Increased use of Sheriff Officers By Scottish Councils is a Cause for Concern

Increased use of Sheriff Officers By Scottish Councils is a Cause for Concern

New statistics, produced by the Accountant in Bankruptcy Office show that in 2018-19 Scotland’s Local Authorities increased the number of times they instructed Sheriff Officers to recover Council Tax debts by over 15%, adding, it is believed, up to £30 million in Sheriff Officer fees to  those in debt.

Also,  the type of action the Local Authorities have been instructing Sheriff Officers to take appears to be focused on one particular type of enforcement action: Bank Account Arrestments, which many believe are a particularly harsh form of debt recovery. 

Bank Account Arrestments for Council Tax Increase by 21%

In 2018-19 there were 167,356 bank account arrestments by Local Authorities for Council Tax debts (up 21% on the 138,021 there was in 2017-18).

When a bank account is frozen, any funds that are held in the account that are above the Protected Minimum Balance of £529.90 are frozen, up to the level of the debt that is owed.

So if there is £1,000 in an account and £1,200 is owed, then all funds that are in the account that are above £529.90 are frozen. If only £200 was owed then the first £529.90 would be protected, the next £200 would be taken by the Sheriff Officers and the remainder of the balance would be returned to the bank account holder.

The problem is people are usually only left with the £529.90 and this frequently leaves them without enough money to pay their mortgage, rent, gas, electricity or to buy other household essentials such as food.

If the funds held in the account are below the Protected Minimum Balance of £529.90, then the Bank Account Arrestment fails, but the Sheriff Officers fees are still added to the debt and most banks will still add a £25 administration fee to the person’s account.

So for most, whose only income is social security benefits, and whose funds in their account are never above £529.90, the pointless arrestment plunges them more into debt.

In contrast to the sharp increase by Councils in their use of Bank Account Arrestments is their use of other types of arrestments, such as wage arrestments, (there were 71,835 in 2018-19, which only increased by 4% on the 68,858 there were in 2017-18).

Wage Arrestments are not as harsh as Bank Account Arrestments, as  although the first £529.90 per month is protected, the amount that can be taken after that is only a percentage of the remaining funds, based on a sliding scale, meaning people are not just left with £529.90.

The increased use of Bank Account Arrestments by Local Authorities is, therefore, an indication that they are opting to increase their use of one of harsher forms of debt recovery, even if it means forcing more people into hardship.

This is not a proportionate debt recovery strategy.

Increased use of Sheriff Officers to Recover Council Tax Debts

What the Scottish Diligence Statistics also clearly shows is that Local Authorities are now some of the most aggressive creditors in Scotland.

Whilst their use of Sheriff Officers increased by over 15%, other creditors (Banks, Credit Card Companies Etc.) saw their use fall by 42%.

What this suggests is whereas commercial creditors are not using coercive debt recovery tactics, possibly because they don’t consider it to be effective, Councils are increasing their use of it.

If the Commercial Creditors are correct and it is not an effective form of debt recovery, then Councils have to show why their increased use of it is, as in addition to causing hardship, it is significantly increasing the levels of debt that people owe. 

With nearly 90% of all legal debt recovery procedures executed by Sheriff Officers now being for Council Tax arrears, the picture that is being painted  is one where Sheriff Officers are almost exclusively working for Local Authorities.

The question has to be asked is this increased use in  the best interests of local authorities or is it in the best interest of those Sheriff Officer that advise them?

The figures also demonstrate, that contrary to claims that Scotland is better than the rest of the UK, where the over-use of Bailiffs has been criticized by bodies such as the House of Commons Treasury Select Committee, the situation here does not appear to be much better.

Local Authority Debt Recovery Strategies Need to be Revised

Scottish Local Authorities now need to revise their debt recovery strategies by increasing the amount they are investing in free money advice services, which are believed to have been cut by 45% between 2014-2017 and is now believed to be worth less than £11.72 million per year.

Contrast that with up to £30 million in fees it is believed Sheriff Officer action is adding to people’s Council Tax Debts each year.

In addition to this the Scottish Government need to accept some responsibility.

If they are going to allow Local Authorities to increase the level that Council Tax rates can be increased by next year, they must also ensure with that power comes the responsibility to ensure those who are most affected can access advice and assistance to help mitigate the worst effects of any hike.

This could be done by increasing funding for free money advice by introducing a Scottish Debt Advice Levy and also national best practice guidance for Council Tax Debt Recovery, that places an emphasis on ensuring Local Authority Debt Recovery departments work in collaboration with local advice agencies and current year council tax is prioritised over arrears.

The Scottish Government could also, as part of the Accountant in Bankruptcy’s review of Diligence, look at how bank account arrestments are working in practice.

