Where Has The Scottish Debt Advice Levy Gone?

Where Has The Scottish Debt Advice Levy Gone?

It is now believed that up to a quarter of a fund that has been set up to help Scottish Debt Advice Services has already been earmarked for UK-wide debt charities, by the Scottish Government, giving them priority over locally-based, face to face money advice services.

The Scottish Debt Advice Levy, believed to be worth £3.96 million per year, is intended to help free debt advice services that help people struggling with their debts like credit cards, personal loans and other consumer credit borrowing.

However, despite there being very little Scottish demand on the UK National Debtlines and charities like Stepchange having self-funding business-like models, the Scottish Government, it is understood, has already allocated them up to a quarter of the entire Scottish Debt Advice Levy, leaving less for local face to face money advice services.

What is the Scottish Debt Advice Levy?

The fund that was previously managed by the Money Advice Service (now the Money and Pensions Service) is raised by the UK Financial Conduct Authority by applying a levy to UK Clearing banks and consumer credit businesses.

The fund was devolved to the Scottish Government in January 2019 under the Financial Claims and Guidance Act 2018.

To help with the transitioning of the fund into the hands of the Scottish Government, it was decided in 2019-20, the previous allocations of funding should continue, with a view to producing by September 2019, a new Debt Advice Route Map that would outline how funding would be spent in years to come in Scotland.

However, to-date the Scottish Government have failed to produce its Debt Advice Route Map and appears ready to honour pre-devolution arrangements of giving up to half a million of the funding to UK National Debt Lines and another half a million to the UK Debt Charity Stepchange. 

No other organisation, such as a local authority or Citizen Advice Bureau is understood to have been given any commitment of funding next year.

UK National Debt Lines

The UK National Debt Lines are understood to be the Birmingham based National Debt Line and Business Debt Line, both of which are owned by the Money Advice Trust. It is also believed to include the national debt charity, Stepchange.

However, it is understood that neither the Money Advice Trust’s National Debtline or the Business Debt Line received many calls from Scotland, with the National Debtline reporting only 4,732 calls in 2017 and the Business Debtline only receiving 1,010.

To put that in context, many local authority money advice services or locally based Citizen Advice Bureaux will receive similar number of calls in a year.

In addition to this, neither the National Debtline or the Business Debtline actually provide face to face appointments to consumers, and often after giving initial advice, have to refer them back to locally based front line services.


Stepchange, also operates a national debtline, as do many large private sector debt advice firms.

Like these firms, Stepchange’s primary funding model is to raise funds from the cases of the clients they deal with.

So, in relation to Debt Management Plans, through a special arrangement they have with the Banks, known as the Fair Share Scheme, it is believed they collect between 11-12% of everything that is paid by a consumer in such a plan.

Across the UK this is believed to have raised them about £43 million in 2018.

They are also believed to have raised a further £3.7 million from insolvency services and a further £1.08 million from equity release services, (helping people release equity from their homes to pay their debts).

In addition to that it is also also believed in 2018 they raised a further £323,000 in commission from mortgage advisers and insolvency practitioners.

In Scotland, it is known they do generate fees from several insolvency practitioners, who they refer bankruptcy and protected trust deed clients onto.

It is also believed their Chief Executive, earned £167,675 in total remunerations in 2018 (more than the First Minister of Scotland)

Who Are The Winners?

Stepchange, it is believed, will also be one of the big “winners” from the Scottish Government’s Debt Arrangement Scheme (Scotland) Amendment Regulations 2019, which will see them increasing their fees on Scotland’s equivalent of a Debt Management Plan from 8% to 20% per case.

Despite this, Stepchange do not offer the same services to people struggling with debts, that other local money advice services do.

For example, those that are self-employed, it is understood, are told to go back to their local money advice service if they want to enter the Debt Arrangement Scheme, as it is believed they find their cases too difficult.

Also, if people don’t have enough money to allow them to be slotted into one of the solutions that Stepchange generate fees from, they are sent copies of letters that they can copy and send to their creditors themselves.

So self-help, if you are poor.

Local Authority Funded Money Advice Services

In contrast, it is understood local authority-funded money advice services, which include services such a law centres, Citizen Advice Bureaux and services provided by local authorities themselves, have seen cuts to their funding of over 45% since 2014.

These services are still the primary providers of both formal and informal debt solutions in Scotland, including solutions like Bankruptcies and Debt Payment Programmes under the Debt Arrangement Scheme.

These services also provide solutions to all clients, including those that don’t fit into traditional formal or informal solutions, or are self-employed or whose outgoings exceed their incomes (believed to be more than 40% of all their clients).

Scotland Needs a Debt Advice Route Map

If it is correct that the Scottish Government has decided to continue with pre-devolution funding arrangements, then this is disappointing.

