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.