In particular they could review whether the Protected Minimum  Balance of £529.90 offers sufficient protections and whether the process to recall or restrict a bank arrestment could be made more effective, by transferring the powers from the Courts to the Accountant in Bankruptcy, with a right to appeal to the Courts only on a point of law.

The Scottish Parliament could also take a leaf out of the House of Commons Treasury Select Committee’s book and independently launch an inquiry into the issue of Council Tax debt recovery.

Then again, the Scottish Government could just see through on its promise and reform local government taxation and introduce a more progressive model of Local Government funding.

The Iron Fist of Debt Recovery

The Iron Fist of Debt Recovery

It has been a decade since statistics were available into the use of diligence in Scotland. New figures show a country ridden with increased aggression in debt recovery, and a Sheriff Officer profession largely sustained by the enforcement actions of local authorities.

New Scottish Government figures have provided the first real look at how the use of diligence in Scotland has evolved over the last ten years with the abolition of poinding and warrant sales and the implementation of the Bankruptcy and Diligence Etc (Scotland) Act 2007.

What is revealed is that the use of diligence has increased by 134% in the last ten years and that local authorities are now responsible for 84% of all the 387,945 diligences executed in 2011/12. It is also clear Councils are now spending millions more in debt recovery than previously, with 76% of the total 338,701 charge for payments being served being done so for local authority summary warrants (prior to 2008 there was no requirement to serve a charge to execute diligence using a summary warrant.)

Non earnings arrestments have also increased with local authorities now executing more than three times the number they executed in 2002, which indicates increased aggressiveness by councils, but also possibly that more arrestments are failing and being repeated because of changes introduced by the 2007 Act, which introduced protection for minimum amounts in bank accounts.

Earning arrestment figures have also doubled, indicating changes in recovery strategy for councils and other non summary warrant lenders, but also possibly the success of the new s70A of the Debtors (Scotland) Act 1987, which introduced a new requirement on employers to inform creditors of employee’s new employment details when employment with them has ceased.

Not all diligences have, however, proved popular. The replacement to poinding and warrants sales only saw 2,758 attachments and 51 exceptional attachments being executed. Contrast that with the number of poindings in 1997 (18,980) and its clear to see the corporeal property of debtors is now safer than ever.

Money attachments have also not proved a hit with only 502 being executed nationally.

Some diligences are more common amongst certain creditors than others. HMRC, for example, most commonly use non earnings arrestments (6,437) rather than earning arrestments (467). They also are more likely to use money attachments than local authorities and other non summary warrant lenders.

Local authorities most commonly use non earnings arrestments (219,905) than earning arrestments (116,703) and rarely appear to use any other type of diligence.

Non summary warrant creditors in contrast are more likely to use earning arrestments (17,127) than non earnings arrestments (7,643) and are also the highest user of attachments (1,755), possibly indicating more intelligence based recovery as they are more likely to have information on debtors employment, unlike statutory creditors like local authorities. In one sheriffdom there were more earning arrestments executed for summary warrant debts than non earnings arrestments, but that was the exception.

A number of conclusions can be drawn from these statistics.

First, recent criticism that Scotland has become overly debtor friendly is not true, but clearly local authorities are struggling to recover local taxes.

Second, it is also obvious that although many of these problems may disappear should Scotland introduce a Scottish Income Tax, collected at source this will have a dramatic effect on Scotland’s legal debt enforcement system as sheriff officer firms are clearly over dependent on local authority revenue.

Third, if the whole purpose of the review carried out by the fist Scottish Executive into debt recovery which culminated with the Striking the Balance Report was to create a less coercive system then it’s failed. Even allowing for changes in tactics, no one could have imagined a 134% increase in the use of diligence. The recent growth in schemes like the Debt Arrangement Scheme, which now see over 3,000 people applying per year, is still not enough, when over 338,701 Charge for Payments are being served, 134,297 earning arrestments are being executed and 233,985 non earnings arrestments are being applied for. It is clear the collaborative approach that was hoped for is still not being achieved and legal debt recovery is still, in relation to local authorities at least, based on a hit and miss, threat based approach rather than one based on intelligence and working with debtors.

It also doesn’t help that the Scottish Government has still not implement S74D of the Debtors (Scotland) Act 1987, which requires lenders within 48 hours of executing a non earnings arrestment to serve on the debtor a Debt Advice and Information Package advising them where and how to seek advice on how to deal with their debts.

There is no easy answer to the current problems, but encouraging more people to seek advice and agreements with their creditors should be a priority for the Scottish Government; also a further review of local authority enforcement powers under the summary warrant procedure is now long overdue. It should be borne in mind that widespread abuse of these powers and the diligence of poinding and warrant sales is what eventually discredited that diligence and led to its abolition: we can avoid repeats with other diligences by acting now.