Standard Financial Statement: Is it fit for purpose in Scotland?

Standard Financial Statement: Is it fit for purpose in Scotland?

The Credit Services Association (CSA), a trade body that represents debt recovery and purchase organisations, has raised its concerns that new guidelines for the Standard Financial Statement (SFS) may exacerbate the position many consumers find themselves in when struggling with problem debts.

The Standard Financial Statement, which the Accountant in Bankruptcy (AIB) have recommended be adopted as the new financial statement for formal debt solutions in Scotland, is produced by the Money Advice Service and is intended to be a common financial tool for all creditors and debt advisers to use in determining how much consumers can afford to pay towards their debts.

The CSA, which is part of the governing body for the SFS, is concerned that new trigger figures, which are used to create a rebuttable presumption that someone’s expenditure may be excessive, are concerned that new guidelines for the figures may be excessive after being updated by as much as 30% in some category areas.

Their fears are that by indicating some consumers have less to spend on their debts, consumers may enter repayment plans that may last longer and, therefore, keep the debtor in debt longer, whilst others may feel a type of insolvency may be a better solution for them, when it isn’t.

However, in Scotland, fears amongst money advisers and the AIB are that the figures are already too austere for consumers, who are in repayment plans, and the SFS’s predecessor, the Common Financial Statement (CFS) which adopts a similar methodology to the SFS, has been instrumental in large numbers of Debt Payment Programmes under the Debt Arrangement Scheme failing.

Scottish Government Minister Paul Wheelhouse has recently announced plans to introduce new rules that even if the SFS is used for the DAS in future, it will not be necessary for consumers to propose paying all their disposable income to their debts each month.

Comparative Studies

The problem with the Standard Financial Statement, like the Common Financial Statement is both seek to determine what is a “reasonable” level of expenditure by looking at the average expenditure of the lowest 20% in the Office of National Statistics Living Costs and Food Survey. This survey looks at what people are actually spending, rather than what they require to be spending to maintain a reasonable standard of living.

The consequences of this can be seen in the guidance notes for the Common Financial Statement 2018, which actually saw “trigger figures” for categories of expenditure reduced, despite inflation running at 3%.

However, as both the CFS and the SFS both look at what people are spending, rather than what is needed for a reasonable standard of living, the methodology used can result in expenditure amounts being downgraded at a time of rising living costs. This is for the simple reason that with stagnating income levels, rising living costs and much expenditure in recent years being driven by consumer borrowing, which is now becoming harder for lower income groups to access, people are now being forced to spend less.

This has led to some uprating of figures in the SFS, by removing for example, some of the lower income groups in the Living Costs and Food Survey sample group. This has included those in receipt of Universal Credit and has contributed to the uprating of the average expenditure overall within the study group.

Scotland’s Dilemma

The problem for Scotland is whether now to adopt the SFS, which the Accountant in Bankruptcy have recommended or whether to seek an alternative to the Common Financial Statement 2018 when it expires in 2019?

The problem is the SFS has proven volatile in the first year of it’s existence, with initial concerns in Scotland that the trigger figures for the SFS 2017 were too low and would have led to more consumers being presumed, albeit the presumption is rebuttable, as having unreasonable expenditure amounts.

There was also a concern many consumers who were wishing to utilise the Minimum Asset Route into bankruptcy may be found to have disposable income and, therefore, be deemed ineligible to apply, forcing them to use full administration bankruptcy procedures instead. This in turn leads to complicated debates as to what types of income can consumers legally be expected to pay their debts from. There is no question, for example, that consumers cannot be forced to pay towards bankruptcy from benefit only income, although the AIB do hold that contributions can be taken from child maintenance money (for a fuller debate on this issue, see here). The consequence is that people whose only income is benefits and child maintenance, may be forced to use full administration bankruptcy simply because the AIB believes it is legitimate to take a contribution from income that is paid to a child via their parent and the CFS or SFS help determine that the consumer can afford a contribution.

