The annual review of Spending Guidelines for the Standard Financial Statement (SFS) comes into place on Monday 4 April. The aim of the guidelines is to provide creditors and the advice sector with independently derived spending guidelines to provide a benchmark for typical flexible or discretionary monthly spending based on household composition.
Creditors and the debt advice sector are given at least two months’ notice of the change and there is a robust process in place to assess any changes in the guidelines. This includes use of the ONS Food and Living Costs Survey and/or any significant fluctuations in the Consumer Price Index.
Since the SFS was first implemented, rates of inflation have been relatively stable and the challenges of providing figures well in advance of implementation have not been too challenging. The current position, of course, looks very different. Inflation is at levels not seen in a generation, with global challenges around gas and other fuel costs and other challenges as we emerge from the pandemic. All of this is, of course, being exacerbated by the external geo-political situation which shows no immediate signs of settling down.
What does this mean for those in financial difficulty, creditors and the debt advice sector dealing with such consumers?
The SFS expectations are that only where the guidelines are exceeded (or where an adviser believes further reflection on expenditure is required) should they be used as guidance around levels of expected spending.
Given what we are seeing with rising costs of living, I suspect that creditors may see more income and expenditure forms which, on the face of it, breach the guidelines. However, I also envisage that, on closer inspection, many of those forms will demonstrate an accurate and acceptable level of expenditure on “discretionary items” which it must be remembered include food, cleaning products, personal care products and mobile phones/broadband. Many of these “discretionary” items are, in reality, needed for everyday life.
Debt advisers and creditors will, therefore, need to ensure that their staff have a very clear understanding of the guidelines and have the necessary training, flexibility and agility to respond positively to income and expenditure forms which show lower (or even negative) disposable income.
Spending guidelines set to increase
There is provision within the SFS for additional review of guidelines in case of significant inflationary pressure but, currently, no indication that this provision will be used. Of course, next years’ figures will be based on what has been happening more recently and, at this point in time, this suggests that we are likely to see a significant rise in the spending guidelines this time next year.
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Jim is Managing Director of Equivo’s Litigation Division and responsible for all litigation activity across the business. Jim works with Equivo’s clients to design and implement efficient, innovative and compliant debt recovery strategies which put conduct risk at the core of our thinking.
