling of Payment Protection Insurance, and found evidence of irresponsible selling of the products. We have since taken the evidence to our local MP, Citizens Advice and relevant banking / consumer regulatory organisations. The campaign has been highlighted in the local press and our MP has shown support for progressing a Code of Conduct for lenders.
At the start of the 2006/07 financial year, Thurrock CAB began collecting outcome information from debt clients. Three months after receiving advice, we surveyed 70 clients that had presented a debt problem (more than 5% of debt clients). Half of the clients had gained financially since visiting the bureau; an average of £5,200 per person. 95% of those clients who had gained said that the bureau was 'crucial' or 'fairly important' to their outcome.
Clients were also asked if they felt they had benefit in other ways, aside from financial gains. All of the 70 clients that were surveyed felt the bureau had made 'a lot of difference' or 'some difference' to their knowledge and ability to deal with problems in the future, and to their peace of mind. Half of the clients also stated the advice had made 'a lot of difference' or 'some difference' to their health and relationships.
14 UK Factsheets, ESRC, 2008. Available at: http://www.esrcsocietytoday.ac.uk/ESRCInfoCentre/facts/UK/
15 In Too Deep, Citizens Advice, 2004. Available at: http://www.citizensadvice.org.uk/in-too-deep.pdf
16 Financial Capability in the UK: Establishing a Baseline, Financial Services Authority, 2006. Available at: http://www.fsa.gov.uk/pubs/other/fincap_baseline.pdf
17 Analysis of Advice Issues and Client Profile: England and Wales, Citizens Advice, 2007. Available at (internal only): http://www.cablink.org.uk/analysis_of_advice_issues_2006-07.pdf
18 Tackling Over-Indebtedness, Department of Trade & Industry (now BERR), 2005. Available at: http://www.berr.gov.uk/files/file18547.pdf
19 Action on Debt, Social Exclusion Unit, 2004. Available at: http://archive.cabinetoffice.gov.uk/seu/downloaddoc1967.pdf?id=214
20 Fair, Clean and Competitive: The Consumer Credit Market in the 21st Century, Department of Trade & Industry (now BERR), 2003. Available at: http://www.berr.gov.uk/files/file23663.pdf
21 A Helping Hand: the Impact of Debt Advice on People's Lives. Legal Services Research Centre, 2007. Available at: http://www.lsrc.org.uk/publications/Impact.pdf
22 Action on Debt, Social Exclusion Unit, 2004. Available at: http://archive.cabinetoffice.gov.uk/seu/downloaddoc1967.pdf?id=214
23 A Helping Hand: the Impact of Debt Advice on People's Lives. Legal Services Research Centre, 2007. Available at: http://www.lsrc.org.uk/publications/Impact.pdf
24 The researchers note that this figure should be treated with caution25 A Helping Hand: the Impact of Debt Advice on People's Lives. Legal Services Research Centre, 2007. Available at: http://www.lsrc.org.uk/publications/Impact.pdf
26 Action on Debt, Social Exclusion Unit, 2004. Available at: http://archive.cabinetoffice.gov.uk/seu/downloaddoc1967.pdf?id=214
27 Fair, Clean and Competitive: The Consumer Credit Market in the 21st Century, Department of Trade & Industry (now BERR), 2003. Available at: http://www.berr.gov.uk/files/file23663.pdf
28 Figure excludes VAT and is accurate as at 1 October 2007. Available at: http://www.legalservices.gov.uk/docs/main/Focus_53_-_Mar_2007.pdf
29 Over Indebtedness, Department for Business Enterprise and Regulatory Reform, 2006. Available at: http://www.dti.gov.uk/consumers/consumer-finance/over-indebtedness/index.html
30 Financial Inclusion: The Way Forward, HM Treasury, 2007. Available at: http://www.hmtreasury.gov.uk/media/7/B/financial_inclusion030407.pdf
31 Ranked by the Audit Commission in the lowest quartile for population that is unemployed, population that is income deprived and ranked in the top 25 employment deprivation. Data drawn from: http://www.areaprofiles.auditcommission.gov.uk/
Thurrock CAB Annual Report 2007/2008
 Download the full annual report 2007/2008 (PDF 274kB)
|
