Common Financial Statement

Is Minister receiving good Information on Common Financial Tool?

16th February 2019 0 comments

As welcome as the announcement is that Jamie Hepburn is suspending plans to immediately introduce the Standard Financial Statement, questions now need to be asked, has the Minister been receiving the best information on the policy? The Common Financial Tool (Scotland) Regulations have now been laid twice in front of the Scottish Parliament and withdrawn twice by the Minister.

They propose changing the tool that determines how much people pay in a bankruptcy or a Protected Trust Deed in Scotland. The current tool is the Common Financial Statement with the regulations proposing the Standard Financial Statement should be adopted.

After considering extensive evidence from the money advice sector and personal insolvency industry and taking oral evidence from the Minister himself and his senior Civil Servants, the Economy, Energy and Fair Work Committee unanimously recommended against the introduction of the Standard Financial Statement at this point (for information on the concerns raised see here; for information on the evidence laid, see here).

Instead the Committee recommended:

Examination of how the administrative burden created by the Common Financial Tool on advice workers can be reduced;
Research into how the Common Financial Tool impacts on consumers; and
Further research into what constitutes a reasonable standard of living.

In agreeing to not relay the draft regulations at this point, the Minister has indicated that he is not prepared to accept all the recommendations of the committee; and has also indicated that even if the research carried out results in a conclusion that fundamental reform is required, this is unlikely to be possible due to the fact it is highly likely changes to primary legislation will be required.

The Ministers letter can be read here.

Is Jamie Hepburn getting Good Information on the Common Financial Tool?

However, throughout the lengthy process these draft legislation have been through, concerns have been raised in relation to statements the Minister has made to the Economy, Energy and Fair Work Committee, which suggests he may not be receiving the best information.

For example, when the original regulations were laid in June 2018 and then withdrawn in September 2018, he stated in his letter:

“Since laying the Regulations, the Accountant in Bankruptcy has received representations from some advice sector organisations seeking a longer lead in time before commencement of the revised regulations. In particular, they have highlighted delays in the development of IT Systems incorporating the revised common financial tool and suitable provisions for staff training. Other than timing issues, there has been no other fundamental concerns raised by these organisations about the regulations.”
Jamie Hepburn, Minister for Business, Fair Work and Skills, 10th August 2018

This statement about no fundamental concerns being raised came as quite a surprise in the money advice sector, as it was clear there were many fundamental concerns, in addition to that of timing, that had come out during an earlier consultation the Accountant in Bankruptcy had run on the draft regulations, the regular meetings of the Common Financial Tool Working Group and even in the submissions that were made to the Committee before the Regulations were withdrawn.

Again after the draft regulations were withdrawn for the second time, concerns again were raised with further statements from the Minister in his letter to the Committee:

“I should say at the outset I have some concerns that the evidence you have received at these sessions does not represent the full array of opinion on the effects of the regulations. I recognise that inevitably there will be differing views on any legislative provision, either in primary or secondary legislation, but believe it is important that the Committee is provided with a full picture of the issues relating to this instrument. I do not believe that evidence you have been presented with to date is representative of the majority of the sector’s views”
Jamie Hepburn, Minister for Business, Fair Work and Skills 9th November 2018, withdrawing the draft regulations a second time.

This statement, suggesting the Committee had not been presented with the full picture was strange, as already evidence had been provided in writing by:

Money Advice Scotland
The Institute of Chartered Accountants of Scotland
The Money Advice Service
Association of Business Recovery Professionals
Stepchange
Citizen Advice Scotland
The Accountant in Bankruptcy
Chartered Institute of Credit Management
Falkirk Council

In addition to that the Committee had already taken evidence orally from:

Money Advice Scotland
The Institute of Chartered Accountants of Scotland
The Money Advice Service
Association of Business Recovery Professionals
Inverclyde Council
Aberdeen Council
East Renfrewshire Council
WRI Associates (Insolvency Practitioners)

Finally, concerns have arisen again with the letter sent to the Committee from the Minister stating he was suspending plans to immediately reintroduce the regulations:

“Second, the need for a more fundamental re-examination of the way in which debtor contributions are calculated beyond the simple question of which mechanism we should use for the Common Financial Tool currently built into legislation. The Committee suggests we could conduct such a review within what is in effect the first half of the new financial year with the hope that this could lead to consideration of a different approach to be introduced from 1 April 2020. We have already committed ourselves to undertaking such a review as part of the wider review of the 2015 legislation due to start shortly, and likely to take most of the summer. But I would not want to mislead the Committee over the likely time necessary to implement any fundamental change of approach coming from that review. This would be highly likely to require primary legislation – and there is no prospect of further primary legislation in this area that would be effective from April 2020.”
Jamie Hepburn, Minister for Business, Fair Work and Skills 15th November 2019,

What is of concern about this statement is if research does suggest more fundamental reform is required to how debtor contributions are calculated, rather than it being “highly likely” that primary legislation will be required, the contrary is true, with it being highly unlikely primary legislation would be required.

