Scottish Debt Policy is Broken

Scottish Debt Policy is Broken

Originally published in the Herald, as an Agenda piece, I make the argument that Scottish debt policy is broken, was explored.

Despite personal debt levels in the UK now having returned to pre-credit crunch levels, new figures released by the Improvement Service, reveal that free, local authority-funded debt advice services have now seen their funding cut by more than 44 per cent in the last three years. The latest figures paint a picture of services that are not only lacking capacity to deal with current demand, but should Scotland face another personal debt crisis, will not cope with future demand.

The tragedy of this is the modernisation and humanising of Scotland’s personal debt laws was one of the earliest and most notable achievements of the Scottish Parliament, from the abolition of poinding and warrant sales to the introduction of a new debt management scheme, known as the Debt Arrangement Scheme. Even Scotland’s bankruptcy laws were made more consumer friendly, making it easier for those with no other options to be permitted a fresh start, whilst free debt advice services were heavily invested in between 2003 and 2007.

By 2011, the progress that had been made meant it could reasonably have been stated Scotland had some of the most forward-thinking and progressive debt laws in Europe with well-funded advice agencies that could deal with the modern-day problems of over-indebtedness.

The benefits of this were all too evident in the aftermath of the credit crunch, when hundreds of thousands of Scots accessed both formal and informal debt solutions, and substantial levels of unmanageable consumer debt were addressed.

Then in 2012-13, the Scottish Accountancy in Bankruptcy (AIB), the agency which leads on debt policy for the Scottish Government, removed the wheels from these progressive policies that were driving such change. It concluded the law had become too debtor friendly and less than five years after the credit crunch, decided the law had to be re-tilted back in favour of banks and other financial institutions.

The effect was that within a year of the new rules being implemented in 2015, the numbers applying for bankruptcy fell by 44 per cent, whilst the numbers applying for the Debt Arrangement Scheme fell by 49 per cent.

It is now reasonable in my opinion to state the system is broken, incapacitated by funding cuts, but also by laws that have become the victim of “agency capture” by the AIB and are now developed to satisfy institutional needs of slotting everyone into formal solutions that can generate fees, rather than developing a system that benefits the whole of the community.

An example of this was evident last week, when the AIB declared the Debt Arrangement Scheme was a huge success, as it had recovered £200 million for creditors, whilst overlooking the fact more debt programmes had failed than had been successful.

Also, the Improvement Service produced another report that showed of the 49,000 people in 2016-17 who had sought advice from free, council-funded debt advice services, fewer than 21 per cent had their problems addressed through a formal solution, but more than 50 per cent had relied on their free sector advice agencies to negotiate solutions on their behalf.

It is now these free advice services that are facing cuts, with North Ayrshire Citizen Advice Service and Renfrewshire Law Centre only the latest to go in another round of cuts, closing their doors last week. More inevitably will follow.

Our debt laws may be world-recognised, but unless there are adequate resources and political will, they will not work.
The problem is they are no longer working and when Scotland faces another personal debt crisis, this will become all too obvious, but by then, it will be too late.

First published in The Herald, 4th April 2018

The Wyman Report: A review of debt advice funding

The Wyman Report: A review of debt advice funding

Peter Wyman’s review into the funding of the debt Advice sector in England, Wales, Northern Ireland, and Scotland, is disappointing. It contains few observations of note, is uninspiring and was not insightful.

The one statement I found myself agreeing with was when he stated: “However, as all good authors say, the opinions, conclusions and recommendations in this report are mine and mine alone.”

Hear, hear. I agree.

Just because a report is commissioned, doesn’t mean it’s recommendations must be adopted. In this case, Peter Wyman’s report fails to rise to the challenge of the problem it purports to address, whilst its recommendations are underpinned by an ideology which is now reaching the end of its shelf life in the UK. I would suggest therefore, that is where his report should be left: on the shelf.

The report makes 20 recommendations, which when I read them, made me wish the author had stopped at 5. At least that way he would have embraced the ideological spirit of the austerity that he seems so keen to accept in his report.

