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Money Advice Service launches strategic creditor toolkit

The Money Advice Service has created a strategic toolkit to improve creditor best practice for people in arrears. Entitled Working collaboratively with debt advice agencies, the document should create consistency between creditors to ensure best practice prevails and that customers are treated fairly.

It’s a comprehensive document designed to benefit both creditors and debtors. Hopefully, it will lead to closer links between debt advice agencies and creditors. And this should ensure more support for customers who are struggling.

Let’s take a look at what the Money Advice Service toolkit covers and how it can help.

How the Money Advice Service toolkit can help

According to the Money Advice Service toolkit, creditors who work directly with debt advice providers achieve fairer outcomes for customers and better customer engagement. It also makes for more sustainable solutions in which customers are less likely to fall behind with payments, having had access to debt advice.

One case study showed British Gas customers who were also StepChange customers. It found that 97% of clients remained up-to-date with payments after seeking advice and they were less likely to go into arrears. And when they did fall behind, they would owe less on average.

The report also suggests seven steps for creditors to work more closely with debt advice providers. These guidelines can help make sure they’re doing the right thing for customers.

These steps are:

  1. tracking how debt advice can benefit customers,
  2. using the Standard Financial Statement when assessing a customer’s affordability,
  3. signposting appropriate customers towards relevant debt advice services,
  4. getting an overview of what happens to customers after debt advice,
  5. having daily contact with debt advice providers,
  6. targeting specific customers for debt advice intervention, and
  7. following the Money Advice Service guidelines for ‘Supportive Creditor Standards’.

The toolkit also discusses how the Standard Financial Statement should help improve customer outcomes. It means that creditors and debt advice agencies are able to assess customer affordability more consistently. Creditors can also accurately work out whether to lend to a customer or not and debt advice agencies can create sustainable, resilient solutions.

When the Standard Financial Statement rolls out across the industry in April 2018, we should see creditors start to work towards the same standards – and this should help customers to avoid taking on debt they can’t afford.

You can take a look at the Money Advice Service toolkit in full here:

MAS – Working collaboratively with debt advice agencies

You’ll soon be able to get debt, money and pension advice from one place

A new Financial Guidance and Claims Bill was just one of the announcements in the recent (21 June) Queen’s Speech.

The Bill will create a new financial advice body to provide debt advice, money guidance and pension guidance from one place. This means existing services for these areas of advice will be combined, so consumers can find them in one place. Currently, there’s no date for when this financial advice body should be in place.

It will also mean that the Financial Conduct Authority (FCA) regulates claims management companies, and the Financial Ombudsman Service (FOS) will now handle complaints.

We’ll take you through what this means for our industry and for consumers.

A new financial advice body

The Government first announced that it would scrap the Money Advice Service (MAS) in March 2016. At this time, it also said the Pensions Advisory Service (TPAS) and Pension Wise needed restructuring.

With the new financial advice body, customers should receive a more consistent service when they’re seeking help or advice on debt, money or pensions. Hopefully, it will also mean better value for money as there won’t be three services to cover similar areas.

It also means they’ll be able to access all three of these services from one place. This will make the new financial advice body a centralised ‘hub’ for all advice related to money.

The single financial advice body will be funded by existing levies on the financial services industry, and on pension providers.

Claims management regulation

The Financial Guidance and Claims Bill will also mean that the FCA will regulate claims management companies. This includes companies who manage PPI claims, care home charges and bank charges.

Currently, the Government says that 76% of the public don’t believe that claims management companies tell the truth to their customers. This could be due to a number of claims management companies not providing a good service to consumers.

This will also allow the FCA to cap claims management companies’ fees to customers. This should mean a fairer service for consumers. It should also ensure a more robust authorisation process for new firms looking to enter the market.

Will the Financial Guidance and Claims Bill help?

We welcome all additional governance within the financial services market. We also think that the Financial Guidance and Claims Bill will mean more effective signposting and outcomes for customers and will ensure that they receive a better service.

The new single financial advice body will mean a more consistent experience for customers looking for debt and pensions advice, and guidance on money in general. It’s important that all customers get the help they need to tackle any financial issues they might be having, and that they’re supported to avoid and resolve debt related issues.

Q1 2017 individual insolvencies at highest level in almost three years

Individual insolvencies rise in Q1 2017

The number of individual insolvencies in the first three months of 2017 is the highest since mid-2014, according to new stats from the Insolvency Service.

Personal insolvencies in January to March were up nearly 7% since the last three months of 2016. The reason for this was a sharp rise in IVAs – these increased by more than 12%.

And what’s more, insolvencies didn’t just rise over the last quarter – they increased on the last 12 months too. Since this time last year, individual insolvencies rose by almost 16%. These new stats show that the number of people taking out IVAs has been rising fairly steadily since Q1 2015.