For example, looking at the current primary legislation, the Bankruptcy (Scotland) Act 2016, which allows the Minister to make the regulations, the relevant provisions are drafted in such a way that they provide the Minister with a wide power to use the regulations as a vehicle for delivering any model of calculating contributions for debtors.

Inevitably, questions need to be asked, where is the Minister getting his information? It repeatedly seems to be off-mark and poorly informed.

The message also seems to be is although the Minister won’t lay the Regulations again at present, as he knows the Committee would reject them; neither is he willing to allow any new regulations to be informed by the outcome of any research, unless that outcome recommends the adoption of the Standard Financial Statement. It seems likely the Regulations will not even be delayed until the outcome of the research is known.

All of which suggests another show down with the Minister, the Committee and front line advisers again in the autumn.

Section 89: Assessment of debtor’s contribution
(1) The Scottish Ministers may by regulations specify a method (the “common financial tool”) to be used to assess an appropriate amount of a living debtor’s income (the “debtor’s contribution”) to be paid to a trustee after the sequestration of the debtor’s estate.
(2) Regulations under subsection
(1) may in particular prescribe—
(a) a method for assessing a debtor’s financial circumstances (including the debtor’s assets, income, liabilities and expenditure),
(b) a method for determining a reasonable amount of expenditure for a debtor after the sequestration of the debtor’s estate,
(c) the proportion of a debtor’s income that is to constitute the debtor’s contribution,
(d) that a method determined by another person must be used (with or without modification in accordance with regulations made under subsection (1)) as the common financial tool.

Parliamentary Committee Recommends against Standard Financial Statement

14th January 2019 0 comments

The Scottish Parliament’s Economy, Energy and Fair Work’s Committee have now released their Report into the Scottish Government’s draft Common Financial Tool Regulations.

The recommendations of the Committee are that the Scottish Government should not re-lay the Regulations until there has been:

A full review of the use of the Common Financial Tool, including
Engagement with the advice sector and debtors; and
Research into what is a reasonable standard of living.

The full report can be found here.

Background to Common Financial Tool

The Common Financial Tool is the mechanism with which it is decided how much Scottish consumers should pay towards their debts in Bankruptcies, Protected Trust Deeds and the Debt Arrangement Scheme.

They have been controversial and concerns have been raised they may not allow Scots to sustain a reasonable standard of living, which the Scottish Government has disputed. For more information on the background to the dispute read Standard Financial Statement: Is it fit for purpose?

Regulations withdrawn

The Scottish Government initially laid the regulations to adopt the Standard Financial Statement in June 2018, but these were withdrawn after the Parliamentary summer recess because of timing issues.

The regulations were then re-laid, but after evidence was given by various organisations, including money advisers, the regulations were withdrawn again, although the Minister did indicate in a letter to stakeholders he hoped to relay the regulations so they could commence by April 2019.

Evidence provided by Money Advice Scotland, R3, The Money Advice Service and the Institute of Chartered Accountants of Scotland.

Evidence provided by Aberdeen Council, East Renfrewshire Council, Inverclyde Council and WRI Associates.

Evidence provided by the Accountant in Bankruptcy and the Minister, Jamie Hepburn.

However, after the Parliamentary Committee discussed the matter in private on the 8th January, they are now recommending the adoption of the Standard Financial Statement be delayed for at least a year.

To read the Committee’s letter to the Minister dated the 10th January 2019, see here.

To see all the evidence and submissions relating to the Common Financial Tool, see the Economy, Energy and Fair Work Committee page on it here.

Common Financial Tool Regulations 2018

12th August 2018 0 comments

Although, Jamie Hepburn, Scottish Government Minister for Business, Fair Work and Skills has written to the Scottish Parliament to withdraw the Common Financial Tool (Scotland) Regulations 2018 (see here), he has stated he intends to reinstate them after the summer recess.

This means the controversial regulations, which propose that the Standard Financial Statement will replace the Common Financial Statement, as Scotland’s preferred Common Financial Tool, will be relaid between the 2nd of September and the 6th of October 2018.

The Economy, Jobs and Fair Work Committee have stated submissions relating to the Regulations will still be allowed in meantime.

My own submission can be seen here.

Money Advice Update – February 2018

26th February 2018 0 comments

With the next financial year likely to be a pivotal one for the money advice sector, in the UK and in Scotland, Alan McIntosh looks at a growing theme of whether a UK or Scottish approach should be adopted.

The big issues in money advice in the coming year will relate to funding and whether policy in this area should diverge across the regions or be brought together in a UK wide approach.

This is largely being driven by the Financial Guidance and Claims Bill, which will see the creation of a new UK-wide, Single Financial Guidance Body which will replace the current Money Advice Service. It will also see the funds, currently raised by the Financial Conduct Authority for debt advice, being devolved to the Scottish Government.

However, the new Single Financial Guidance body will, retain a strategic role over how debt advice in the UK is delivered and developed.

Policy Over-Reach?

