On 22 April 2021, StepChange announced that it was proposing to cut its staff by 10%. It has started the process of consultations about 140-17o redundancies.
To many people this will sound bizarre.
In October 2020, the Financial Conduct Authority (FCA) found that 20 million people have seen their financial situation worsen because of Covid-19 and 7.7million people saw it worsen a lot. The FCA estimates 8.5million people are “over-indebted” and so could potentially benefit from debt advice.
So with more financial problems than ever, why is one of the largest debt advice agencies making cuts? Especially as £38million in extra funding was made available for debt advice in 2020 by the Money and Pensions Service (MAPS)?
Phil Andrews, the StepChange CEO, has explained why StepChange has had to do this in Exceptional times, exceptional measures, and the future.
But I think this crisis for StepChange is actually a broader crisis for the whole debt advice sector, with the way debt advice is funded proving not suitable in the current debt environment.
Fewer people took debt advice in 2020
StepChange was contacted by 500,000 people in 2020. But it gave full debt advice to only 200,000, a third down on the 300,000 people it advised in 2019.
Covid-19 emergency measures such as furlough, payment breaks and temporary benefits increases enabled many people to get through 2020 without debt advice. In many cases this was just postponing the debt problem, with interest still being added. This “kicking the can down the road” is sensible when you don’t know what your income will be like in six months time.
Everyone – government, MAPS, debt advice agencies – is expecting demand for debt advice to increase at some point in 2021. StepChange had been planning on the basis of 400,000 needing debt advice from it this year. But the emergency measures have gone on much longer than expected and the increase in demand for debt advice hasn’t yet started.
This has badly hit StepChange’s income.
80% of StepChange’s income in 2019 came from “Fair Share” contributions. These contributions are made by some creditors getting monthly payments from the Debt Management Plans that StepChange is best known for.
The pandemic has cut Fair Share income in two ways:
- fewer new clients have started DMPs;
- many clients already on DMPs have had to reduce or suspend their payments if their income has fallen.
As Andrews says, the pandemic has laid bare the flaws in the Fair Share approach of funding debt advice:
The fact that we expect demand to increase in the future doesn’t change this current reality.
Fair Share isn’t just flawed – it’s broken
Andrews emphasises problems arising from the pandemic and the unexpected delay in the increase of people needing debt advice. Both very fair points.
But that suggests that debt advice funding is facing a temporary problem – the proposed redundancies and more emphasis on efficiency and things will improve. That doesn’t look right to me.
There are three major problems with Fair Share.
1) Fair Share contributions are optional
Paying a Fair Share contribution is optional for creditors. Every industry outsider thinks this is bizarre, but originally it worked reasonably well, with most creditors choosing to pay Fair Share.
Peter Wyman, in his January 2018 Independent Review of the Funding of Debt Advice pointed out that:
[in] recent times the make-up of debt has changed markedly, with a much greater proportion now made up of debts to creditors who do not typically contribute to Fair Share.
The proportion of consumer debts such as loans and credit cards has fallen. Benefits overpayments and arrears on council tax and other household bills have increased every year.
Many of these are priority debts and not included in DMPs – but they reduce the amount available for DMPs. The non-priority bills are included, but their creditors don’t normally pay Fair Share contributions.
Wyman’s recommendations to get more people to contribute to Fair Share on a voluntary basis have failed and the trend towards more non consumer debts has continued.
2) Disposable incomes are falling
Wyman also identified the second issue:
Disposable incomes have also tended to reduce, which also reduces the amount of debt repaid through a Debt Management Plan and therefore Fair Share contributions.
For the debt advice sector this is more intractable than the issue of optional contributions. It is out of the control of MAPS, debt advice agencies and creditors, resulting from the economy and government policy, with real wages and benefits not keeping pace with inflation.