In support of adoption of the SFS 2018 guidelines, however, the AiB have released a comparative study of financial statements which they believe shows the SFS 18 guidelines are more favourable than the CFS 18 guidelines (although a smaller study by Money Advice Scotland suggests this may not be the case). What the AIB have not released, however, is a comparative study between SFS 18 and CFS 17, which still applied in Scotland until a few weeks ago, or any response to the recent downgrading of expenditure items in CFS 18 that resulted from the methodology that can see average expenditure amounts fall at times of increasing living costs.

In addition to this, no explanation has been provided as to why the CFS 18, in the guidance notes, was not given the same corrective treatment that SFS 18 received by removing lower income groups from the sample group.

The problem is now likely to be exacerbated as the Scottish Government have announced that even if SFS 18 is adopted in Scotland, new changes will not require applicants to the Debt Arrangement Scheme to propose 100% of their disposable income to repayment programmes. The fact the Credit Services Association already believes the SFS 18 is overly generous, it’s likely their members would not accept DAS proposals that only offer say 75% of a Debtor’s disposable income as payment, although the AIB will be able to force acceptance using their fair and reasonable test under the Scheme.

The Way Forward

The problem for the Scottish Government is there is no clear way forward.

It was only in 2016/17, for example, that for the first time more debt payment programmes were successfully completed than were revoked. One of the main reasons believed to be behind this being that consumers have been finding that they are being told to pay more than they can afford.

The AIB, however, are reluctant to see contribution levels in any formal solution reduce, as they themselves realise much of their operating costs from fees charged against cases where contributions are made and are expecting, because of a reduced number of cases, a shortfall of approximately £4.2 million in their funding.

The problem is, however, section 89 of the Bankruptcy (Scotland) Act 2016 (2016 Act) requires Scottish Ministers to establish a Common Financial Tool (CFT) to determine contribution levels, that allows for reasonable levels of expenditure by debtors. Whether that has been achieved by CFS 18 that has seen trigger figures reduced for certain categories at a time of rising living costs is questionable.

Whether designating the SFS as the new CFT will achieve this is also debateable, considering it’s volatility and the fact key stakeholders are already questioning the recent uprating of figures and calling for a further review as soon as possible.

The question now must be asked, as the CSA, is part of the governing body for the SFS and accepted the 2018 figures, whether other governing body members also have concerns?

The question also has to be asked if a further review of the SFS or even the CFS were to see a further downgrading of the figures at a time of rising living costs, whether Scottish Ministers would be fulfilling they obligations in creating a tool that allowed for reasonable expenditure by consumers?

The danger being that in designating either the CFS or the SFS as the Common Financial Tool, Scottish Ministers are delegating this legal responsibility that they have under section 89 of the 2016 Act, to a third party that does not have such a legal responsibility, is not accountable to Ministers or Parliament and does not publicly release it’s trigger figures for public scrutiny or comment.

Mis-Use of Trigger Figures

One argument is that much of the problem arises from a misunderstanding of how trigger figures should be used.

Creditor and AiB concerns are they are used as an allowance by money advisers for their clients, whereas money advisers complain they are used as a cap by the AIB and creditors to drive down the reasonable living expenditure of consumers, which if you wish to exceed places an increased administrative burden on the money adviser and evidential burden on the consumer.

You then get anecdotal stories from money advisers of clients having to provide evidential proof of purchasing incontinence pads, or having to explain how the Disability Living Allowance of their children is spent or of having to fight to ensure contributions are not taken from the child maintenance money of children to pay towards their parent’s debts.

The problem is there is a lack of understanding by the Money Advice Service as to how trigger figures are in practice used. They are clearly a key battle ground for the AIB, money advisers and creditors alike, as recently evidenced by the concerns raised by the Credit Services Association and their calls for them to be downgraded.

A Scottish Solution?

There is now a clear and comprehensive case for Scotland to devise it’s own Common Financial Tool.

There is no overwhelming case for a UK wide solution, albeit it is clear it would be preferable from the perspective of UK wide financial service organisations and also debt advice bodies.

