MPs launch campaign for new law to transform government debt collection

The group of more than 50 MPs, drawn from all major parties in parliament, are urging Rishi Sunak to back the creation of a Debt Management Bill, which would scrap what they claim are outdated regulations on government debt collection.

The MPs include Baroness Nicky Morgan, Yvonne Fovargue - the chair of the all-parliamentary group on debt and personal finance, Sir Iain Duncan Smith, Caroline Lucas of the Green Party and former Lib Dem leader Tim Farron.

The letter calls for serious and systematic improvements to government debt collection, claiming that government debt collection practices lag behind those in the regulated credit sector. It proposes the introduction of a Debt Management Bill, which would encompass four key elements:

1. Enshrine a set of binding fairness principles in law, which all government debt collection must comply with and draw from improvements the private sector;

2. Transform local government debt collection, amending legislation so that collection processes are better value for money, more effective, and no longer worsen the initial debt issue;

3. Transform debt collection in the welfare system, so that historical welfare debts born of issues in the legacy benefit system are addressed and benefit deductions are made affordably;

4. Transform debt collection in the justice system, removing the sanction of imprisonment for council tax debt and introducing an independent bailiff regulator.

Reacting to the letter, Peter Tutton, head of policy at StepChange Debt Charity, said: “We agree the time has come for comprehensive legislation to provide a clear, fair and coherent framework for government debt collection to match the practices of the regulated credit sector.

“In that sector, FCA rules have succeeded in creating a far better environment – for both borrowers and lenders – where treating people fairly is enshrined as a principle and backed up by prescriptive rules that implement it in practice.

“Our latest research suggests 820,000 people owe council tax debts alone, and it cannot be right that, far from leading the way, government debt sector practices remain woefully behind those of the credit sector. Now is the perfect time to right that failure.”

While the MPs are calling for reform, a recent, landmark strategy document was published that does actually set out fair debt collection practices across central government.

The Government Functional Standard for Debt, which had existed in the months leading up to its publication on May 28, outlines conduct standards and a framework for government debt collection process. It was created and finalised within the Cabinet Office.

The document outlines the need for government departments to show, for example, "consideration of the need for forbearance in cases of vulnerability and hardship."

It also states that where a vulnerable customer is identified, they should be given "appropriate support and advice, which may include signposting to non-fee paying debt advice agencies."

One of the key points it states is that "organisations should use relevant sources of data and information to make informed decisions about a debtor’s individual circumstances, taking into account an individual’s ability to pay."

The standard also states that government debt collection teams should use a "toolset which facilitates assessment of income versus expenditure, including in work and out of work considerations, along with the ability to take irregular income into account."

The document adds that "any negotiations undertaken should consider the total balance owed by the debtor, across all accounts managed by the organisation."