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 The Common Financial Tool (Scotland) Regulations have now been laid twice in front of the Scottish Parliament and withdrawn twice by the Minister.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For example, when the original regulations were laid in June 2018 and then withdrawn in September 2018, he stated in his letter: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.