The audit watchdog has published a report on problem debt, which is defined as the inability to pay debts or household bills, affecting around 8.3m people in the UK, and which the NAO says are can have consequences for the wider economy because of the links with health problems and housing issues.

Its research found 40% of reported debt problems in 2017-18 relating to debts owed to government, up from 21% in 2011-12.

The NAO also estimates that the increased use of public health and housing services by people with problem debt costs taxpayers an additional £248m a year, and around £900m a year to the economy as a whole. It says that due to gaps in the government’s data, it is not possible to model other impacts including on employment and benefits.

While the Treasury has overall policy responsibility for problem debt and works closely with many organisations across government and the private and third sectors in trying to address this issue, the NAO says it has identified weaknesses in the Treasury’s approach. It does not have any formal mechanism or forum to bring issues together in a coherent way, ensure a common understanding of priorities, or collectively hold delivery partners to account.

The NAO estimates that the UK public owes at least £18bn to utility providers, landlords, housing associations and government, such as through council tax arrears or benefit overpayments. The Treasury has limited information on debt in these areas and, as such, does not fully understand the problem, which hinders its ability to respond effectively. The information available is much less clear and transparent than retail lending information.

The report also found that the government is failing to adopt the sort of good debt management practice now found in the retail lending sector. No central government creditors and only 19% of local authorities use established best practice in how to assess affordability of repayments, for example.

In addition, a lack of data-sharing means government cannot identify individuals who owe money to more than one department, resulting in debt collection teams competing for repayments from the same person.

NAO says short-term incentives and funding pressures may also be leading to debts being pursued too quickly and aggressively, particularly in local government, and its modelling estimates that intimidating actions and additional charges on over-indebted people are 15%-29% more likely to make debts harder to manage or increase anxiety and depression.

The report recommends that the Treasury should ensure its policies on personal debt are delivered effectively and are drawn on best practice. It must also improve the quality and availability of data from across government on the scale, nature and impact of problem debt on individuals and taxpayers.

Amyas Morse, NAO head, 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.’

NAO report: Tackling Problem Debt is here

Report by Pat Sweet