UK government offers ‘breathing space’ to 700,000 Britons in debt

New scheme offers debtors professional advice and mental health treatment

The UK Ministry of Finance's Breathing Space programme will offer debtors 60 days to get their finances back on track. Bloomberg

The British government is offering "breathing space" to about 700,000 people in chronic debt to help them resolve their financial woes without facing repercussions from lenders.

The new debt respite scheme, unveiled by the Treasury on Tuesday, offers debtors professional advice and mental health treatment while also stopping creditors from sending worrisome letters or launching enforcement action.

John Glen, Secretary to the Treasury, said the government was determined to tackle “problem debt” but acknowledged it was very hard for debtors to get their finances back on track if liabilities were piling up and creditors “at the door”.

“This scheme will give people breathing space from charges, distressing letters and bailiff visits, so they can tackle their problem debt with support from a professional debt adviser,” Mr Glen said.

“And to help people going through a mental health crisis, which is too often linked to financial problems, we’re bringing in stronger protections lasting beyond the end of their crisis treatment.”

British households took on more debt after job losses during the pandemic than their counterparts in France and Germany, the Resolution Foundation's After Shocks report in conjunction with JP Morgan Chase found.

The think tank said British residents also suffered a more severe income shock than those living in the two European countries.

“Strengthening households’ financial position, particularly among low-income households, through higher savings, less reliance on debt and a benefit system providing more income protection if they fall on hard times, should be a priority as we emerge out of the current crisis,” the Resolution Foundation said.

Despite a trend of paying down debts during the pandemic, a March study by savings firm Scottish Widows and data researcher IHS Markit indicated that the first three months of 2021 remained a quarter of squeezed savings, lower income from employment and less cash available for households.

The average person in the UK accrued £2,263 ($3,138) of debt in the 12 months to March, according to savings site VoucherCodes.co.uk, which found that millennials built up the most since the Covid-19 crisis.

The Treasury’s Breathing Space programme will benefit about 700,000 people in England and Wales in its first year, giving those in financial trouble 60 days to get their finances back on track.

People will receive legal protection from their creditors and have the majority of the interest and penalty charges frozen with any enforcement action halted.

Professional advisers will design a plan to revive debtors' finances, while those receiving mental health treatment will secure an extra 30 days of help.

The Treasury said the scheme would also benefit creditors, with more than £400 million in extra debt repayments expected in the first year of the scheme, as people are supported to get their payments back on track.

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