Memorandum from Citizens Advice
SUMMARY
In advance of the Committee of Public Accounts'
evidence session on 15 March with representatives of the Department
of Business, Innovation and Skills, please consider the following
memorandum submitted by Citizens Advice.
Citizens Advice welcomes the findings of the
National Audit Office Report (NAO). The report is extremely positive
about both the impact, value for money and client satisfaction
with the face-to-face debt advice programme.
However, we express caution at the NAO's suggestion
that different delivery methods of money advice are interchangeable.
If the Government is to pursue the NAO recommendation for a "radical
transfer" of resources for money advice into the most cost-effective
channels, it is vital that the evaluation of different methods
of delivering advice takes into account the actual impact and
results achieved, as well as client preferences and capability
to use different channels.
We agree with the NAO's conclusions that the
cross-Government strategy for tackling over-indebtedness has lost
focus and momentum since its inception. Citizens Advice was represented
on the initial over-indebtedness steering group (which oversaw
the creation of the strategy) and have been a member of the wider
"advisory group". We have not regarded this group as
a vehicle for getting things done and it has perhaps been a missed
opportunity. However, despite the weaknesses that the NAO identifies
in programme leadership and governance, the Government has provided
energetic, timely and joined-up responses to the recession in
the past two years. Whilst this has primarily focussed on support
for home owners, it has also influenced consumer credit providers
to exercise forbearance when customers are in debt and instigated
several major reviews of aspects of consumer credit. The Government
has also increased investment in local advice services and telephone
money advice services (primarily through the Pre-Budget Reports
in 2008 and 2009.
The Financial Inclusion Fund was conceived before
the recession and it could be argued that it has assisted enormously
in enabling local advice services to be able to cope with the
increased demand for their services since the recession began.
It is debatable whether better outcomes could have been achieved
if the governance of the over-indebtedness programme had operated
as might have been intended.
THE ROLE
OF THE
CITIZENS ADVICE
SERVICE IN
DELIVERING DEBT
ADVICE
A core part of the work of the Citizens Advice
service in England and Wales is assisting people who are experiencing
problem debt—in 2008-09, bureaux helped people to resolve
some 1.9 million debt problems. Citizens Advice Bureaux are currently
dealing with 9,500 new debt problems every working day, with this
increasing at an annual rate of 25%.
A significant proportion of the clients seeking
our help with debt problems have been assisted by a debt caseworker
funded through the Government's face-to-face debt advice programme.
THE ROLE
OF THE
CITIZENS ADVICE
SERVICE IN
THE FINANCIAL
INCLUSION FUND
(FIF) FACE-TO-FACE
DEBT ADVICE
PROGRAMME
Citizens Advice administers 11 of the 16 face-to-face
debt advice projects which make up this programme, employing 338
of the 500 specialist debt caseworkers, with paid assisting support
staff. Debt caseworkers have a high level of expertise and are
fully trained professionals, complementing the work of generalist
volunteer advisers in bureaux. They have an in-depth knowledge
of their subject and negotiate with multiple creditors on behalf
of their clients. The 16 projects serve selected regions throughout
England and Wales and three designated client groups; people with
disabilities, ex-offenders and social housing tenants. Service
delivery in geographic locations has been prioritised, often on
the basis of an analysis of the indices of multiple deprivation,
to reach out to the most economically disadvantaged communities.
Delivering advice face to face was identified
as the most likely way of reaching financially excluded clients.
Statistics from the projects have confirmed this to be the case,
with steady increases in the numbers of financially excluded individuals
being assisted recorded. In 2008-09 nearly 40% of all debt clients
had arrears on high cost credit, with 67% of clients never having
sought debt advice previously.
The projects have been extremely successful
in increasing the capacity of the advice sector to deliver specialist
advice to the groups who were most in need of it. Prior to the
FIF programme in many parts of the country, Scarborough for example,
there was no free face-to-face expert debt advice provision at
all. In other areas, as in Wansbeck in Northumberland, there may
have been just one Legal Services Commission funded debt adviser
(providing advice only to those eligible for legal aid) endeavouring
to manage a large caseload. In many Citizens Advice Bureaux it
was often the case that debt advice would be given by generalist
advisers, mostly volunteers. Generalist advice is important but
for clients with serious multiple debts who require assistance
to negotiate on their behalf it has limitations.
Over 205,000 clients have been assisted by the
Citizens Advice led projects since June 2006. Caseworkers regularly
each see more than 200 clients per year and are consistently exceeding
their targets at no additional cost. This means that the Citizens
Advice FIF projects are delivering reduced costs per client throughout
the duration of the project.
As the NAO reports (paragraphs 2.11 and 2.12),
clients who have received advice from this service both regard
it well, and had acted upon the advice that they were given. This
correlates with Citizens Advice research amongst its service users
which indicates the positive impact of face-to-face debt advice
delivered through the project. A series of surveys undertaken
in 2009 throughout the Yorkshire, Humberside and North-East regions
revealed that 95% of the 1,300 respondents were highly complementary
of the debt advice service they had received and acknowledged
the difference that it had made in their lives.
