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.
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.
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.
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.