Well-designed debt advice funding would be counter-cyclical, providing extra resources when demand spikes in a recession. Instead, income from Fair Share drops as disposable incomes fall. Wyman had no proposals to tackle this fundamental problem with Fair Share.
Disposable incomes continued to fall after the Wyman review in 2018-19. And in 2020 the pandemic meant many StepChange clients in DMPs needed to reduce or take a break from their DMP payments, all impacting on StepChange’s Fair Share income.
This is not a temporary problem that will correct itself over the next year. And if the £20 a week uplift to Universal Credit is removed in the Autumn, it will get a lot worse, with a third of StepChanges clients being badly affected.
3) DMPs are becoming less important
The third problem is that debt advice is becoming more complex.
The changes in the sorts of debts clients have and lower disposable incomes make DMPs less suitable for many. A funding model where 80% of income for a debt advice agency comes from one debt solution seems inappropriate if that solution won’t work for the majority of new clients – if not 80% at least 50%.
The Insolvency Service has started the process of overhauling insolvency options with the DRO consultation it started in January. Long-overdue, it should help many clients.
But for StepChange, the increased numbers who will be eligible for DROs promise a double financial whammy – additional DROs that it is not funded adequately for and a reduction in the number of clients on low monthly payments DMPs, who should be transferred to the more appropriate DROs.
Efficiency? Unlikely to be the answer
Andrews said:
This Covid-related shift in our operating landscape also happens to coincide with major operational change, which was already under way before the pandemic, to make our ways of working significantly more flexible and scalable to prevailing market conditions.
Which is on message with Wyman’s emphasis on promoting more efficiency. But how realistic is this when debt advice itself is becoming more complex?
Fintech advances such as Open Banking and Machine Learning that Wyman was enthusiastic about could facilitate say DMP annual reviews. It is not clear they are of much use with a client who needs to apply for a Discretionary Housing Payment or whose mental health problems mean they need practical help dealing with creditors and bailiffs. Or for clients with negative disposable income.
If StepChange sidesteps this sort of debt advice, it doesn’t change the problem for the debt advice sector – it just pushes the more complicated cases to the equally badly funded face-to-face services.
Time for a rethink of debt advice funding
The Terms of Reference for the Wyman review were to consider how much debt advice will be needed, how much it will cost and how it will be funded over a five year period.
Just over three years later, the report looks largely irrelevant. All the debt advice trends were working against the Fair Share debt funding model before Covid-19 – more non-consumer debts, lower disposable incomes, more complex debt cases.
Now the pandemic has demonstrated how a debt funding model based on the amount people in debt can repay is always going to fail badly in recessions, when it is most needed.
And the news of the StepChange redundancies means a rethink is urgently needed. No-one thinks the demand for debt advice is going to stay low over the next two years.
DROs may be changing to help more people
Would a breathing space help you?
SFS – why figures should be published
Warwick65 says
Quite frankly I think ‘fair share’ is an appalling system. It questions the fundamental basis of debt advice when your organisation funding is proportionate to the amount of debt repaid – often debt that is unenforceable in law and should never have accrued in the first place
Dean Russell says
I personally think that the whole Debt Advice sector needs looking at. Its getting ridiculous on the amount of information we have to give client, things are getting lost in translation. Instead of concentrating on clients best option MAPS want the whole lot. I have seen a Confirmation Letter sent to a client where they have advised the client they cannot do a Admin Order ( why mention it). However i have never personally been a fan of DMPs, but i do see it in certain cases as a viable alternative, only if a DRO is not more suitable. A bit off topic, but does any one know what scenario
a Time Order would be an option for a 1st Mortgage.
Gary says
You cannot do a time order on a mortgage.
A time order is an order made under ss129-36 of the Consumer Credit Act 1974 which allows the court to reschedule the payment under a cred agreement regulated by that Act.
Sara (Debt Camel) says
You can have a time order on a mortgage. See https://www.nationaldebtline.org/fact-sheet-library/time-orders-for-mortgages-ew/?