Type of insolvency Total numbers in Q1 2017 Change since Q4 2016
IVAs 14,539 12.5%
Bankruptcies 3,873 1.3%
Debt Relief Orders (DROs) 6,119 2.0%
Total insolvencies 24,531 6.7%

Source: The Insolvency Service

DROs fall, bankruptcies remain steady

While IVAs remained strong, the number of DROs continued to decrease. They fell 2% since the previous quarter, marking the third successive quarter they’ve dropped. Looking at the picture for the last year, DROs are down 9% since this time 12 months ago. This puts them at their lowest level since the changes to the eligibility criteria in October 2015.

Bankruptcies were slightly up, growing by just over 1%. Over the last 12 months, they’ve risen by nearly 4%. The main reason for this is due to the change in how people can apply for bankruptcy.

In April 2016, an online Bankruptcy Application came in for debtors in England and Wales. This made it easier to apply to go bankrupt, as people no longer have to go to court. And people can now also pay the bankruptcy fee in instalments, making this more accessible to some debtors.

Individual insolvencies are still well below the level they were at in 2009, just after the financial crisis. However, the stats do seem to show that the economy is starting to make things difficult for more people. At the start of the year, the UK economy grew by just 0.3% – this might be due to the current rate of inflation.

UK inflation steady at 2.3% for March 2017

One pound coin on inflation graph

Official figures from the Office for National Statistics put UK inflation at 2.3% during March 2017 for the second month. This means it’s at its highest level in almost three years.

It also means that inflation stays above the Bank of England target of 2% – this is as measured by the Consumer Prices Index (CPI) inflation.

UK inflation was at 1.8% in January 2017. Based on the trend over the last 12 months, it looks like inflation will continue to increase gradually throughout 2017 and could even hit 3% by the summer.

Why has UK inflation stayed the same?

The reason that UK inflation hasn’t changed this month is due to opposing pressures – things that have got more expensive and are pushing inflation up and things that have got cheaper and are pushing it down.

One of the areas where prices have gone up the most is food and non-alcoholic drinks. They now cost an average of 0.4% compared to February 2017. When we look at the picture a year ago, prices for food actually fell by 0.6%

CPI inflation rate from March 2007 to March 2017

Source: Office for National Statistics

The main thing keeping CPI down is cheaper air prices. These are down 4% from the month before.

But the data doesn’t give the full picture here – the reason that air fares were down is because Easter fell in March in 2016. As it’s in April this year, air prices are likely to pick up over the next few weeks. This means that it’s more than likely that we’ll see a jump in UK inflation next month.

Petrol prices dipped slightly in March 2017, another reason why inflation rates stayed steady. When we look at the stats compared to this time last year, fuel costs were actually up 17%.

“Food, drink and clothing prices all rose in March. However, this is offset by air fares, which fell slightly but last year rose substantially thanks to the timing of Easter. The costs of raw materials and the price of manufactured goods leaving factories were both little changed, as falling fuel prices helped stem further rises.”

Jonathan Athow, deputy national statistician, ONS

Inflation reaches 1.8 percent during January 2017

Figures from the ONS have shown that inflation has risen to its highest rate since June 2014.

While fuel and food prices were the drivers behind the spike, clothing and footwear costs fell compared to a year ago. Though this looks certain to rise in the coming months

The rise to 1.8% is just 0.2 percentage points off the Bank of England target of 2%. Given the current decline in sterling, leading to increased raw material and fuel costs, inflation looks likely to increase beyond the Bank Of England’s target figure by the end of 2017.

The trend is clearly towards higher inflation, however, and we should expect the rate of price increases to rise above the 2% Bank of England target in the next few months. By the end of this year, inflation is likely to be around 3% and possibly even higher. Rising energy prices and the weakness of the pound are the main factors behind this expected increase.

Andrew Sentance, Senior Economic Adviser, PwC

CPI 12-month inflation rate for the last 10 years: January 2007 to January 2017

Figure 2- CPI 12-month inflation rate for the last 10 years- January 2007 to January 2017

Source: Office for National Statistics

The last time inflation hit 2% was during December 2013. Petrol, which was cited in the most recent increase, was on average 1.30p a litre according to the AA Fuel Report. The average price for a litre of unleaded in January 2017 was 119.5p.

You’d need to go back to April 2012 to find inflation at the 3% mark – although there were brief flirtations with this figure between February and July in 2013. Then it reached 2.8% in February, March and July as it peaked during June at 2.9% in that year.

2016 total insolvency figures second lowest for 10 years

2016_shutterstock_333534545

Individual insolvencies for 2016 rose 13% on the previous year but were the second lowest annual figure for 10 years.