However, there is no UK wide system of laws for dealing with debts; debt law historically always being different under Scotland’s legal system and being devolved to the Scottish Parliament.
Also, unlike the rest of the UK, the Common Financial Tool was placed on a statutory footing in Scotland in 2015 and carried with it particular legal responsibilities for Scottish Ministers that the Money Advice Service, who own the SFS and the Money Advice Trust, who own the CFS, don’t have either in Scotland or elsewhere in the UK.

In addition to that, it is clear that Scotland, with the recent proposals by Scottish Ministers as to how contributions in the Debt Arrangement Scheme are determined, has already begun to diverge further from what is likely to be considered good practice across the UK and by the SFS governing body.

Clearly it would now be more advisable for the Scottish Government to look to establish it’s own Common Financial Tool, that is best suited to the peculiarities of the Scottish system of debt laws, with 48 month payment periods in Bankruptcy and a Debt Arrangement Scheme, where not all a debtor’s disposable income has to be offered as a contribution in a payment plan.

North Ayrshire CAB Closure Highlights Risk to Front Line Advice Services

North Ayrshire CAB Closure Highlights Risk to Front Line Advice Services

The announcement that North Ayrshire Citizen Advice Service (NACAS) is closing its doors at the end of this month, after twenty years, brings into sharp focus the critical issue of funding that advice agencies in Scotland are now facing.

It also urgently underlines the need for a national discussion on how front-line advice services are funded.

This year already we have heard from Peter Wyman with his Review of the funding of free money advice services, which highlighted the fact that services are already 50% under capacity. The Scottish Government also, only two weeks ago, published a review into the funding of advice services. Both of which miss the urgency and scale of the threat that free advice services are facing after 8 years of austerity and cuts.

Funding Cuts

The closure of NACAS also demonstrates how acute the problems are. The closure is the result of funding cuts, after it was revealed North Ayrshire Council would have to cut £30 million to balance its books in 2018/19. The recent Scottish Government budget also offers nothing for council’s like North Ayrshire, as it only matches the funding available in 2017/18, but allows nothing for inflation.

Speaking about the cuts, Councillor Leader Joe Cullinane said:

“The Council has had to cut £73million from its budget over the last six years as a result of austerity and financial projections suggest we face a further funding shortfall of approximately £70m over the next three years.

“We are facing an increased demand for our services despite the fact that our funding is expected to reduce significantly.

“Unless this situation changes, there is no escaping the fact that the services that Councils across the country deliver are going to change.

Failing Local Authorities

This raises the question, what do we do when local authorities can no longer afford to deliver the statutory services which they are required to?

Under section 12 (1) of the Social Work (Scotland) Act 1968 (the 1968 Act), It is the duty of every local authority to promote social welfare by making available advice, guidance, and assistance on such a scale as may be appropriate for their area,

At present the only other local authority-funded money advice service in North Ayrshire is the council’s own service and their Better off Partnerahip.

The Council Service is currently only available to clients of the social work department, but since NACAS has stopped providing money advice, arguably it wil now need to begin providing services to all North Ayrshire residents.

If not, there will be no local authority funded money advice service that all residents in North Ayrshire can access. The Better off Partnership only being able to provide services to certain vulnerable client groups.

This is important, as an effect of the Bankruptcy and Debt Advice (Scotland) Act 2014 (BADAS), is it is no longer possible for someone to access statutory debt relief remedies without seeking the advice of an approved money adviser or licenced insolvency practitioner.

The effect of this is unless a financially strapped consumer has sufficient income for a licenced insolvency practitioner to take on their case, or there is a free advice agency able to assist them, they will not be able to access the remedies.

It’s may be an inconvenient truth, but there is no doubt if a local authority allowed this situation to arise, it would be in breach of it’s statutory duties, as the obligation contained in the 1968 Act doesn’t say only certain clients. It says it is the legal duty of every local authority to promote social welfare by making available advice, guidance, and assistance.