Dean Russell says
I ask this because there is other options such as the Norgan principle and payment holidays etc. I dont see it as a runner, this is just my opinion however.
I can see a mortgage lender fighting tooth and nail if the court freezes the interest and reschedules the loan. If for example Debt Adviser helps client at the first hearing and is successful then i would be surprised if the mortgage lender did not appeal to the higher court. Who represents the client then? Will client then be stuck in limbo on there own, what costs could client incur.
I have just having thoughts to myself when it becomes a realistic option to the client.
I look forward to seeing a successful application and the reasons why the TO was granted.
Les says
Good morning
I am not sure if you know that Lendfair went into receivership on 30 March. It is a large company in the Guarantor Loans market. I found out from the Ombudsman yesterday when I asked how my claim against them was going.
Sara (Debt Camel) says
Yes, another reader has reported this on the guarantor loan page a week ago.
floyd says
Does Stepchange really do what is best for a client, from my experience client’s are driven down the fair share option or even referred to a 3rd party for their advice.
Mark Newlove says
For me it just compounds what I have always thought about Stepchange their model of profit making from misery is appalling. Plus the way that throw clients away who they are unable to make money from is equally as bad. The powers controlling Debt Advice really need to get their act together to reform the industry.
My view is that the FCA and Maps have done nothing to help and improve wages and expected targets that people like myself have to work to although being a non Maps worker I have no issue with my targets as they are realistic.
James says
StepChange is a charity and a not for profit. As someone who has never worked for StepChange, I see them as doing an incredible job helping more people out of debt than any other organisation in the UK. Their advice has been scruitinised by the FCA as part of their authorisation and ongoing supervision. Personally, I think the news is very sad and I feel for the advisors and staff who are going to have to find jobs elsewhere. Also thousands of people who could have been helped by those staff at StepChange, now, may end up at fee charging debt management companies or approaching IVA firms over the next 18 months.
The vast majority of debt advice in the UK relies partly on Fair Share. I’ve audited debt advice at many organisations and the vast majority of advisors out there are working hard to help as many people as they can. Staff in free debt advice aren’t in it for the money, and I’m sure that includes advisors at StepChange.
I very much agree with Sara – funding needs to change and become more sustainable. Although Fair Share is not ideal, we need sustainable and realistic alternatives. In the coming years, we need more funding for debt advisors – to provide more free debt advice. For me, it makes sense for some of that money to come from the credit industry (like Fair Share) rather than it all being paid for by tax payers.
Chris Bone says
MAPS funded contracts have their own issues as most people recognise.
In short, professional, skilled debt advisers need to have the hideous bureaucracy removed from their roles such as preparing 20 page advice letters in the main to satisfy audit needs not client needs. In today’s day and age, why we cannot move to simple taped advice interviews and free up time for case management and essential follow up work is beyond me.
Sara (Debt Camel) says
I agree.
There are places where “efficiencies” can be found in debt advice and not sending out pointless letters that are so long we hope our clients never read them is one of them
Streamlining the DRO application process by including all debts even if they are not listed is another (that requires co-operation from the Insolvency Service).
in general, the amount of work required for debt advisers need to be considered before any change – it’s not at all clear this was done with the Breathing Space!
Barry says
Agree completely about the MAPS letters. If I went to a plumber about a blocked drain I wouldn’t expect or want them to start telling me about my radiators and taps.
Daniel says
I was unaware that StepChange received funding from clients on DMPs, this wasn’t mentioned to me once. And has me questioning some of the advice I received.
Whilst I am very grateful for the initial help StepChange provided me in setting up a DMP, they were fairly unhelpful from there on in. I had a lump sum worth 50% of my DMP liability and asked them for advice, they proposed payments but not making any offers of settlement. I made some offers myself and was able to wipe the full debt with the lump sum.
Sara (Debt Camel) says
StepChange gets no funding from clients. All the money you pay to your DMP is divided between your creditors.
