Will government advice on saving and debt protect us from our ticking financial timebomb?

‘Government can’t pass the buck’ over household finance crisis

Staring into the precipice: the Treasury Committee has called for immediate and uncompromising action on the UK’s personal finance crisis (Shutterstock)

The financial affairs of huge swathes of the country are unstable.

Millions of households have nowhere to go when, rather than if, everyday events upset the very fine line between income and spending walked by so many.

With unemployment low and recent headlines about increasing real wages it would be easy to assume that we’re in reasonably good shape as a nation of consumers. We’re not.

Personal debt levels are now at pre-financial crisis levels and just one of the major debt charities estimates that someone new contacts them every 51 seconds because they’ve hit the buffers.

They can’t afford to put food on the table because they’ve been desperately trying to meet repayment demands, the bailiffs have terrified their kids, doorstep lenders are harassing their frail and elderly parents.

That’s the dramatic stuff – the immediate, aggressive, tangible side of financial disaster.

Then there’s the silent creep towards a financial precipice many don’t even know is there. The 5 million self-employed at risk of an old age in poverty for example, ignored behind the fanfare of the workplace pension for being too complex a problem to tackle.

Seeking resilience

So far, the sticky-plaster approach to fixing these and other huge issues by rolling out a series of savings incentives, schemes and limits has only made things more complicated, erecting yet more barriers to getting back on an even keel.

This week, the results of a huge inquiry into the dire straits of many households by the Treasury Committee recommended yet another “major shakeup” of the rules financial companies must follow when it comes to debt, the way tax relief affects long term savings, and the insanely complicated products designed to help us save more and spend less, but which have so far failed.

The findings range from reforming “uncompromising” local and central government debt collection, urgent regulation of high-cost credit like overdraft fees, and bringing the self-employed into the pension auto-enrolment fold to scrapping the unhelpful Lifetime ISA and the downright foolish state pension triple lock. It’s broad in its recommendations to say the least.

Nicky Morgan MP, chair of the Treasury Committee, said: “Many households are facing challenges that are putting pressure on the health and sustainability of their finances. Over-indebtedness, lack of rainy day savings and insufficient pension savings are some of the weaknesses in the household balance sheet identified in this inquiry.

“The committee’s report makes a series of recommendations for the government to consider that would help households ensure that their finances are as resilient as possible.

“Whilst financial service regulators and guidance bodies have important roles to play, the government should not pass the buck to them.”

Usually when this kind of dramatic desk-sweeping happens, especially when half of the reforms suggest ditching products, services and legislative changes that have only recently been introduced, the financial services industry throws up its hands in frustration.

Normally, tinkering in this industry by politicians ranges from timid to pointless or they are considered vehicles for headlines and voter-courting that are so badly thought through they’ll do more harm than good.

This time the ideas are coming from the cross-party group designed to scrutinise the workings of HM Treasury and its affiliates including the Financial Conduct Authority (FCA), HMRC, the Bank of England and others.

Seeing sense

The financial services industry has welcomed their recommendations. That’s no surprise.

Many of these recommendations are what insiders such as debt charities and pension providers have been pushing for years.

Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs National Debtline, comments: “The Treasury Select Committee has done a good job of putting the issue of household finances high on the agenda in Westminster, where it belongs.

“This report contains welcome calls to action across a range of really important issues affecting households in financial difficulty – including the need to increase the supply of free debt advice, improve debt collection practices across the public sector and expand access to affordable credit.”

Phil Andrew, chief executive of StepChange Debt Charity, who gave oral evidence to the committee as part of its enquiry, says: “The committee’s report shows a clear understanding of the debt landscape, a keen awareness of where problems lie and a robust identification of who has the power to solve them. In many cases, it is the government which needs to take action.

“We agree wholeheartedly with the conclusion that the breathing space scheme should include non-credit arrears, and with the committee’s incisive comments on how the over-zealous approach to enforcing government debt, including the routine recourse to bailiffs, should be addressed. We look forward to working constructively with policymakers to help them address the problems set out so cogently in the report.”

What happens next?

“The committee’s report is wide ranging with a smorgasbord of suggestions and proposals that emphasise just how complex the long term savings market has become in the UK,” says Laura Suter, personal finance analyst at AJ Bell.

“Complexity is the enemy of engagement, so the committee is right to highlight measures to simplify things for consumers and help them manage their finances. However, the report looks at lots of different areas in isolation and arguably more could be achieved by an overarching piece of work that looks at the long term savings market as a whole and areas where it can be simplified to benefit consumers.

“For example, the Lifetime ISA has introduced complexity but there is a danger that scrapping it 18 months after introducing it, just as the product is becoming established, would further dent consumer confidence in the savings market. Such a drastic move should be considered within the context of wider changes that could help savers.”

Get on with it

Complex all this may be, but it is also increasingly urgent. The Treasury Committee has acknowledged that things have to change very quickly to halt the status quo which could cost people money they don’t have and deprive others of savings they will most certainly need in the future.

Whether that urgency translates through the rest of Westminster is another question entirely. This week’s report is not a series of policy plans that will soon be acted upon, however, and there is still the question of getting it past ministers to start making a difference in the real world. It won’t be easy.

“With all of these proposals there is a concern that the government, during the complicated Brexit negotiations, does not have the ability to spend the time on some of the changes that they require,” adds Suter.

“While many of the proposals in the report are sensible and would help savers to engage with their money, the most damaging thing would be for ill-thought-out policy to be rushed through by a time-strapped government.”