The Perfect Storm

The irony of this, is it comes at a time when Universal Credit (UC) is being rolled out, with as many as 75% of UC claimants now in rent arrears. It also comes as at a time when personal debt is reaching pre-credit crunch levels and incomes continue to stagnate, even though cost of living is increasing by 3% and interest rates begin an upward trajectory.

It is also coming at pivotal time as the Scottish Government’s Social Security (Scotland) Bill continues through Parliament, with the aim of creating a new social security agency. This agency it is hoped will employ 400 front line advisers, who will advise on the new Scottish social security benefits. However, who will advise on the rest or deal with the multitude of other issues NACAS dealt with, from money advice to housing to consumer issues?

It is also happening at the beginning of 2018/19, a year that was supposed to be crucial for advice services, with the Financial Claims and Guidance Bill passing through the UK Parliament, which will see the devolution of the funds raised by the Financial Conduct Authority’s debt advice levy on the consumer credit industry. The next financial year was supposed to be a year of reflection and consideration as to what is the best way forward, but many services may not survive in the meantime.

There is an alternative

Lots has been said about agencies using different channels to deliver advice, from face to face to telephone to digital. That is fine where it is possible, but its also the same ideology that has taken grip in the Department of Works and Pensions, with the removing of front line advisers and the closure of job centres. It is also the same ideology that has been adopted by the banks and is resulting in the closures of local branches. Both of which the Scottish Government has opposed and is actively trying to mitigate with its plans to recruit 400 new advisers.

It would be ironic now, if the Scottish Government were to stand back and watch frontline advice services close and suffer further cuts.

However, there is an alternative, at least for money advice services. In 2016/17 over £81 million was distributed to creditors through formal debt solutions in Scotland. That is £81 million after those private firms involved took their fees and the Scottish Government took £12 million in its fees. How much of this, however, was returned to the advice agencies that were significant providers of advice on these solutions and who assisted many of the clients to access the remedies?

The answer: none.

However, if even 5% of this sum was raised to help recover the costs of advice agencies in providing these solutions (both the Scottish Government and creditors being great believers in full-cost recovery), then £4 million could be raised for advice agencies across Scotland.

If £400,000 of this was set aside, debtor bankruptcy fees could be waived, so that the poorest of consumers could still access bankruptcy if they couldn’t afford it.

The remaining £3.6 million would represent a 30% increase in local authority funded money advice services, with the total expenditure last year being only £11.72 million (down 5% on the previous year). If the Scottish Government’s Accountant in Bankruptcy in Kilwinning can raise £12 million from cases to fund its services, why can a third of that amount not be raised from those cases to allow a 30% increase in funding for all of Scotland’s 32 local authority funded money advice services?

One of the biggest beneficiaries of these services are after all the creditors themselves, who it is estimated recovered between £400 million to £1 billion last year because of the work of free money advice services. If we were to extrapolate what those benefits mean for Scotland, based on population size, that means between £40 million to £100 million was recovered from Scotland (the £81 million on record that was recovered via formal debt solutions makes these estimates ring true). Against those figures, what is unreasonable about an additional £4 million being provided to support front line free money advice services? Particularly when a recent report on the Economic Impact of Debt Advice found that creditors actually benefit from the provision of free money advice.

As Sheila Wheeler, Director of Debt Advice at the Money Advice Service said of the report:

“This report clearly provides more evidence of what those of us working in the sector have known for a long time – investing in debt advice pays. Not only does debt advice contribute to health benefits – and in particular mental health benefits – for those receiving it, but it benefits employers through increased productivity. Crucially, it pays off for creditors too, reducing their costs by up to £237 million a year and increasing debt recovery of up to £360 million annually across the UK.

It is believed North Ayrshire Citizen Advice Service will close its doors on the 30th March. For more information, see here.

Scottish Labour to Vote on Bankruptcy Fees

On Friday the 9th March, the Scottish Labour Party will vote on a motion calling for the Scottish Government to accept the recommendations of the Money Advice Service (MAS) and re-introduce fee remissions and fee waivers for bankruptcy in Scotland.