But those creditors are asked to pay an optional “Fair Share” amount of about 13% of the payments they get. Not all creditors pay this.
StepChange are often not very helpful with F&F offers.
Daniel says
Oh, yes I know all my money I paid to them went only to creditors. I was saying more I was unaware that there are potential financial incentives for SC to encourage people onto DMPs, and maybe prolong them.
That all being said SC are still much better than other predatory ‘debt solution’ companies out there. I’d also like to thank you Sara, your site was a massive help to me as well when I really needed it.
Briar says
Sad news about the StepChange redundancies – completely understandable and I found their reasoning very interesting. I had no idea how they were funded.
Thanks for highlighting it – I’ve passed the info along to colleagues of mine who sometimes need to refer people to them.
Barry says
I think this has been a long time coming for Stepchange. As other posters have said, their model relies on selling (or rather mis-selling) debt management plans to bring in income. If they can’t they just send them some template letters or tell them to go elsewhere – not sure that is treating customers fairly, but that’s for the FCA to decide. Having picked up some of these clients, the advice letters they get are awful. One, living in England, received information about benefits they could get if they lived in Scotland. The advice is little better. One despite having no assets and in social housing was referred to an IVA factory as their best option. Another was told they could pay £1 per month against a suspended possession order without needing to apply to the court. Perhaps Stepchange need to look closer to home for the reason their numbers are falling. But looking on the plus side, their income is obviously doing sufficiently well to keep their management living in style. knowing how stretched the rest of the sector is, take a look at their pay information on the Charity Commission website.
Jayne Bellis says
Hi Sara,
As always first to share the latest news well done! This amounts to a massive shift in the debt advice landscape, I wonder if the massive amount of consumer debt that has been paid off during lockdown has also impacted SC?
I am by nature an optimist, but on this occasion I am joining the consensus
I agree with your comments about the changing landscape of debt advice, there is simply not enough ‘consumer credit’ debt around anymore to subsidise the burgeoning mountain of ‘priority debts’ through a fair share funding model, without finding some way to compel ALL creditors to contribute. It’s also a shame more of the financial services levy can’t be directed towards debt advice provision.
We seem to be at the beginning of a perfect storm with no plan of escape! Increasingly complex cases; needing to integrate benefits and budgeting expertise in order to achieve the debt solutions (many of our DRO clients can take 6 months of work before we can even start work on the DRO!), clients reduced and unpredictable incomes; increase in priority debts, decline of the fair share funding model; more competition for smaller grant pots, not enough funding to pay our advisers what they are worth, Goodness!
I think someone needs to call for an industry summit quickly, otherwise free debt advice may be consigned to the history books.
Andy says
I had a DMP with StepChange many years ago when they were called the Consumer Credit Counselling Service (CCCS). It worked well for 12 months or so until they stopped paying one creditor who then began to pursue me relentlessly. When I contacted CCCS I was accused of trying to add a debt to my DMP that I had not informed them of. Then they cancelled by DMP without notice and I was pursued by all creditors. I complained and got the DMP reinstated but the damage was done. Interest began to accrue, charges added etc. Long story short I ditched them and buried my head in the sand. Several years on I am still in debt and now feel bankruptcy will free me from the feeling of impending doom that I have experienced in the years since. I owe about 18k, have no savings, no car, private rent and have nothing to lose. So while I feel sorry for those to be made redundant, I have very little regard for the organisation.
Sara (Debt Camel) says
I am sorry to hear that. StepChange changed its name in 2012, so the debts must all be pretty old now. Can I ask what sort of debts they were – credit cards, loans, overdrafts or what? And when you last made payments to them? And if they are all off your credit record?
If you haven’t made payments for more than 6 years, some of them may well be “statute barred”. And others may not be able to produce the correct paperwork so the debts may be unenforceable in court.
This is worth looking into before considering any form of insolvency such as bankruptcy.