What the parameters of this new role will be, waits to be seen, but the risks of policy over-reach by the body must be high, particularly when you consider most of the law that relates to debt recovery and formal debt solutions in Scotland are distinct from the rest of the UK and already devolved.

Also, with most debt advices services in Scotland being local authority funded, it is difficult to imagine that the historical problems of a post code lottery in services will disappear any time soon.

An example of the risks of policy over-reach, were recently highlighted by the Money Advice Service with its report: Debt Solutions in the UK: Recommendations for Change. One of the recommendations of the report was the re-introduction of fee remissions for debtor bankruptcy applications across the UK.

The power to set such fees and introduce fee waivers is a devolved matter and with the Scottish Government and the Accountant in Bankruptcy recently having made it clear they have no intentions of re-introducing fee remissions, it would appear the only significant recommendation made for Scotland, will not be accepted.

It can also only be imagined that the overlapping role of the new Single Financial Guidance Body, with that of the policy independence of the Scottish Government, will only lead to further accusations of policy over-reach in years to come.

Rising Indebtedness

The UK is again on the crest of a rising tide of personal indebtedness, with personal borrowing levels again reaching pre-credit crunch levels.

This has seen a deluge of new reports since the beginning of the new year, looking at rising levels of personal debt.

There is widespread agreement that where personal debt levels are rising fastest is in relation to car finance agreements, personal loans and credit card borrowing. Where there is no agreement, however, is whether this new surge of borrowing, which began in 2015, represents a problem or not. Many have been arguing it doesn’t, as most of the borrowing has been by higher paid individuals and individuals with more disposable income, who can afford it. Default levels are low.

However, even the reports which are most bullish about personal borrowing, all base their relaxed approach on one primary factor remaining the same: that is interest rates remain low.
So, providing nothing changes, it should be okay.

Wyman Review

The Peter Wyman review into the funding of free money advice services in the UK was published in January after much anticipation as to what its recommendations would be.

With many services aware of the rising demand for free money advice, which is occurring against a background of funding cuts, the hope was Peter Wyman would call for increased capacity driven by more funding, which would herald a new era for money advice services. It didn’t happen.

Peter Wyman instead called for a two-year funding increase for debt advice services, paid via a short-term increase in the Financial Conduct Authority’s levy for debt advice. However, he also called for a 20% efficiency saving by free advice services over the next two-years. Peter Wyman believes this is achievable by shifting clients away from the more expensive channels of delivering advice to less expensive channels. So, from face to face, to less expensive channels, such as telephone and digital advice services.

Whether a UK approach to funding debt advice services can be found will be interesting to see. With the proceeds of the the debt advice levy being devolved to the Scottish Government in the autumn, it is clear there are some who are hoping they will continue to influence how this money is spent.

It seems unlikely, however, the Scottish Government, in these times of financial restraint, will happily just leave the spending decisions to those who previously held them, so it’s feels inevitable there will be a divergence across the UK in service delivery.

The Wyman approach is also predicated on driving people from one delivery channel to another simply based on costs. This is very similar to the approach that has been taken by the banks themselves, with the closure of local branches, and by the Department of Works and Pensions, with the closure of job centres and the driving of claimants onto online services.

Both are approaches opposed by the Scottish Government and with the creation of the new Social Security Agency, it will try and reverse of by employing 400 new front-line advisers. Could such an approach as to how front-line debt advices services are delivered be addressed through a Scottish funding review? If this was to lead to a further divergence in policy across the UK, would this be desirable? If it wasn’t, it would be hard to see how much influence the new UK wide Single Financial Guidance body could exercise in a devolved Scotland.

Accountant in Bankruptcy Funding Review

Money is clearly an issue in everyone’s mind and the Accountant in Bankruptcy are no different. With the withdrawal of their Bankruptcy Fees (Scotland) Regulations 2017, after evidence was led by Govan Law Centre, and the Institute of Chartered Accountants, they have undertaking a consultation, as promised by the Minister Paul Wheelhouse.

The consultation ends on the 12th March 2018 and does not look at the issue of debtor application fees for sequestration but does ask the big question of who should pay, the public purse, the creditors, or the debtor?

Single Financial Statement

The theme of what is the correct approach to take, a UK or Scottish one, continues to raise its head and does so in relation to the Common Financial Tool (CFT), that was introduced by the Bankruptcy and Debt Advice (Scotland) Act 2014. The Tool is used to calculate debtor contributions in sequestrations, protected trust deeds and the Debt Arrangement Scheme. The current Common Financial Tool of choice is the Common Financial Statement (CFS), owned by the Money Advice Trust.

However, the Money Advice Service has now created the Single Financial Statement which it wishes to roll out across the UK, and with the CFS unlikely to be maintained beyond 2018/19, the Scottish Government are proposing laying new regulations proposing the adoption of the SFS as the new CFT.

However, with fears rising that the SFS may be less favourable to Scottish Consumers, and that the lack of openness and transparency surrounding these tools prevents any proper scrutiny or discussion, there is every possibility that the question of whether Scotland will have its own approach will raise its head.