Fee waivers were previously possible in Scotland, through legal aid, prior to 2008, but since then even people surviving on £73.32 per week, have to find £200 to apply for bankruptcy.

MAS in its report Debt Solutions in the UK: Recommendations for Change, recommended both the UK and Scottish Government look at reintroducing fee remissions for those who cannot afford the fee.

The Accountant in Bankruptcy, the Scottish Insolvency Service, is currently consulting on their fees, but has ruled out fee remissions for bankruptcy.

Currently, the application fee for a Full Administration Bankruptcy in Scotland is £200; whereas a Minimum Asset Bankruptcy is £90.

Debt Advisers asked about Vulnerability

Debt Advisers asked about Vulnerability

The largest survey of UK debt advisers has been launched to gain an insight into how they support clients that are in vulnerable situations.

The new research, which is asking for advice agencies to sign up and participate in the project, is being carried out by the University of Bristol’s Personal Finance Research Centre (PRFC), who are working in partnership with the Money Advice Trust and the Money and Mental Health Policy Institute. The research is being funded by a grant from the Money Advice Service.
Working with the advice sector and other experts, findings from the survey will inform the development of new guidance and practical tools to help frontline debt advisers to further support their clients.

Sharon Collard, director of the Personal Finance Research Centre at the University of Bristol said:

“Every day, across the advice sector, advisers work with clients to deal with their debt problems and try to get their finances back on an even keel.

“There is currently no published information about the extent to which those clients are in particularly vulnerable situations or what that means for advisers and their organisations. With the help of the advice sector, this survey aims to fill that gap.

“We know that advisers work under a lot of pressure, so we’ve designed the survey to take about 15 minutes to complete.”

Simon Crine, director of the Money and Mental Health Policy Institute, said:

“Debt advisers do a crucial job, helping tens of thousands of people every year. But it’s not easy – particularly as many clients will be dealing with multiple complex problems like mental health issues, bereavement or housing difficulties as well as their debts.

“We want to know more about what it’s like for advisers on the frontline, what would make their jobs easier, and how we can help to improve outcomes for their clients.”

Advice agencies who wish to register in the research can do so here.

Money Advice Update – February 2018

Money Advice Update – February 2018

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.


Money Advice Performance Report Published

The Money Advice Outcomes project team in the Improvement Service have published their Money Advice Performance Management Framework (MAPMF) annual report for 2016/17.

All Scotland’s 32 local authorities submitted data returns regarding the funding of money advice service in 2016/17.

The key findings were:

  • Investment by local authorities totalled c.£11.72m, representing a reduction of 5% since 2015/16
  • 305 FTE paid staff members were employed by the services, which represents a 5 FTE decrease when compared to 2015/16
  • 31% of service users had a disposable household income of less than £6,000, and 50% less than £10,000 – the median household disposable income in the UK is £26,300
  • 53% of clients reported having a disability or long-term condition, whereas around 20% of the general Scottish population has a disability or long-term condition
  • The total debt owed by clients was c.£217m, an increase of around £2m in comparison to 2015/16
  • c.111,000 people contacted the services, and c.49,000 new clients received support – in both cases this represents a 5% increase since 2015/16
  • 19% of clients initially sought advice because of council tax arrears
  • Money advice services delivered or funded by local authorities secured £101m in client financial gain
  • For every £1 that was invested in money advice services, clients achieved financial gains of £4-9

The full report can be read here.

The Money Advice Service: has it over-reached itself in Scotland?

The Money Advice Service: has it over-reached itself in Scotland?

The UK Money Advice Service (MAS) has released a new report, Debt Solutions in the UK: Recommendations for Change.

Now as a Scot, I am instinctively suspicious of such reports. It is not the role of the Money Advice Service to make policy recommendations for formal debt solutions in Scotland.

These are devolved matters, exclusively for the Scottish Parliament to consider and are devolved under the Scotland Act 1998.

Policy Over-Reach?