A total of 90,930 cases were reported with IVAs being the most common path of insolvency. The number of IVA cases in 2016 are the third highest annual figure of IVAs in the last 10 years

Type 2016 Total (provisional) % Change on 2015
Bankruptcy 14,989 -5.4
DRO 26,196 8.4
IVA 49,745 23.2

Even with the introduction of the online adjudicator service, Bankruptcy figures decreased by 5.4%. Orders on the application or petition of the debtor decreased by 2.6%, while those on the petition of the creditor fell 12.6%.

The increase in DROs is attributed to the change in eligibility criteria since October 2015.

The overall uplift on 2015 is the first time that annual insolvency figures have risen since 2010. In this instance, the rise was 6.4% on the previous year.

 Q4 Analysis

Compared to the same period in 2015 total insolvencies have risen by 9.8%. Bankruptcies stayed at a similar level while DROs fell by 4%. IVAs rose by 21.7%. From the previous quarter, total insolvencies were down by 4.3%.

Prior to Q4 in 2016 total individual insolvencies had risen for five consecutive quarters. This was driven by an increase IVAs.

Growth in borrowing

The quarterly figures came a day after figures from the British Bankers’ Association indicated that borrowing (consumer credit) rose at an annual rate of 6.6% against a backdrop of falling retail sales.

Similarly there has been a great deal of debate, both from Bank of England officials and in the media, about consumer indebtedness through unsecured lending. The rate of growth in unsecured lending may be cause for concern if interest rates were to rise during the course of the year. Although annual growth of 6.6% is slower than the rate of growth of around 7% in October, this is still very high and out of line with average real earnings growth and inflationary expectations. There are signs that retail growth is flatter on a 6-month moving average, and December’s retail sales actually showed a substantial drop in retail spending on a month-on-month basis.

Some of this may be because Christmas sales (and therefore expenditure) are pushed increasingly into October and November. However, the fact that retail sales growth was slower in November and negative in December suggests that consumers were holding back slightly and this is reflected in the unsecured lending data.

Rebecca Harding, Chief Economist, BBA

You can read the full article on the BBA website.

The full release for insolvency stats can be found on the Insolvency Service website.

PM Theresa May signals mental health care proposals

The Prime Minister has spoken about new plans to support mental health care in the UK.

This includes:

  • new support for teachers and schools with every secondary school in the country to be offered mental health first aid training and new trials to look at how to strengthen the links between schools and local NHS mental health staff;
  • a new partnership with employers to improve mental health support in the workplace;
  • plans to invest £67.7m to rapidly expand treatment by investing in digital mental health services – meaning a patient can check for symptoms before getting an appointment.

Details of the new approach were revealed at the Charity Commission lecture at which some startling government statistics were also delivered. Including, at any time, one in four people has a mental disorder, with an annual cost of £105bn, with young people being disproportionately affected.

From a debt viewpoint, one of the most relevant announcements from the PM’s speech was a review into the Debt Health Form. This is where patients are charged anything up to £300 by a GP to provide supporting documentation to show that someone suffers from a mental illness.

The new plans mention the following:

“Despite known links between debt and mental health, currently hundreds of mental health patients are charged up to £300 by their GP for a form to prove they have mental health issues. To end this unfair practice the Department for Health will undertake a formal review of the mental health debt form, working with Money and Mental Health.”

At Harrington Brooks, customers who are identified as being the most vulnerable are handled by a Specialist Support Team.

Some of the other key focus areas were also identified as:

  • Transformation of attitudes to mental health
  • Young women being at high risk
  • Youth anxiety with politics and employment opportunities voiced as key concerns

Further research and reading that you may find useful:

Average UK household debt is nearly 13k

New analysis shows that debt in UK households is rising with average debts of £12,887. This is based on Q3 figures in 2016. During the same period in 2015, the average was £11,770.

The analysis by the TUC also highlighted a big change in total UK debt. The total level of unsecured debt has increased to £349bn. This is more than the previous high of £290bn in 2008. The £349bn figure also includes student loan debts. With student debts excluded, the Bank of England last week said that UK unsecured credit stood at £192bn in November 2016.

The level of unsecured debts, as a share of household income, is now 27.4%. This is at its highest level since 2008.

These increases in household debt are a warning that families are struggling to get by on their pay alone. Unless the government does more for working people, they could end the New Year poorer than they start it.

Employment may have risen, but wages are still worth less today than nine years ago. The government is relying on debt-fuelled consumer spending to support the economy, with investment and trade in the doldrums since the financial crisis.

TUC General Secretary, Frances O’Grady

A tax threshold change will also mean that UK taxpayers can earn up to £11,500 per year before they start paying tax. There will also be a 30p increase in the National Living Wage from April 2017. A move that was mentioned in the recent 2016 Autumn Statement.

