Friday, 28 October 2016

Debt Market Integrator: Why Her Majesty’s Government decided to act on burgeoning overdue debt

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

Wednesday, 26 October 2016

The dawn of a new era for debt

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