Debt is always going to be an
emotive and sensitive issue as many different types of people and businesses
fall into debt for different reasons. The biggest area of debt in the UK is
money owed to Central Government, which is estimated to exceed £25 billion (of
which £5 billion to £7 billion is over 90 days old), and originates from many
sources including unpaid fees, taxes, fines and loans, benefits or tax credit
overpayments, and unrecovered costs from court cases.
In 2010, the UK Government
announced its commitment to addressing this problem and improving debt
management by setting up a Fraud, Error and Debt taskforce. The unit set out
its vision and roadmap by publishing an interim report in February 2012. This
was followed by a National Audit Office and Public Accounts Committee review in
2014, which confirmed that there was no integrated approach for managing debt
across Government, and that too much overdue debt was being allowed to “age”
leading to value erosion.
To remedy this, a public
tendering process was held and a joint venture was formed between Government
and TDX Group in 2015. The company, named Indesser, provides Government and the
wider UK public sector with a single point of access to a wide range of debt
management and collection services.
Government can now access
services as a single customer, presenting a significant change from 2012 when
the Government had over thirty separate contracts for managing debt. In
addition, Indesser is set up as a streamlined process, with the fair treatment
of individuals in debt at the heart of what it does. Ensuring that individuals are removed from
the stress of having multiple debt collection agencies and parts of Government,
approaching them in different ways.
Since going live in mid-2015,
Indesser is widely acknowledged to be exceeding expectations and has provided
the Exchequer with greater returns than forecast in the original business case.
Indesser aims to grow its UK Government services and footprint in the coming
months and to use its experience and expertise to help Government’s outside of
the UK to address similar challenges. A vision which is strongly supported by
the Cabinet Office and the Indesser customer departments.
Sunil Shahaney is Director of
Government and Public Sector at TDX Group
As the economic outlook for
the UK continues to change based on the result of the EU referendum and greater
global uncertainty, we can expect to see a whole new wave of consumers entering
the arrears space over the next 12-24 months. These people will have little or
no experience of adverse credit, but may find themselves increasingly squeezed
by low real wage growth and rising prices, so could fall into debt for the
first time.
Following the UK Brexit vote
the Bank of England has reduced interest rates, but a 0.25% shift will make
very little difference to the behaviour of most high street savers or
borrowers. However, this cut is likely to further exacerbate the downward
pressure on sterling which will ultimately make all imported goods in the UK
materially more expensive and further squeeze consumers.
Over the last few years,
consumers have benefited significantly from low interest rates which have
ensured affordable mortgage repayments. However, rising import prices are
likely to have a material impact on the Consumer Price Index and could
ultimately force the Bank of England to reverse its recent interest rate cut
and begin increasing rates to maintain inflation targets. This is likely to
lead to some difficult choices for the Bank of England over the next 12 months,
between measures aimed at stimulating the economy and measures aimed at cutting
inflation. We could even see 1970s style stagflation emerging once again!
What does this mean for
consumers…
Low growth and rising rates is
a perfect storm for the UK’s consumer-focused economy. This combination will
further squeeze disposable income for most and will disproportionately impact
the middle classes; a group that (in the main) have not previously encountered
debt problems and have managed to keep multiple obligations up to date. As real
disposable income falls, some of this group will be forced to make hard choices
for the first time, regarding which payments to maintain and which to
temporarily halt.
…and for creditors?
The situation presents a
unique problem in how to manage good, loyal customers who historically have no
payment issues but may now fall into short to mid-term debt problems. Creditors
will need to use all available data to really engage with these customers and
most importantly adopt a longer term “through the cycle” approach to any
current debt issues. Creditors who look to follow normal processes to recover
debt may well find these customers reluctant to engage and ultimately unwilling
to return in future when their debt issues have ended. This is a classic short
term recovery versus long term value problem, which only the most progressive
creditors will be able to solve.
Stuart Bungay is Group Product and Marketing
Director at TDX Group
