By Alan McIntosh
Be scared, very scared, as Scotland’s Accountant in Bankruptcy seems hell bent, yet again, on trying to spread its tentacles and grow its empire as the de facto godfather of Scotland’s personal debt solutions. Fears are that after receiving a bruising defeat by the personal insolvency industry in relation to its attempts to expand its empire further into bankruptcies and protected trust deeds, it is now focusing its attention on Scotland’s Debt Arrangement Scheme as a means of swelling its coffers and reducing its reliance on public funding.
The Accountant in Bankruptcy is Scotland’s effective official receiver for bankruptcies. It also has a supervisory function in relation to protected trust deeds, a less formal type of bankruptcy. In a different capacity, it is also the Debt Arrangement Scheme Administrator.
One of the success stories of Government Agencies, The AIBs office has year on year been reducing it dependency on public funding and is working towards full cost recovery, so its services come at no expense to the public purse.
However, as admirable an aim as this may be on the face of it, the morality of a government agency pursuing such an objective is morally questionable. Why should one debtor who is financially struggling have to pay more to allow another debtor to access a service? Surely the test should be whether that debtor can pay for their own remedy and where they can they should be allowed to access it. Where another debtor can’t, then society has to decide whether it has a social responsibility to pay for that solution or whether they want to leave that person caught in a debt trap which will not benefit society (see my article on why Scotland needs 200,000 bankrupts). But to disproportionately place the costs of Scotland’s debt remedies on those least able to pay is a morally bankrupt policy.
One of the services the AIB currently provide is to administer Low Income Low Asset bankruptcies. These are bankruptcies where debtors who have more than £1,500 in debt, own no heritable property, have no one asset above £1,000 (or in total £10,000) and are either in receipt of a means tested benefit or effectively earn less than 40 x the hourly national minimum wage rate. All these debtors have to pay a £100 application fee to access the scheme, but the majority of these bankrupts will not pay anything towards their debts, because of their low income and will be discharged from their liability within one year.
There is now talk the AIB office, in its Debt Arrangement Scheme role will aim to take over much of the administration of Debt Payment Programmes under the Debt Arrangement Scheme. These are repayment programmes, which are not types of bankruptcies, which allow debtors to repay their debts in full, whilst protecting them from their creditors. At recent conferences the AIB office has indicated they now want to monopolise this type of work and it is likely if they do they will start charging for the service. Asking debtors to pay is in itself not completely objectionable, as one of the reasons the AIB office has indicated it wishes to take over this role is because public and voluntary money advice services have stated they lack the capacity to do so. Also if debtors who have little or no disposable income, such as those that apply for low income low asset bankruptcies have to pay, then why should those that apply for a Debt Payment Programmes and who by definition have some disposable income not pay? In addition to this for those who enter into DPPs, as the interest and charges on their debts are frozen, many benefit up to the tune of hundreds of pounds each months.
However, the concern is that as the AIB move to full cost recovery, the poor will be used to pay for the poor, with some services being used to cross subsidise other services. It has to be noted that when the AIB talk of full cost recovery, there is no suggestion that the fees they charge debtors are only to pay the cost of providing those services to those debtors. It is likely some are paying more to pay for the services of those that can’t afford to pay. There are also indications that as the AIB continue their journey towards full cost recovery, the temptation will be, with an effective monopoly, to year on year increase the cost and charges to debtors. There is a basis for stating this: in 2008 the AIB began charging trustees in protected trust deeds a one office supervisory fee of £200 per case. Last year this will have raised the AIB’s office close to £2 million. This year that fee was increased to £234 per case, despite the fact the number of protected trust deeds are now likely to begin falling. Also it is extremely unlikely that the supervisory function the AIB performs for protected trust deeds, costs anywhere near the approx £2 million they raised: so effectively this is a profit making service this Government agency is now running. It is clear to many, however, that this is an effective tax on the insolvency industry, with the costs in reality being passed onto those least likely to afford it: the debtor.
This is concerning as there is an alternative and that is to allow the private sector to take over the administration of DAS cases and allow the public and voluntary sector to refer those cases onto them. Although they will also charge and some of those that currently provide it do (with one charging up to £1,800), with more involvement by firms, there will be pressure on them to compete and this should be a force for good driving down the cost of the DAS to debtors. There are already some large UK private firms that already provide fee charging services, with the best of them charging only nominal amounts. It is not inconceivable that in the future, if the private sector were allowed to compete for this work that the service may eventually be free to debtors in Scotland, with the most successful of firms only relying on the 10% that the legislation allows them to charge creditors for providing the service.
It will also be providing the Scottish Government with a means of beginning to regulate the private debt management industry in Scotland, which is currently a role reserved to Westminster, as if they wish to provide access to the scheme, they will need to comply with Scottish Parliament regulations. This will help drive out the rogues and cowboys in the industry.
However, there is currently little indication the AIB, which is responsible for developing government policy in this area are prepared to have open discussions on the future of the scheme. Clearly there is a conflict of interest with them more than likely wanting to choose a path or consider options that will benefit them as an agency and add to their coffers. This is even if the alternative could produce a more accessible, cheaper and more professionally run service for debtors and the voluntary and public sector money advice services to refer on to.
The truth is, however, the only reason the AIB’s office wish to monopolise the DAS (which in itself is probably a breach of European competition law), is to allow it as means to raise more revenue to cross-subsidise other services.
That is to ensure Scotland’s poor pay for the poor , so the rest of us don’t have to.