The question needs to be asked, is this policy over-reach by the Money Advice Service?

We arguably have seen this before, with the Standard Financial Statement and the efforts to get it adopted as a UK wide tool (Is it Time to Call in the Common Financial Tool).

If it is, we need to be cautious. It would be the ultimate irony if, at this point in Scottish legal history, the independence of our debt laws were now eroded.

Scotland’s debt law have always been distinct, they even pre-date the Union. The Diligence Act of 1469 remains on the statute books, as does the 1661 Act of the same name, alongside the Adjudication Act of 1672.

This is legislation that existed not just prior to the modern day Scottish Parliament, but before the Act of Union and was made by the Parliament that sat in the current home of Scotland’s Court of Session, half a mile down the road from its successor. These laws survived 300 years of being in the custody of Westminister.

Even prior to devolution and the Accountant in Bankruptcy taking over as the policy lead in this area, this area of law has always been developed in Scotland, even if it was not made here. There are no shortage of historic Scottish Law Commision reports, concerning all areas of law in Scotland, relating to debt.

You could say we are not lacking in expertise.

There is certainly, however, a risk of erosion as the information revolution continues apace, and banks retreat from the High Street. With money now flowing seamlessly across borders and lenders increasingly lending on a volume basis, using algorithms to decide who to lend to, Scotland’s unique debts laws will increasingly feel like an inconvenience to them.

However, a country’s debt laws are a personal statement: how a society treats it’s debtors says something about that society.

This is what devolution was all about surely? About making these decisions ourselves. About steering our own path as the different parts of the UK continue to diverge.

However, I don’t believe this means we cannot learn from each other and even co-ordinate our direction of travel.

We have seen this before when England and Wales got one year bankruptcies with the Enterprise Act in 2003; followed by Scotland in 2008. Or that England and Wales followed the Scottish example of Low Income, Low Asset Bankruptcies with the adoption of Debt Relief Orders in 2009.

This legal dialogue has not just been restricted to the legal borders of the UK, however, but extended to the Republic of Ireland in 2012 with their Personal Insolvency Act and the creation of Debt Relief Notices and Debt Settlement Arrangements.

Maybe their Personal Insolvency Arrangements, which are used for mortgage debts, will find their way to our shores one day.

Another example of this exchanging of ideas and lessons can also be found in the Money Advice Service’s new report, with proposals for the introduction into England, Wales and Northern Ireland, of a form of the Scottish Debt Arrangement Scheme.

The report also makes other recommendations, such as a review in England, Wales and Northern Ireland of debtor fees in Bankruptcy, including the reintroduction of fee remissions when people cannot afford them.

This echoes a call that was made by Govan Law Centre after the UK Supreme Court decision on Employment Tribunal Fees (see here), which I supported.

The Accountant in Bankruptcy is currently consulting on their fees and how they are funded, and I largely support their policy objectives, as outlined in their consultation document.

However, I would urge them to now extend their consultation to accept the MAS recommendation for a debtor application fee review.

The Scottish Government cannot come to Money Advisers and ask them to accept Money Advice Service initiatives, such as the Standard Financial Statement, when, as it stands, it is likely to make our clients situation worse, and then ignore other recommendations, which may benefit them.

Likewise, the Money Advice Service need to be aware of the risks of policy over reach. They cannot produce financial tools that are detrimental to consumers, and which contain financial trigger figures that have to be kept a secret from consumers and then expect them to be rubber stamped through the Scottish Parliament.

As has always been the case and is a major feature of the UK: for the Union to succeed, there must be mutual respect between the different legal systems and traditions.

It has been that respect that has ensured there are still laws that predate Mary Queen of Scots on the statute books (although we do want to get around to repealing them).

Harmonisation of debt laws across the UK may not be possible, but to borrow a phrase from Brexit, broad regulatory alignment probably is and may even be desirable.

The Money Advice Service Report, Debt Solutions in the UK, can be downloaded here.

