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12 January 2023
I recently took a look at the hot topics in collections last year, including professionalisation, collaboration, and updates to regulations and legislation. Now we’re well into 2023, it’s time to look at what we should be aware of over the next twelve months.
On the whole, I believe the trick to resolving debt will be not just focusing on it but understanding the tangential issues that contribute to debt and signposting solutions that are not traditionally within our sphere of professional consciousness.
In this article, we will look at some of those external drivers, as well as some of the key milestones in the debt world.
As fixed term mortgages come to an end, there are several factors that are likely to make it harder for people to get a good mortgage deal.
A reduction in house prices combined with an increase in interest rates will drive down the Loan to Value ratio, which is a key factor in deciding mortgage risk. At the same time, inflation has eroded people’s disposable incomes, which drives down affordability. By the time you add stress-testing onto the mortgage application process, people will be stuck with (at best) their existing lender’s fixed rate or (at worst), the Standard Variable Rate. If this drives unaffordable mortgages then we could see forced sales, with the spectre of negative equity looming large, at a time when the private rental sector is shrinking and getting more expensive due to the exit of many buy-to-let landlords.
The only upside to this situation is that the banks, with the backing of the FCA, are likely to be more open to forbearance discussions than in previous times of economic stress.
National and local taxation
The Spring Budget has been touted for Wednesday 15 March 2023 and there is no reason to expect the Chancellor to reverse the decision to freeze the thresholds for income tax.
With wage inflation at ~6%, more people will be pushed into paying this tax for the first time, or pushed into a higher tax bracket.
With the pressures on local government finances, I would expect many to feel forced into making use of the chancellor’s decision to allow authorities the freedom to increase council tax by up to 5% without a local vote, instead of the previous cap of 3%. We have seen some councils say that they won’t raise it, but the bottom line is that public service have to be paid for and with local authorities heavily reliant on council tax to do so, it’s a tough decision to make.
From 1 April, the Energy Price Guarantee will change from £2,500 to £3,000, adding an average of £500 a year to a household on typical usage, at the same time as the Energy Bills Support Scheme ends (the universal £400 that every household received).
Given the media clamour, I would not be surprised if the government takes stock of how things go over the summer, before deciding whether a more targeted replacement is needed through the Autumn Statement.
As well as these, there are many other well-reported issues that will undoubtedly lead to an increase in arrears over the next 12 – 24 months (employment, relative poverty, consumer credit spending and so on).
The debt world
Regulation and legislation
The Enforcement Conduct Board has now appointed its CEO and we are expecting a consultation on the development and implementation of a robust code of practice, including rules to identify and deal with vulnerability and affordability.
Elsewhere we have the Treasury’s consultation on potential reforms to the Consumer Credit Act 1974. This comes off the back of several high profile calls to modernise the legislation, not least the Stop The Debt Threats campaign from the Money & Mental Health Policy Institute.
At some point during the first half of 2023, I expect the Housing, Communities & Local Government inquiry into council tax collection to report back (it began accepting written evidence over a year ago and met during June 2022). While there may be differing views on the direction, the general consensus of the IRRV, CIVEA, the ECB and the advice sector, all of whom answered questions during the meeting, was that the council tax regulations need revisiting.
‘The meaningful minority’
When looking at the overall receivables book, we don’t need to worry too much about those who pay on time, or the majority of those who don’t (as a significant proportion will self-cure within four weeks). However, there is a minority of those who don’t pay that we should be concerned about: the ‘meaningful minority’ who can pay but, for whatever reason, choose not to.
A critical success factor in 2023 will be the use of data to identify this cohort, followed by the intelligent use of behavioural science and dynamic treatment paths to secure engagement and payment.
To expand on that a little, the environment within which debt lives is changing at a rapid pace, so our treatment paths need to be able to adapt to match. For a long time, a one-size-fits-all collections process has been considered outdated, but now, even segmented treatment paths may struggle to keep up. Only dynamic next best action codes will do the job in the current climate.
Remembering that debt is about people, not about numbers, we will inevitably have to focus more on our customers if we want to ensure that our clients get paid. This does not mean asking our front line agents to learn several new skillsets; it simply means providing them with an awareness of an expanded set of services that they can signpost customers to.
It’s about really delving into the Expenditure side of the I&E equation and directing customers to the expert services that they need in order to improve their overall situation, freeing up more income to make repayments and lift them out of the burden of debt.
These services include businesses that can:
The speed of change is accelerating faster than ever before and if we fail to adapt to the increasing pace, then we will fail to maximise recoveries and minimise costs while supporting good outcomes for both customers and clients alike.
Just leverages its market-leading data and analytics to deliver improved outcomes for both customers and clients. Please get in touch if you’d like to discuss your current and emerging challenges.
Steve Coppard Group Director of Debt Policy and Strategy Just and Arum
About the author
Steve has been in the debt industry since 2001. He spent most of his career working in government, where he started on the phones collecting VAT debt and ended up being responsible for prompting improvements to the management of over £40bn of public sector debt. He joined Just and Arum in May 2022 where he continues to shape the biggest conversations in the debt market, having been recognised as an Influencer on the Credit 500 list for a number of years. Credit Management Magazine recently called him one of the industry’s genuine thought leaders.