Learning to Breathe: The English Way

Scottish money advice services should pay particular attention to the plans of the UK Treasury for statutory debt management and breathing space schemes for England, Wales, and Northern Ireland.

The schemes, which will not be extended to Scotland, as they fall within areas devolved to the Scottish Parliament, are already provided for by the Debt Arrangement Scheme (DAS) and the Statutory Moratorium process contained within the Bankruptcy (Scotland) Act 2016.

However, early Indications are, that the UK schemes are promising to surpass Scotland’s 14-year-old DAS Scheme in their forward thinking and their protection for financially distressed consumers and may provide a roadmap for improving the Scottish scheme, which in recent years has been struggling to remain relevant.

Length of Breathing Space and Freezing of Interest

The first proposal for the UK scheme, which is worth mentioning, has been called for by Stepchange, and is for the 6-week protection period, that currently applies to Scottish Moratoriums, to be extended to 52 weeks for UK debtors.

Also during that period, UK consumer champion, Martin Lewis, has called for consumers to be protected not just from enforcement action, but also from interest, fees, and charges being applied to their debts (MSE Call on Government to Give People in Debt Real Breathing Space).

If implemented, this would be an improvement on the current position in Scottish moratoriums, which do not freeze the interest and charges on debts (I argued for such a proposal in 2013, in response to the rise in payday lending, but the Scottish Government rejected it at the time, arguing the balance in favour of debtors had gone too far – see Civic Scotland Owes Scotland).

Recognising Debtor Repayments

Another area relates to a recommendation of the Money Advice Service in their recent report: UK Debt Solutions – recommendations for change, which has called for further exploration of debt ‘rehabilitation’, including better recognition of debt repayment.

It is a simple fact in Scotland, regardless of how much the Scottish Government promotes the Debt Arrangement Scheme over other solutions, bankruptcy can have a less damaging effect on someone’s credit rating than repaying their debts can. In bankruptcy, the debtor’s liability for their debts are ended when the debtor receives their discharge, normally after one year; whereas the person who takes ten years to repay their debts, must accept their accounts will show as being in arrears for that length of time (and their account payment history may appear for another six years after that).

Lack of Capacity

Finally, however, it may be that Scotland still has something to teach in relation to statutory debt repayment schemes, other than the mistakes we made.

It is quite clear that the UK will face the same problems that Scotland has, in that supply for free services is being outstripped by demand and the creation of a statutory scheme is likely to add to that demand.

In Scotland, it was not until after 2011 that the Debt Arrangement Scheme took off, when rules allowed greater opportunity for the private sector to participate. However, the practices of some parts of the private sector, particularly in relation to fees, are as much a cause for concern as they are elsewhere in the UK in relation to debt management plans.

It is partly for this reason, the Scottish Government have indicated they will consult on the introduction of a form of the Fair Share Scheme which is operated voluntarily by the UK clearing banks with organisations like Stepchange and Payplan.

The simple truth is, that although organisations like the Money Advice Trust appear to want to restrict provision of the service in the UK to free providers (Making the Treasury’s breathing space scheme as effective as possible), the capacity of the private sector will be required, although this does not mean services cannot still be provided on a free to consumer basis.

In conclusion

Scotland may have led the way in the UK with statutory debt repayment schemes and breathing space processes; however, that doesn’t mean we have a monopoly on knowledge. There are still things we can learn, as it is certainly true the Scottish schemes are not meeting expectations.