Dean Russell says
Hi Andy, i would agree with what Sara has posted, the 6 years will start from the time the last payment was made or you acknowledged the debt either in writing in making a payment (you cannot acknowledge a debt over the phone). The defence of a creditor to prevent a debt from coming under the Limitations Act is to obtain a County Court Judgment (CCJ). I would start by obtaining a copy of your credit file and then take it from there. While you are doing this under no circumstances contact the creditors. Once you have your credit file then seek assistance from Citizens Advice Debt Team. Do not consider Insolvency until at least you have details of your actual debt situation.
Andy says
Hi Sara and Dean. Many thanks for your replies. This site is a great resource, much respect Sara. I do know much of the debt is statute barred, but it doesn’t stop the creditors chasing. I do however have two CCJ’s from 2017 and 2019 and now one is being enforced via the court. I had a bailiff at the door recently and of course I would not let one in. I also have more recent debt that is not yet defaulted on. Such as a water bill that I thought me ex was was paying. 5 years after we split they transferred it to my new address and they were asking for payments for water months after the house was sold. I argued and got nowhere so stopped paying them. That debt alone is 1k and the CCJ’s add 5k. The original debts were credit cards, loans etc. Nothing like fines, taxes etc. I’m maybe a little reticent in this and have pondered for a long time, as I used to be an employee of the Insolvency Service, though many years ago. I just want the worry over. Having been let down in the past by StepChange I feel I have to trust my own judgment and go with it and deal with the consequences.
Sara (Debt Camel) says
Well before you trust your own judgement, do talk to a debt adviser first. Seriously, it is well worth your time to do this. You may even qualify for a Debt Relief Order rather than bankruptcy. I suggest you phone National Debtline on 0808 808 4000.
Andy says
I will do that. Thanks Sara. I think I have too much disposable income for a DRO. But I’ll enquire. I just want this over.
Dean Russell says
Hi Andy, talk to a Debt Adviser at CAB. They can use what is called Trigger Figures to reduce your disposable income, the Trigger Figures may allow you to spend £400 per month on housekeeping for example. You may not realise what is justifiable spends when doing a DRO income and expenditure. To get the ball rolling start obtaining details of all your debts, get three credit reports from Experian, Equifax and TransUnion, (not all debts are included in Credit Reports, Council Tax for example). Unlike bankruptcy where all debts are automatically included, in a DRO the debts have to be individually included in the application. However this will be explained in more details if you apply for a DRO.
Concerned advisor says
Fair Share undoubtedly has problems. But so too does the centralised system of MAPS funding. Not just because of the well-known disgraceful targets, marking schemes, etc, but because it creates a ‘winner takes all’ market. I am thinking about this from the point of view of an advisor, who may be left with extremely few options if the contractor MAPS chooses is not a particularly good one. It creates a substantial imbalance of power between employee and employer.
I have heard on the grapevine that Citizens Advice is not bidding for some of the new MAPS contracts, so it will be interesting to see who actually is. And if those organisations have spoken to their current staff about what workloads or service standards they are committing to when responding to the tender. Sadly I doubt it.
John Wester says
StepChange will soon be announcing more redundancies due to not receiving any monies from the MAPS bid and this time it will be big. All their job adverts have come off.
Time for the CEO Phill Andrews to resign or be sacked as he has destroyed the charity.
Jayne Bellis says
I was under the impression CEO Phill Andrews was on a ‘sabbatical’ and the organisation was under the care of Acting CEO Vikki Brownridge?
Dean Russell says
I wonder what MAPs were thinking when they awarded the contract to Gregory Pennington to administer DROs. A lot of miss selling of IVAs coming down the pike?
Stevie J says
Stepchange are making 200 people redundant. Consultation is running until end of February.
Their funding model is flawed and they can not support their current operating model.
Even the CEO has abandoned the charity and resigned which speaks volumes.