The growing level of problem debt is costing taxpayers almost a quarter of a billion pounds every year as well as having wider economic consequences, according to the National Audit Office (NAO).
The NAO, the independent parliamentary body which scrutinises the spending of taxpayers’ money, estimates that the increased use of public services and housing by people with problem debt debt - the inability to pay debts or household bills - costs the public purse at least £248 million a year, with wider economic costs of around £900 million.
Problem debt affects around 8.3 million people in the UK.
It can have significant damaging effects, causing anxiety and depression, as well as increasing a person’s likelihood of being in state-subsidised housing.
Amyas Morse, head of the NAO, explains: “Problem debt has significant consequences both for individuals and the taxpayer. While government has made progress in seeking to address this issue, its attempts so far have been insufficient.
“The Treasury needs a better understanding of the scale of people’s debt problems and how it is impacting their lives and the taxpayer, so it can effectively resolve the problem.”
The NAO points out that government lags far behind the retail lending sector in following good debt management practice.
It says a lack of data sharing means government cannot identify individuals who owe money to more than one department, resulting in debt collection teams competing for repayments from the same person.
Short-term incentives and funding pressures may also be leading to debts being pursued too quickly and aggressively by local government. Meanwhile, limited information on debt is hindering HMRC’s ability to respond to the problem effectively.
The knock-on effect of these practices is increased anxiety or depression, which in turn exacerbates the problem by making harder to manage problem debt, the NAO says.
In response, the NAO is calling on the government to do more to reduce the impact of problem debt by improving its debt collection practices as well as the quality and availability of data across government departments on problem debt.
StepChange debt charity chief executive, Phil Andrew, says: “The NAO hits the nail on the head. Poor debt collection practices that fixate only on getting as much money back as quickly as possible are counter-productive and ultimately harmful. The government is simply robbing Peter to pay Paul, as the wider implications of government debt collection practices are costing taxpayers almost a quarter of a billion pounds every year.
“If the Treasury follows the NAO’s recommendations on how to continue its efforts towards improving the personal debt landscape, progress can undoubtedly be made to alleviate current problems. We will do everything we can to support improvements.”
Responding to the report, a spokesperson for the Treasury says: “We know that problem debt can be a struggle for some people. That’s why we’re taking action, because we want to make Britain a country that works for everyone.
"We’re increasing funding for the Money Advice Service to over £56 million, enough to help over 530,000 people get the debt advice they need. We’re also introducing a breathing space from problem debt to give people time to get their lives back on track.”