It shows a complete lack of analysis and understanding and with the Debt Advice Route Map still not having been published, a lack of strategy by the Scottish Government to fund free money advice services in Scotland.

Prior to the funding being devolved, it was not known how much of the funding was being given to the Money Advice Trust and Stepchange, as the Money Advice Service was not subject to Freedom of Information requests, unlike the Scottish Government is.

However, now it is known, questions need to be asked.

The National Debtlines owned by the Money Advice Trust are not services high in demand in Scotland, and calls to many local advice services each year easily compete with the numbers they are doing.

Equally, Stepchange has a business model that is modeled in many ways on that of private sector firms, despite them being a charity and should easily be self-funded, with no requirement for them to have access to public funds.

They are also believed to have £21 million in reserves, whilst many local authorities are eating into theirs.

There financial position has also been strengthened in Scotland with the introduction of the Debt Arrangement Scheme (Scotland) Amendment Regulations 2019, as they can now more than double their fees from Debt Payment Programmes.

The Scottish Government, now have to decide how they will fund free money advice services in Scotland and how the Scottish Debt Advice Levy should be spent.

They must bring forward and publish their Debt Advice Route Map and ensure it will support Scotland’s varied and rich advice landscape of both statutory and third sector organisations , who have suffered most from austerity and remain in the greatest demand: face to face, local, money advice services.



Lenders need to Pay Fair Share for Debt Advice

Lenders need to Pay Fair Share for Debt Advice

*First published in the Herald under the title Free debt advice must be properly funded

The announcement that the debt charity, Christians Against Poverty (CAP), are now unable to take on new clients until after the new year is a body blow for the free debt advice sector in Scotland.

Although CAP have not attributed a lack of funding as their problem, the reality is many of the advice agencies left to serve the clients CAP would have saw, are facing themselves an existential threat from a lack of funding.

The largest funders of free debt advice in Scotland has always been local authorities, but facing their own challenges, they cut their funding for free debt advice by 45% between 2014 – 2017(Improvement Service).

With both consumer and council tax debts now on the rise, the need for the Scottish Government to form a comprehensive strategy for funding free debt advice is greater than ever.

Some steps have been taken by laying new Regulations in front of the Scottish Parliament. These propose increasing the amount creditors pay from 10% to 22% when someone enters into the Debt Arrangement Scheme (DAS), Scotland’s formal debt repayment plan. The hope is some of these funds will be returned to free advice agencies.

However, the proposals are inadequate as they will only apply to new cases, and don’t address the issue of how 7,000 existing cases, being operated by Citizen Advice Bureaus and Local Authorities, will be paid for.

These cases return £15-20 million each year to banks, credit card companies, local authorities and HMRC, but are dependent on advice agencies being adequately funded.

If the Scottish Government, however, were to amend these regulations, so the new fee structure could be applied to existing cases, an extra £2-3 million could be raised immediately for free debt advice in Scotland.

However, it is not enough for the Scottish Government to look at just raising funds from one solution, as that creates the risk that solution may be mis-sold by unscrupulous firms and services in order to generate fees. They must ensure advice agencies are properly funded regardless of the solutions the client uses; or indeed doesn’t use.

The emphasis must be on ensuring consumers receive best advice.

Another funding model I have proposed is to create a Scottish Debt Advice Levy that can be applied to all formal debt solutions.

A recent Working Group established by the Scottish Government considered this proposal and recommended the Scottish Government should consider it.

The idea is the Levy would aim to recover some of the costs of free debt advice from those who benefit from it, namely the creditors. In a sense applying a polluter’s pay or fair share model.

With £74 million being paid last year to lenders via formal debt solutions, even after private insolvency firms and the Accountant in Bankruptcy took tens of millions in fees, the levy would aim to recover some of the costs of the free sector, as presently they receive nothing.

Such a model would also benefit creditors, as evidence shows when free debt advice is under capacity, for every £1 invested, between £4 and £9 is returned to creditors.

Even a 5% Levy, therefore, would not only help fund free debt advice in Scotland, but help return tens of millions to creditors each year.

The truth is there is no commercial reason for not funding free debt advice properly; and significant political reasons why the public purse should not bear a disproportionate burden in relation to the cost.

Statutory Debt Advice Levy

Statutory Debt Advice Levy

The Tackling Problem Debt Working Group is a working group that has been established by the Scottish Government in response to the fact they will be taking responsibility for how the Financial Conduct Authority Debt Advice Levy is spent in Scotland.

The Group has stated it will be looking to develop a new debt route map, which will outline a vision for what steps are necessary to achieve a sustainable, effective and user-centred debt advice system in Scotland by 2025.

As Scotland’s local authority funded money advice services have suffered 45% cuts since 2014-15, I have drafted a paper outlining a proposal for a Scottish Debt Advice Levy and asked the Group to consider the proposal.

The proposal can be read here.