Money Advice Service Release Recommendations for Changes to UK Debt Solutions

The UK Money Advice Service have released its recommendations for change for UK debt solutions (albeit only a couple of the recommendations will impact on Scottish debt solutions).

The recommendations are contained in a report that can be downloaded here and follows on from a comprehensive study that was carried out by the Money Advice Service into UK debt solutions.

In carrying out the research, the Money Advice Service and the University of Bristol engaged with the Money Advice Sector through expert workshops, interviews, group discussions and a consultation process, which approximately 60 individuals and organisations responded to.

A summary of the recommendations are:

  • A review into fees for debtor applications for bankruptcy in England, Wales and Northern Ireland;
  • The re-introductoon of fee remissions for low-income applicants;
  • Better online information about going bankrupt;
  • More prominent and easy to understand information and tools on the online bankruptcy application portal;
  • Further exploration of debt rehabilitation, including better recognition of debt repayment;
  • The introduction of a statutory debt management scheme for England, Wales and Northern Ireland;
  • Innovations in the equity release market for people who are asset rich, but cash poor;
  • The development of one online income and expenditure portal.
Yesterday’s Chip Wrapping, Today’s News

Yesterday’s Chip Wrapping, Today’s News

Just in case you missed it, in a scene that was like a throwback to the days of New Labour spin, Scotland’s Accountant in Bankruptcy yesterday re-released a press statement from last month.

She was re-announcing that her office had entered a partnership with North Ayrshire Citizen Advice Service (NACAS) to provide an in-house advice service at their office in Kilwinning. Ominously, in the statement NACAS had been elevated to the status of being a Nationally Accredited Information and Advice Provider.

As is often the case in public relations and politics, terminology is crucial: the changing of a word in a statement can change its meaning; change a phrase and you can change a policy. So although it’s true to state NACAS are accredited under the Scottish National Standards for Advice and Information Providers, by calling them a Nationally Accredited Information and Advice Provider we could be saying something else. Especially when such a description is used in the context of also highlighting that they are dealing with clients from as far away as Inverness and Arbroath.

North Ayrshire Citizen Advice Service is an excellent local service, but there is a danger the AIB is now attempting to represent them as being the embryo of a new national advice service for its own political reasons.

Recently the Scottish Government had floated the idea that the AIB should be given an advice function. This idea was overwhelmingly rejected by almost all in the advice, insolvency and creditor industries at every consultation event held. It would appear, however, the true purpose of providing such a function was really to take forward the idea of creating a national helpline service in Scotland. This was made clear in a statement released by the AIB to money advisers the day after the first consultation event, when the strength of opposition became evident. They sought two money advisers to work in a pilot “national” advice project. Challenged in The Firm as to how they could operate such a project, Rosemary Winter Scott, the Accountant in Bankruptcy, later denied the project would be part of them.

It has transpired since then, however the national project was being heavily promoted and funded by the beleaguered and discredited Money Advice Service, which only last month was flogged publicly by its own stakeholders and the celebrity journalist, Martin Lewis, when they gave evidence to the Treasury Sub Committee at Westminster. It was accused of being unfocused, overly involved in brand building and duplicating existing services that still had capacity, such as helpline services.

It is now clear that the Accountant in Bankruptcy’s office has become contaminated by the illness that infects their new funding host, the Money Advice Service and seems destined to repeat the same mistakes. There is no need for a national helpline service in Scotland. We already have organisations such as the National Debtline and charities like the Consumer Credit Counselling Service, both of which still have capacity.

There is a danger the AIB, in receipt of the Money Advice Service’s funding, is listening to them rather than listening to the debt advice sector in Scotland.

In these times of austerity, additional resources should be used to fill gaps not duplicate existing services; help should be given to those that cannot access telephone help lines or internet services, but need the support of face to face services in communities like Inverness, Arbroath and Kilwinning.

The advice sector in Scotland does not need spin, or yesterday’s chip wrapping becoming today’s news, it needs support. It doesn’t need the Money Advice Service’s folly becoming the Accountant in Bankruptcy’s.