THE BENEFITS
AND IMPACT
OF DEBT
ADVICE
Debt advice can bring particular benefits by
setting sustainable repayment schedules, increasing household
income, and avoiding or mitigating legal and recovery action (including
eviction). Health and wellbeing are reported to have improved
dramatically among people who receive advice. The evidence also
suggests that receiving advice may lead to an increase in financial
capability, improving people's money management skills and confidence.
Surveys of clients who have received debt advice
reveal these trends consistently. For example, a survey by the
FIF project at Swansea Citizens Advice Bureau revealed that:
— 73% considered that their problem had
been completely or partially resolved;
— 37% said that their problem had been
completely resolved;
— 61% felt that debt advice had improved
their piece of mind and well being;
— 78% thought the debt advice had been
brilliant or good; and
— 78% of beneficiaries were happy with
the service that they had received.
Academic research supports these findings. An
in-depth analysis of the Face-to-Face Project's Leeds Money Advice
Project (five debt advice agencies that linked together in a partnership)
has been undertaken by the University of Salford. In their study,
conducted with clients six months after face-to-face debt advice
provision, they noted that:
— 66% of clients said they were better
off;
— 60% had reduced, or paid off, their debts;
— 61% had made new arrangements for paying
off debt;
— 55% found it easier to manage their money;
— 41% said their general health had got
better (and 96% of those attributed this to the face-to-face debt
advice provision); and
— 12% said they were making fewer visits
to their GP.
DEMAND FOR
SERVICES NOW
AND IN
THE FUTURE
During the recession, demand for Citizens Advice
services have increased dramatically. The number of debt problems
is up by 25% year on year and benefit enquiries by 23% during
the same period. Every working day Citizens Advice Bureaux are
dealing with 9,500 new debt problems. This increase in demand
for services is mirrored by the findings by the National Audit
Office report, which finds those they surveyed reporting a 28%
increase in demand between July 2008 and July 2009.
Face-to-face advice provides help for clients
who are unable to deal with their debts in any other way. They
are the clients who require the most time to both identify and
then rectify their problems and who are most lacking in financial
capability. Not everyone who approaches a bureau requires this
level of expertise, some people are confident and able enough
to use other, less specialist forms of advice, which place greater
emphasis on the client arranging their own affairs.
As demand for advice has increased, bureaux
have sought to work in different ways to ensure as many people
as possible can receive the help that is most appropriate to their
needs and problems. Greater efficiencies are being achieved through
use of volunteers and administration staff in bureaux to ensure
that the time of the specialist caseworker is used in the most
appropriate way.
— To ensure that everybody who needs the
help of a bureau can be seen, bureaux are both prioritising clients
and implementing new ways of working. If a client is identified
as being either vulnerable with support needs or with a crisis
case, for example if they are about to lose their home, they are
prioritised for an appointment.
— Bureaux are piloting new ways of working,
with greater use of volunteers.
— Not all clients need to see a specialist
debt caseworker. There are a range of assisted self-help tools
available that clients can be shown which may mean they can start
to resolve their problems themselves, rather than waiting for
an appointment. These include tools and information on www.adviceguide.org.uk
— A perennial issue of all appointment
based services is clients who do not attend their meeting. Reducing
the number of clients who fail to present for their session with
an adviser, and ensuring that this time is not wasted is a core
part of the work of the bureau.
— The impact of the recession, has meant
that people who were previously financially included, have become
at risk of financial exclusion if their debt is not managed and
controlled. Advisers have noted that the range of people seeking
debt advice has changed with both high and low wage people now
seeking advice, often about priority debts and mortgage arrears.
With demand for debt advice already at record
highs, we are conscious that if this recession follows previous
trends, then after the economy improves there can be a significant
time lag in terms of demand for advice on debt and benefits. Debt
can remain manageable for a long period of time with it only becoming
a crisis if clients experience a change in circumstances due to
redundancy for example, or if bills become too large to keep up
minimum payments. The time lag in clients reaching this point
means that for some time after a recession it is important for
services to be available for clients to use.
DELIVERY CHANNELS—THE
VALUE AND
NEED FOR
FACE-TO-FACE
ADVICE
The Citizens Advice service gives assistance
to clients face-to-face and via the internet and telephone. In
this way clients can choose how they would like to receive their
information depending on their needs and capabilities. Telephone
advice is usually better suited to those who are capable of handling
their debt problems independently after receiving advice. Face-to-face
advice is the most effective way of financially excluded clients
receiving advice. These clients often struggle to identify and
deal with their money problems and maintain repayments.
— The face-to-face advice projects were
designed to address a specific gap in the advice sector. Face-to-face
advice for debt problems was available, but there were often long
waiting times for appointments. Increasing provision of this kind
of advice was identified as the most likely way of reaching the
poorest and financially excluded. Data from the FIF projects about
their work shows that the target group has been reached.
— Those lacking access to banking services,
affordable credit or insurance can often result in over-indebtedness
through people using high cost sub-prime financial services with
unfavourable terms and conditions.
