Poor data sharing across government means that departments are incapable of telling if members of the public owe money to more than one department, which leaves debt collection teams competing for repayments from the same person, a NAO report has found.
An examination by the spending watchdog found that the government only has a limited understanding of how personal debt affects public finances even as money owed to public bodies were an increasing problem. The spending watchdog said in its Tackling Problem Debt report that some 8.3m owed debt to government.
It said being in debt also increased the likelihood of people living in state-subsidised housing, and estimated that the increased use of public health and housing services by those affected cost taxpayers £248m a year.
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The cost to the whole economy was put at £900m a year, but the NAO said gaps in government data made it impossible to model impacts like employment and benefits.
Auditors found weaknesses in Treasury’s approach, which they said lacked any formal mechanism to bring debt issues together in a coherent way.
As well as not knowing if someone owed money to more than one department, the NAO said that government also performed worse than retailers in following good debt management practice, which was not used as standard by any part of central government.
Auditor general Amyas Morse said: “Problem debt has significant consequences both for individuals and the taxpayer. While government has made progress in seeking to address this issue, its attempts so far have been insufficient.
“The Treasury needs a better understanding of the scale of people’s debt problems and how it is impacting their lives and the taxpayer so it can effectively resolve the problem.”
The NAO called on the Treasury to ensure its policies on personal debt were delivered effectively and based on best practice, and said it should improve the quality and availability of data from across government on problem debt.
Frank Field, the chair of the work and pensions select committee, called the NAO’s finding that the proportion of reported problem debt owed to government had doubled to 40% in six years “a sorry indictment of the benefits policy and administration locking lower earning families in this country into a miserable cycle of debt and hunger, easy prey to loan sharks and forced to resort to food banks”.
Responding to the report, a Treasury spokesperson said: “We know that problem debt can be a struggle for some people. That’s why we’re taking action, because we want to make Britain a country that works for everyone.
"We’re increasing funding for the Money Advice Service to over £56m, enough to help over 530,000 people get the debt advice they need. We’re also introducing a breathing space from problem debt to give people time to get their lives back on track.”