The Cost of Free Advice Services in the UK

He estimates the cost of free debt advice services in the UK is £200 million. He then calls for this to be increased in 2018/19 across the UK, albeit only for a temporary period, by £10 million. This is a 5% increase, just under double the rate of inflation. However, coming after years of funding cuts and stagnation in the free sector, this would still be poor compensation and an inadequate response to a personal debt sector where the level of personal debt jumped by 10% last year and is expected to continue increasing in years to come.

In a country which has one of the largest financial sectors in the world and in which Peter Wyman acknowledges the demand for free sector money advice services is currently outstripping supply, it was disappointing to note that he finds the current costs unsustainable and makes recommendations to improve the efficiency of services by reducing duplication and encouraging, wherever possible, greater use of technology and the lowest cost delivery channels.

It must be asked what duplication is he referring to? Even in the areas where I work, there may be agencies doing the same thing, but no-one is idle. Demand outstrips supply. Where that demand is greatest is in relation to face to face services.

There also appears to be no shortage of supply in telephone and online services, and certainly some of the largest free sector providers of these services currently have the reserves to increase capacity if so required. Why, therefore, suggest other free services should further increase delivery using these channels, whilst cutting face to face delivery? This appears to an argument for further duplication, not the curtailment of it.

Banks may be abandoning their customers by closing branches, but this should not mean the advice sector must follow suit.

Missed Opportunities in the Wyman Report

Peter Wyman also argues for an extension of those who pay under the Fair Share Scheme, which is where creditors agree to revert a percentage of the sum paid to them through free sector debt management plans back to the provider. He, however, does not argue for an extension of the providers that can participate in the scheme. This would be a novel and innovative solution to the challenge that publicly funded services are facing, by moving more to a creditor funded model.

It would also arguably, allow increased capacity to be introduced into the free sector by the private sector, to meet unmet demand. He also makes no recommendation it could be put on a statutory footing with the introduction of a statutory breathing space scheme, in England, Wales and Northern Ireland. That would allow the free sector to cope with the increase demand that scheme will place on them. There is also no suggestion that possibly the limited availability to access the Fair Share Scheme is possibly an area worthy of investigation by the Competition and Marketing Authority.

Furthermore, his proposal to transfer 100% of the fee from a Debt Relief Order application back to the advice provider is barely worth mentioning. It is effectively arguing for the poorest debtors to pay for the services they are being provided. In Scotland the £90 application fee for a Minimum Asset Bankruptcy, barely covers the costs involved in administering the solution. Transferring 100% back to the advice provider would only increase the cost somewhere else for the public sector and inevitably result in a fee increase elsewhere.

His recommendations fall vastly short of the recommendations of the Money Advice Service in their Report on UK Debt Solutions, which proposes reintroducing fee remissions for Bankruptcy.

Over anticipated and under delivered is how I would summarise Peter Wyman’s report. It’s clear he has little understanding of the sector and delivers what is a relatively bland, unambitious, and unimaginative report, that contributes nothing to the debate other than to argue for a continuation of the culture of cuts and austerity.

Another alternative is possible, however

Taking Scotland as an example, the Improvement Service estimates that the cost of local authority, publicly funded money advice services to be approximately £11 million. Based on Mr Wyman’s estimate of £200 million across the UK, this would suggest another £9 million is being spent in Scotland by other providers and funders (based on approximately 10% of that £200 million being spent in Scotland). The Accountant in Bankruptcy service then costs £12 million approximately (but the costs of which are largely recouped through the ingathering of fees). There is then approximately £81 million distributed to creditors through statutory debt solutions, after private sector fees and outlays are recovered. This leaves plenty of scope for a fee increase to be used to protect existing face to face services and arguably increase provision of it to meet the current demand Mr Wyman identifies. This is easily achievable and sustainable.

What Peter Wyman should have addressed in his report was the fact that creditors are currently getting debt advices services too cheap. Instead, it appears, he argued for the profits to be privatised, but for the costs associated with dealing with consumers struggling with debts to continue to be socialised. In return he offered us a short-term increase to pay for the new headsets for our phones.

The report can be accessed here.