Recent reforms aimed at widening access to Debt Relief Orders (DROs) have successfully enabled more individuals facing financial hardship to secure a fresh start, according to a new review by the Insolvency Service. The assessment examined the impact of changes made in 2021 and 2024, which have significantly altered the landscape for those with low incomes and limited assets struggling with unmanageable debt.
Key among the reforms were increases to the maximum debt level and asset allowances. In 2021, the debt limit for a DRO was raised to £30,000, with the asset limit set at £2,000 and a vehicle allowance of up to £2,000. Further enhancements in 2024 saw the debt limit increased to £50,000 and the vehicle allowance expanded to £4,000. These adjustments were designed to ensure that a greater number of people could qualify for this form of debt relief.
The review highlighted the profound impact of removing the £90 administration fee for DROs in April 2024. This change alone led to a striking 78% increase in the number of people obtaining a DRO, underscoring how even a relatively small financial barrier can significantly hinder access to essential support. The 2021 eligibility changes had previously led to a 27% rise in DRO uptake, while the 2024 eligibility adjustments resulted in a 9% increase.
Claire Hardgrave, Co-Director for Strategy, Policy and Analysis at the Insolvency Service, emphasised that the reforms acknowledge the severe difficulties faced by individuals with unmanageable debt. She noted that removing unnecessary barriers helps maximise available support, guiding people towards financial stability. The Insolvency Service expressed gratitude to frontline practitioners, particularly debt advisers, for their role in implementing these changes.
For UK households, these reforms represent a crucial lifeline, particularly in a period marked by elevated living costs and persistent inflation. The Bank of England has maintained interest rates at 5.25% since August 2023 to combat inflation, which, while easing, still impacts household budgets. While the FTSE 100 has shown resilience, broader economic pressures continue to affect many, making accessible debt relief more vital than ever for those at the lower end of the income spectrum.
The findings indicate that policy objectives to simplify access to debt relief for those struggling with problem debt have been met. The Insolvency Service plans to use this evidence to inform ongoing work across the debt advice sector and government to further improve outcomes for people experiencing financial difficulty.
Source: Insolvency Service