While workers could be better off from an employment view, the cost of imports in the UK could be set to rise as the value of the pound began to fall last year. There is still uncertainty of what lies ahead for the UK economy with the Brexit process due to start by the end of March.

Dept for Work and Pensions and HM Treasury launches consultation on single financial guidance body

The Government is now seeking views on its proposals to create a single body to deliver debt, financial and pension advice to the public. This is in stark contrast to the position announced earlier in 2016, as under David Cameron and George Osbourne, the plan was to abolish MAS, Pension Wise and the Pension Advisory Service. The new Single Financial Guidance Body (SFGB) would look to complement financial guidance from charity and not-for-profit organisations.

The consultation outlines a desire from the Government to make provisions for free-to-client advice for those struggling with problem debt. Especially while the FCA continues its work authorising debt management firms:

“The provision of readily available debt advice remains a government priority. Problem debt can blight individuals’ lives and the government believes it is essential that people should be able to access advice to help them get back on their feet. Demand for free-to-client advice is increasing further as the Financial Conduct Authority’s (FCA) authorisation process removes debt advice firms who do not meet their standards from the market. In this context, the government is clear that SFGB must continue to fund debt advice to help ensure supply meets demand.”

Financial capability and education for young people is also something that the Government paper recommends the SFGB should try to encourage:

“Finally, the government thinks the SFGB should aim to maximise the impact of financial education for children and young people so that young people are prepared for the financial challenges they will encounter when they manage their own finances and pensions. Financial education has been on the curriculum in Scotland, Wales and Northern Ireland for several years. The government added financial education to the secondary school curriculum in England in 2014, and remains committed to the provision of financial education through the school syllabus. Financial services firms and charities offer programmes inside and outside of schools and stakeholders have suggested that a sector-wide body might usefully co-ordinate and influence these programmes. The government agrees that the SFGB should aim to work with the providers of these services to ensure that as many children as possible can benefit from well targeted and well-constructed financial education programmes.”

In particular, this is something we fully support. Matthew Cheetham, Chief Executive of the One Advice Group, said: “We are committed to helping young people to think about their own financial wellbeing. We have already supported a variety of schools with their financial education programme, and the objective of our PayDay game is to help school children understand about the need for effective money management. We look forward to working with more schools and local organisations to roll our Financial Education for Future Generations  initiative out further.” Read more here and here

financial-education

Helping local students learn about financial planning with our PayDay board game.

The initial feedback was critical of the online presence of the current MAS setup and how customers go about getting information through search engines:

“Instead, the government believes it is important that the SFGB has a well-optimised website. One of the lessons learnt from MAS is that traffic is optimised through consumers’ searches in search engines.”

It’s anticipated that the new body won’t be fully up and running until at least Autumn of 2018. The incumbent providers of debt and pension advice will continue to deliver services to the public until the new body is set up.

The consultation document can be found on the Gov.uk site and closes on the 13th February 2017.

 

Highlights of Theresa May’s speech at the CBI

Theresa May has discussed Corporation Tax, Brexit and start-ups at her first address to the CBI. Some of the main highlights are detailed below.

Brexit

While there is still uncertainty over Article 50 being triggered without a vote by MPs, The PM confirmed that the current plan is to press ahead with proposals by the end of March next year.  Prior to this, the PM is looking to set an agreement around the status of Britons living in the EU and EU nationals who are living in Britain.

Corporation Tax

While it’s not directly linked to the US election and promises made by Donald Trump, Theresa May highlighted ambitions for the UK to have the lowest rate for Corporation Tax within the G20 nations. While this currently stands at 20% in the UK it would need to fall by a further 5% to match the 15% rate that has been promised by the soon-to-be president. As it stands the rate is expected to fall to 17% by 2020.

Workers on company boards

During the leadership campaign the PM underlined plans to make businesses appoint workers to their boards. Her comments this morning have been widely interpreted as a u-turn on the issue, stating “that this is not about mandating works councils, or the direct appointment of workers or trade union representatives on Boards”.

Investing in Start-ups

She also announced a review to help start-up firms in the UK achieve longer term funding and investment:

“I want us to turn our bright start-ups into successful scale-ups by backing them for the long-term. To do this we need to better understand where the barriers are, so I am pleased to announce we will launch a new Patient Capital Review – led by the Treasury – that will examine how we can break down the obstacles to getting long-term investment into innovative firms.”

Precursor to the Autumn Statement

In Wednesday’s Autumn Statement the PM mentioned that news of a 2bn funding boost for Research and Development would also be made.

“So in the Autumn Statement on Wednesday, we will commit to substantial real terms increases in government investment in R&D – investing an extra £2 billion a year by the end of this Parliament to help put post-Brexit Britain at the cutting edge of science and tech.”

Philip Hammond’s Autumn Statement is also expected to allocate up to 1.3bn on road building and transport improvements.

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