— Research seems to suggest that large
numbers of people on low incomes, many of whom would be financially
excluded, seek the human touch and a more personal service in
relation to financial affairs. For people used to officialdom
and society judging them and finding them wanting, face to face-to-face
contact allows clients to experience the fact that the adviser
will not judge and, in fact, will be on their side.
— For clients who present at bureaux with
complex debt situations and who are not confident in dealing with
their own financial affairs, receiving help face-to-face can be
the only way the full picture of their debt problem can be established
and accurate information given to them by a caseworker.
— Visual contact between a caseworker and
the client can be especially important in gauging whether a client
has understood what they have been told. This contact allows advisers
to build an atmosphere of trust within which hidden or deeper
debt issues can be tackled. Advisers often note that people come
about one debt problem, but this really masks many more and it
takes an exploration within an atmosphere of trust to get to the
root causes of the problem.
INVOLVEMENT OF
THE PRIVATE
SECTOR
The Citizens Advice service works in partnership
with the public, private and voluntary sector in delivering a
wide range of projects to help our clients. Whilst it is important
to recognise the benefits that each of these sectors provides,
it is key not to lose sight of why the Government's FIF programme
was designed to deliver face-to-face advice through local advice
services in the not for profit sector.
Poorer households make unattractive customers
for most private sector debt advisers as they have lower levels
of disposable income to cover repayments and are not therefore
attractive for a commercial provider of debt advice and debt management
services, unless of course they pay a fee. Money Advice Trust
research has found that where fees are charged by debt management
companies these can be equivalent to 18% of the customer's debt
repayments monthly.
The people who seek advice from Citizens Advice
Bureaux are living on half the average income and most do not
own their own home or have any assets. Our most recently published
report on our debt clients' profile (A Life in Debt, Citizens
Advice, February 2009) found that it would take our clients 93
years, on average, to repay their debts at a rate they could afford.
Many of their debts were to priority creditors, like fuel, rent
or council tax and only 9% of our clients had any assets worth
more than £300. Just 12% had a positive balance in a bank
or building society account. We are not generally serving a client
group that the commercial sector is interested in serving.
Low income households often struggle with low
value debts and sometimes also a range of other welfare issues.
Our clients can often lack the required skills or knowledge to
progress their own negotiations confidently. This can make providing
advice to this group complex and time consuming. Debt solutions
such as Debt Management Plans or IVAs are unlikely, in the case
of the poorest households, to generate a commercial return for
a fee earning advice agency.
We find that many advice agencies that depend
on fees or income from settlements will refer customers, where
they are not in a position to help them directly, to non-commercial
advice agencies, such as ourselves.
THE GOVERNMENT'S
OVER-INDEBTEDNESS
STRATEGY
Citizens Advice was represented on the initial
over-indebtedness steering group (which oversaw the creation of
the strategy) and have been a member of the wider "advisory
group". We agree with the NAO's finding that the cross-Government
strategy for tackling over-indebtedness has lost focus and momentum
since its inception. We have not regarded this group as a vehicle
for getting things done and it has perhaps been a missed opportunity—had
there been an effective structure across government and wider
stakeholders for identifying emerging trends in the scale and
nature of indebtedness, and monitoring the impact of government
interventions, the Government might have been in a better state
of readiness for responding to the recession. It was apparent
to us during Summer 2008 that despite the theoretical presence
of the over-indebtedness programme the Government did not have
up to date intelligence on the extent of consumer exposure and
therefore potential impact from sudden financial shocks, such
as job loss.
However, despite the weaknesses in programme
leadership and governance that the NAO identifies, the government
has provided energetic, timely and joined-up responses to the
recession in the past two years (primarily focussed on support
for home owners), has influenced consumer credit providers to
exercise forbearance when customers are in debt without the need
for legislation or formal regulation and instigated several major
reviews of aspects of consumer credit. The Government has also
increased investment in local advice services and telephone money
advice services (primarily through the Pre-Budget Reports in 2008
and 2009). It is arguable that the continuing low interest rates
during the recession have been a key factor in suppressing demand
for debt advice.
The Financial Inclusion Fund was conceived before
the recession and it could be argued that it has assisted enormously
in enabling local advice services to be able to cope with the
increased demand for their services since the recession began.
It is debatable whether better outcomes within this programme
could have been achieved if the over-indebtedness programme governance
machinery had operated as might have been intended.
We would also offer the view that with the creation
of the Financial Inclusion Fund by HM Treasury and the allocation
of responsibility for managing distribution of some of the funds
to DTI (now BIS), the focus within DTI (now BIS) shifted—rightly—to
concentrating on this programme and reporting to Treasury. Reviewing
the original over-indebtedness strategy and action plan it is
apparent that many of the proposed interventions or ongoing delivery
areas are not particularly well targeted. This made leading the
programme and evaluating its achievements challenging without
sufficient authority. The team within the Department was scaled
back and carried a wide range of responsibilities—including
implementation of EU consumer protection legislation.
Moving forward we would suggest that instead
of trying to revive the current over-indebtedness action plan
the Government learns from the lessons of the policy and spending
responses to the recession and puts in place appropriate arrangements,
with appropriate leadership and authority, to monitor and co-ordinate
responses to over-indebtedness going forward.
4 March 2010
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