As we enter a cost-of-living crisis and more and more families begin to struggle with paying for day-to-day essentials, there is one thing the Scottish Parliament could and should do and that is stop the use of Direct Earning Arrestments (DEA) from being used to recover DWP debts in Scotland. DEAs are a brutal form of debt recovery that was introduced in 2012 by the UK Government as part of its programme of welfare reform.
They are also unique as since the creation of the Scottish Parliament, debt recovery has been a devolved area of law.
Direct Earning Arrestments (DEA), however, are UK wide debt recovery tool (but don’t apply in Northern Ireland and the Channel Isles) and are specifically used by the DWP to recover debts owed to them from wages (local authorities can also use them to recover housing benefit overpayments). At their worst they can take up to 40% of someone’s net wages each month.
How do they work in Scotland?
In a Scotland, they can be even more harsh, as although they can arrest up to 40% of someone’s wages, such levels of arrestment are only likely in the most extreme cases, where fraud is involved. However, in Scotland they can also be executed in addition to a Scottish Earning Arrestment that can be used to recover other debts, such as council tax. This means even when a lower level of arrestment is used for a DEA (not 40%), when a Scottish Earning Arrestment is in place, people get hit with a double whammy.
Why this is unusual, is because under Scot Law, when more than one creditor wants to arrest someone’s wages, Scots Law provides a solution known as a Conjoined Earning Arrestment. This means two or more creditors can share the amount arrested, but the person in debt does not pay more, as Earning Arrestments are designed to ensure they are not unduly harsh in how they operate.
Direct Earning Arrestments, however, by being allowed to operate in addition to an Earning Arrestments, can cause real hardship and are a UK cuckoo in the nest of Scotland’s home-grown debt recovery tools available to creditors.
What is the logic of Direct Earning Arrestments?
The logic behind Direct Earning Arrestments in a Scottish context is the Department of Works and Pension don’t need to use Scotland’s traditional law of Diligence to recover debts and can get a larger amount than they may receive if they use Scotland’s more progressive Earning Arrestment. They can also get a higher priority over other creditors who may be owed more but must use an Earning Arrestment.
The justification for this is not readily apparent either. Its true benefit overpayments are public funds, so you could argue, those types of debts should be given priority over other debts; but there are lots of public debts, such as tax debts owed to HMRC, or arrears owed for council tax. However, those debts still must be recovered using Scots Law. Some may say it’s because benefit overpayments arise from benefit fraud, but this is not true. Most arise from people not understanding the UK’s complex benefit system or having to apply for advances on their Universal Credit, or because the DWP make official errors and miscalculations. Most benefit overpayments do not arise from fraud and most people who have them, are those on the lowest incomes, so its ironic they are the ones subject to the most brutal forms of debt recovery.
How were the UK Government able to make these Law?
How the UK Government were able to legislate in 2012 to introduce Direct Earning Arrestments into Scotland is questionable. As already noted, since the inception of the Scottish Parliament, debt recovery law has been devolved to the Scottish Parliament.
The way devolution operates is under the Scotland Act 1998 (which has now been amended by the Scotland Act 2016) the general principle is an area of law is not devolved to the Scottish Parliament if it is specified as being reserved to the UK Parliament under Schedule 5 of the 1998 Act. If it is reserved, the Scottish Parliament cannot legislate in that area.
Under Head F of Schedule 5 of the Scotland Act 1998, however, Social Security Law is reserved (although because of the Scotland Act 2016, many areas of Social Security Law are now also devolved to the Scottish Parliament).
So, are Direct Earning Arrestments made under an area of law that is reserved exclusively to the UK Parliament? Well back in 2012, Social Security was fully reserved to the UK Parliament and what Section F1 of Schedule 5 stated was reserved was:
Schemes supported from central or local funds which provide assistance for social security purposes to or in respect of individuals by way of benefits.
Requiring persons to—
(a) establish and administer schemes providing assistance for social security purposes to or in respect of individuals, or
(b) make payments to or in respect of such schemes,
and to keep records and supply information in connection with such schemes.
The circumstances in which a person is liable to maintain himself or another for the purposes of the enactments relating to social security and the Child Support Acts 1991 and 1995.
The subject-matter of the Vaccine Damage Payment Scheme.
