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Why the debt charities must escape the Spending Review cuts

Thursday, 21st October 2010

We all know that debt help charities have an important role in helping over-indebted consumers resolve their debt issues. However, there must now be serious concern about their future levels of service if they have not escaped the level of their government funding being cut in the Spending Review. 

It is estimated that for 2009 there were around four million debt enquiries from over-indebted consumers. I know some of these would have been multiple applications to numerous debt management agencies, including the debt charities, but what on earth is going to happen to these consumers that need help if the funding is cut?  Remember this is BEFORE the Spending Review announcement; over the next two years the numbers of consumers seeking help is expected to rise dramatically.

Although difficult to be exact, many experts believe that the free sector of the debt advice industry can only handle around two million new debt enquiries per year. So where does this leave the rest, should the funding be cut to the CAB or National Debt Line when there is such a demand for its services?

It’s arguable that if it wasn’t for the fee charging commercial sector then the debt charities would just collapse under the volume of enquiries. The Citizens Advice Bureau, which is funded through local authorities, is seeing on average just under 10,000 new debt enquiries every working day.  

A bit like private education and health insurance, there is a need for the fee charging and extra service it provides.

Unemployed a major trigger of debt

Unemployed along with separation is one of the main triggers for debt problems. We currently have half a million vacancies in the UK with unemployment sitting at five times that. I read various reports that another half a million jobs are to be lost in the public sector with another half a million in the private sector.

Without any new jobs being created then the job / employment ration will be one job for every seven people! We haven’t even included any of the five million that are currently on benefits and the welfare system that will be forced back into work whether they like it or not. So key to all this will be to create jobs and pretty darn fast.

Is it all doom and gloom?

We can all be armchair economists which is all I seem to hear.  Most people are predicting doom and gloom, but what if the coalition get it right and do actually create the two million or more jobs they are predicting and the economy begins to recover and gather pace? What will the pessimists say then? Probably that they were lucky.

For some it will be too much, they will be under immense pressure to meet the mortgage payments, failure will lead to further house repossessions. Consumer insolvencies (bankruptcy, individual voluntary arrangements and debt relief orders) will break all records as consumers lose the battle to manage their debts. 

Change the way we live

Morally and socially we have been encouraged to spend and pay later through slick marketing and the easy availability of credit.  From this we have developed a culture of must have now. This now has to stop.

For many consumers they will have no other option other than to cut their expenditure if they want to survive, if you haven’t got it then you shouldn’t spend it. It’s as simple as that. There will be a lot of tightening of belts and some serious thought being given to “If you don't need it, can't afford it then don't buy it!” This won’t make me popular with any government because consumer spending drives economies, they need consumer debt!

One of my concerns is that individuals burdened with debts will not see any benefit from any future upturn. This is because debt levels will stay the same irrespective of any recession. Furthermore, if interest rates were to rise at some time in the future to combat inflation then this will put mortgage and credit card payments at a higher level.

The three ‘Cs’

The Spending Review along with job cuts will put a heavy strain on people’s finances which in turn drops our confidence to go out and purchase goods.

My marker for getting the economy going again would be the three ‘Cs’

Cash, Credit and Confidence. Cash is linked to Credit - get more Credit flowing in the economy and along comes the Cash. Then when consumers gain Confidence in their job status, they will have the Confidence to start spending again, as they buy goods and services, not forgetting use leisure facilities, and away we go!


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