The government is introducing a 60-day breathing space period for people struggling with problem debt.
During this period, enforcement action from creditors will be halted and interest will be frozen.
Individuals will receive professional debt advice and those undergoing mental health treatment will receive the same protections until their treatment is complete.
The new breathing space period will come into effect next year. While legislation to enact breathing space had been planned to enter parliament in late 2019, the recent General Election meant this was not possible. The legislation will now be introduced in time for it to be launched in 2021 as originally planned.
The Treasury’s impact assessment for breathing space forecasts that it will help over 700,000 people across the UK get professional help in its first year, increasing up to 1.2 million a year by the tenth year of operation.
Of this, 25,000 to 50,000 people in mental health crisis treatment are expected to benefit from breathing space every year.
The Treasury claims that creditors will receive more than £400m in extra repayments in the first year, as individuals get the support they need to get their payments back on track.
“Being trapped in debt can be an incredibly difficult experience, and with interest and potential enforcement action to contend with, it’s no surprise how stressful the impact can be,” said City minister John Glen.
“Today’s figures underline just how critical it is that we roll out this policy, particularly on a day like today, where we should all work to reduce the stigma of mental health issues.
“That’s why we will introduce breathing space in early 2021 as planned, so we can level up the whole country and help millions of people to rid themselves of problem debt.”
The introduction of breathing space builds on previous government work to alleviate the impact of problem debt, including reforming regulation around consumer credit, widening access to professional debt advice and helping build individual financial resilience.
“We know that debt is bad for your mental health, with all the additional stress and anxiety that it can create,” said Phil Andrew, chief executive of StepChange Debt Charity.
“Around two in five people who turn to us have an additional vulnerability on top of their debt – and for half of them, that vulnerability is a mental health problem.
“However, the good news is that after debt advice, many people report improvements in their wellbeing such as being able to sleep better at night or cope better with day-to-day life.
“Breathing space will deliver much needed additional help in two important and connected ways. It will encourage more people to seek advice, and when they do, there will be better protections in place to stop further harm and help recovery.”