Importantly none of which relates to the recovery of debts, even DWP debts. However, under Head F there are further provision which illustrate the type of powers that are reserved in relation to Social Security Law, which includes:
“…recovery of benefits for accident, injury or disease from persons paying damages; deductions from benefits for the purpose of meeting an individual’s debts…”
Interestingly, however, the illustrations only refer to the recovery of debts from benefits, not earnings. Now it could be argued this list is only illustrative and not exhaustive, so it could be argued it does include the power to recover benefits from earnings. However, it could also be argued, it’s a deliberate omission. At this point, when the Scotland Act was made in 1998, it was well established that recovery of debts in Scotland were done using Scots Law of Diligence and had been done that way for centuries. In fact, even after devolution, DWP debts were recovered from earnings exclusively using the Law of Diligence up until Direct Earning Arrestments were introduced in 2012.
That would be a more plausible reason why the illustration only refers to deductions from benefits rather than earnings, as it was always anticipated that debt recovery from earnings in Scotland would be carried out using the law of Diligence. So, one view could be the introduction of DEAs by the UK Government was a bit of a power grab.
In terms of DWP debts being recovered from benefits being a reserved matter, this makes sense, as strictly speaking benefit deductions are not really debt recovery in a traditional sense. They are more the right by the DWP to offset debts owed to them against money it is due to pay someone. As DWP benefits are a reserved matter and the DWP are a UK agency, it makes sense the power to make deductions from benefits should also be reserved. Deductions from earnings, however, are less likely to be an obvious area to be reserved to the UK, as Scotland already had a system of laws that govern recovery of debts from earnings and other assets that a debtor may have.
Describing Direct Earning Arrestments as cuckoos in the nest of Scotland’s debt recovery laws is apt, as they effectively crash a wrecking ball into that framework and allow the DWP to carry out its own arrestments, regardless of any other claims by other creditors, even public sector ones.
Can the Scottish Parliament legislate in relation to Direct Earning Arrestments?
The Scottish Parliament can legislate to amend or repeal a law that is passed by the UK Parliament.
The Scottish Parliament can amend or repeal UK laws, providing it is not an area of law that is reserved; nor can it make changes that would affect the law of any other legal system or country. So, it could not amend or repeal Direct Earning Arrestments in a way that would affect their application in England or Wales (they don’t apply in Northern Ireland or the Channel Islands).
So, are Direct Earnings Arrestment an area of law that is reserved? They were introduced by legislation of the UK Government. If it is not an area of law that was reserved, then the UK Government should not have extended them to Scotland, but the UK Parliament is a sovereign parliament, so effectively it can legislate in any area it wants, regardless of what the Scotland Act says.
However, The Welfare Reform Act 2012 did not amend or restrict the powers of the Scottish Parliament, so even if the UK Parliament did legislate in a devolved area, this does not mean the Scottish Parliament cannot legislate to amend the law in relation to the application of DEAs in Scotland.
Another argument that supports the view that how DWP benefits are recovered in Scotland is not a reserved area (except in relation to when it’s done by making deductions from benefits) is the Scottish Parliament can currently legislate in relation to how DWP benefit overpayments are recovered just now. Under the law of bankruptcy, for example the Scottish Parliament can decide what types of debts are included in bankruptcy and what are not; it can decide what types of debts are written off in bankruptcy. It can also create different classes of debts, which include benefit overpayments and decide how they rank against each other and how they get paid.
The simple fact is under Scots Law, the rules that govern how debts are recovered were always governed by the Law of Diligence (with one notable exception), so it seems unlikely when the Scotland Act was drafted in 1998 it was ever intended that the UK Government would reserve the right to create a new system of debt recovery laws that previously had never existed. I would, therefore, take the view the Scottish Parliament can competently legislate in relation to Direct Earning Arrestments and how they operate in Scotland.
I would also take the view that it would be perfectly competent for the Scottish Parliament to amend S149 (3) of the Welfare Reform Act 2012 which states: “Sections 128 and 129 extend to England and Wales only”. If the Scottish Parliament were to include S106 into that Clause (which relates to Direct Earning Arrestments), it would effectively repeal their use in Scotland, without having any impact or effect on any of the other UK legal Systems.