The Department for Business, Innovation and Skills: Helping over-indebted consumers - Public Accounts Committee Contents

1  Providing support to the over-indebted

1. The Department's face-to-face debt advice project is delivered exclusively through third sector advice providers such as Citizens Advice.[2] The project is providing a very valuable service to consumers who find that they can no longer manage their debts, and is likely to remain relevant given the importance of credit to the UK economy.[3] The majority of consumers (81%) who had received advice reported that it had improved their financial situation.[4]

2. The Department's face-to-face debt advice project is projected to cost a total of £130 million for the period April 2006-March 2011. To the end of September 2009, the project had delivered help to some 270,000 people at an average cost of £311 per person. This is around 9,000 more people than planned, at a cost of £19 per person less than the budgeted cost. The overall average cost of providing advice since the project started has been falling as a result of higher costs initially to establish the project, and increased efficiencies as the project matures. The current ongoing cost of providing advice is £265 per user.[5]

3. The cost of advice varies across providers from £201 to £377 per person. Some of the variation is due to the different locations and parts of the community that advice providers are serving. However, some of the variation may also be due to efficiency measures that have been introduced by some providers. Many advice providers are assessing whether consumers need specialist debt advice or could be helped by a non-specialist advisor, or are diverting enquiries elsewhere. The Department does not examine cost variations in detail and so does not know what the impact of these measures is, nor how much of the variance between providers they account for. The Department agreed that it needs a better understanding of variations in the cost per user, and to share best practice between providers.[6]

4. There are different ways of providing advice, each with different average costs per consumer advised, and each appropriate to users with different needs. The Department's face-to-face advice costs £265 per additional consumer (after removing start-up costs), telephone advice £51 and internet advice is cheaper still.[7] £123.5 million of the funding for the face-to-face project was ring fenced by Treasury for face-to-face advice only, which is the most expensive form of provision. This means that it cannot be used for any other method of delivering advice. At the time that Treasury agreed funding for the project it considered that face-to-face advice was the best form of advice for the most vulnerable groups.[8]

5. It is important to understand the cost, appropriateness, and effectiveness of each delivery channel in order to maximise cost-effectiveness, yet neither the Department nor Treasury had carried out any comparative evaluation.[9] Of those surveyed by the National Audit Office, around a quarter of those who had received advice as part of the Department's face-to-face advice project stated that they would have preferred telephone or internet advice, both of which cost much less to provide. The Treasury considered that further research needed to be done to determine the most effective allocation of resources between the various different ways of providing advice.[10]

6. Funding for the face-to-face project was provided in response to an identified shortfall in free debt advice in 2004 and was for a stable level of demand.[11] Since early 2008 demand for debt advice has increased. For example, the period from July 2008 to July 2009 saw an increase in demand of 28%.[12]

7. In response to the increased demand, the Department has provided an extra £10 million of additional funding to Citizens Advice for general advice, increased its funding to National Debtline by 50%, and introduced a self-help kit for those less acute cases.[13] However, while advice services managed by the Department have delivered beyond the agreed capacity, on average by 10%, some projects still have waiting times of five weeks, and many have waiting times of two to three weeks. Two providers had to close waiting lists to new consumers.[14]

8. Funding for the Department's debt advice project beyond March 2011, and hence its ability to meet increasing demand, will depend on the outcome of the next spending review.[15] But the Department's project is only one of many different sources of debt advice for consumers worried about their debt levels. There are currently 56,000 licensed debt advice providers, and the Money Advice Trust estimated that two-thirds of Debt Management Plans are organised through the private sector.[16] The Department had not assessed the capacity of the various different sources for providing advice, or the quality of advice provided, but acknowledged that it would need to do this in future.[17]

9. To provide an effective service it is essential that the Department understands user needs so that it can target services. The Department collects data on people who are getting debt advice through the services it funds, but its data on the profile of the general population of over-indebted is more limited.[18] Those aged between 16 and 35 are three times more likely to become over-indebted than those aged 55 and above, but seem no more likely than other age groups to get advice as part of the Department's face-to-face project. 41% of those using the Department's face-to-face project are aged between 35 and 49, and only 22% are aged between 25 and 34.[19]

10. As well as delivering debt advice, the Department delivers a £16.5 million programme to tackle illegal lenders, or 'loan sharks'. So far, the Department has identified 900 loan sharks of which 150 have been successfully prosecuted. The Department is not able to say whether this represents good value for money because it has not yet evaluated the project, but it has plans to do so.[20]

2   Q 15 Back

3   Qq 27, 52 and 53 Back

4   C&AG's Report, paragraph 2.11 Back

5   C&AG's Report, Figure 7 Back

6   Qq 14 and 43 Back

7   C&AG's Report, para 3.13 Back

8   Q 15; C&AG's Report, para 2.5 Back

9   Qq 15 and 28; C&AG's Report, Recommendation b Back

10   Qq 28-30 Back

11   Q 15; C&AG's Report, para 2.2 Back

12   Q 43 Back

13   Q 43 Back

14   Q 44 Back

15   Qq 16 and 31 Back

16   Qq 16 and 17; C&AG's Report, para 3.7, Figure 4 Back

17   Q 17 Back

18   Q 15; C&AG's Report, para 3.16 Back

19   Qq 44 and 47; NAO Analytical Supplement, Figure 9, Back

20   Qq 36, 38, 40 and 42 Back

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