Abolition of Poindings and Warrant Sales Bill
The first item on our agenda is the Abolition of Poindings and Warrant Sales Bill. This will be our second evidence-taking session on the bill. I am happy to welcome Niall Whitty, the commissioner of the Scottish Law Commission, and Dr David Nichols, who is an assistant in the commission's diligence team.
We hope to complete this item of business by 2.45 pm. We will have a brief presentation from the witnesses and then I will ask members to indicate if they want to ask questions. The usual procedure is for members to ask one question, with the opportunity to ask one supplementary question. We have found that that is the most effective way of allowing everyone to make a contribution. With that said, I hand over to Niall Whitty.
Niall Whitty (Scottish Law Commission):
Thank you, convener.
As stated in our memorandum to the Justice and Home Affairs Committee, the Scottish Law Commission has a twofold interest in the Abolition of Poindings and Warrant Sales Bill. First, our 1985 report formed the basis of the Debtors (Scotland) Act 1987, which regulates poindings and warrant sales. Secondly, on 30 November of last year, under an urgent reference of 2 September by the Minister for Justice, who asked us to revisit the question of poindings and warrant sales, we issued discussion paper 110 to the public. We took the liberty of sending a copy of that paper to all members of the Scottish Parliament, for information. That reference by the Minister for Justice could be superseded by the progress of the bill—no doubt, some people think that it should be, but that is politics and it is above my head. Many other papers have been issued; I need not refer to them, as Mr Peter Beaton did in his evidence to the Justice and Home Affairs Committee.
As the commission is still consulting on this topic, I can give the committee only our provisional views, not our final views. Please read into anything that I say that these are my provisional views, as sometimes I will forget to say that.
I want to make five points. I was told that I could have 10 minutes—is that all right?
Yes.
That will be two minutes a point.
First, I should say that we fully recognise that the bill addresses genuine social problems of immense importance. Clearly, it has been very successful in pricking the conscience of the nation. However, in our provisional and respectful view, its solution—the abolition of poinding and sale—goes beyond its social policy objectives and therefore could be described as too drastic and undiscriminating.
The main principle on which systems of debt enforcement in Europe and the Commonwealth are based is that all the property of a debtor should be attachable by his creditors to pay his legally constituted debts and taxes, subject to specific exceptions enacted by specific laws. The most important of those exceptions, for our purposes, is property—generally household goods, some tools of the trade and the like—that is exempt from enforcement for humanitarian reasons to protect a basic standard of living for the debtor and his family.
In our memorandum, which members may have copies of—it is the blue document that I gave to the clerk—those principles are set out at paragraph 7. Paragraphs 23 to 31 detail the sort of exemptions that are found in other legal systems. Our further research into this matter found those principles affirmed by comparative studies. For example, article 2092 of the French civil code says that
"whoever is under a personal obligation is bound to fulfil his engagement with all his moveable and immovable property present and to come".
That is the internationally accepted principle, but the bill is inconsistent with it. Its effect would be that all movable goods in a debtor's possession—the most common type of property that people have, apart from money in the debtor's possession, which in our law is not attachable—would be creditor proof outside insolvency proceedings.
My second point relates to my first. With regard to the legitimate social aims of the bill, our provisional opinion is that the case has not yet been made for the abolition of poinding and the sale of movable goods outside dwelling houses. A dramatic example would be an aeroplane at Turnhouse. Critics might say that that is an unusual example, but there are other important examples.
Poindings outside dwelling houses should not be dismissed as numerically unimportant. Central research unit research on 1991-92 data suggests that about one third of poindings and two thirds of warrant sales under court decrees—I am not talking about council tax cases—are against commercial debtors and that many of the goods are commercial goods in commercial premises. You will see a reference to that data in paragraph 16 on page 10 of the memorandum that we provided. We agree with Mr Sheridan that it may be difficult for the bill to distinguish between commercial and private individual debtors, but it would be relatively easy to distinguish between goods in dwellings and those in premises other than dwellings.
Thirdly, in our provisional view, it has not been established that an equally effective and more socially acceptable alternative to poinding and sale exists or can be devised. That is because, obviously, the forms of diligence against property and income assets are limited by the types of assets that people have. Scots law already provides for diligences against all assets except money in the debtor's possession.
Table A on page 4 of the memorandum shows all the types of property and the diligences that have been adapted to them, but in many cases they are not realistic alternatives. Many poindings are used against tenants, yet inhibitions freezing land cannot be used against tenancies. Earnings arrestments against wages and bank arrestments can be used only if the creditor knows the details of the debtor's employment or bank account. A debtor's bank account may be in overdraft or unidentifiable by the creditor, and a self-employed person has no wages. The legal system does not give any help to creditors in identifying arrestable assets, but often creditors will know the debtor's home or business address and can poind goods there, thereby indirectly gaining access to such funds, bank accounts and earnings as the debtor has.
For many reasons, insolvency proceedings are no alternative—we elaborate on that point in discussion paper 110. The total debts for sequestration of an individual debtor must be £1,500. Two thirds of poindings under court decrees are for less than that amount. The cost of insolvency proceedings is three or four times the cost of poinding and sale; we must remember that one of the criticisms of poinding and sale is that it is not cost effective. Discussion paper 110 contains tables comparing the costs of sequestration and poinding. The liquidation of a company is even more expensive.
Time-to-pay orders and informal arrangements for payment by instalments are to be encouraged. They are alternative means of making payments, but they do not replace diligence, because they may depend on diligence in the event of default. Such arrangements are more like diligence stoppers than forms of diligence.
Under the Debtors (Scotland) Act 1987, household poindings have become a diligence of last resort. In contrast, in England, enforcement against goods, including household goods, is nine times more common than all other kinds of enforcement. The abolition of the last resort in Scotland would deprive creditors of their only ultimate remedy. If poindings are abolished, it is difficult to see how diligence can be done against the self-employed or those whose wages and bank accounts are unidentifiable. The fact that there is no alternative may suggest to the committee that the bill should not go beyond its accepted social policy objectives.
Fourthly, it is said that poinding and sale are ineffective because so many poindings result in so few sales. In relation to council tax, there are 275 poindings for every sale; in ordinary cases, there are only 16 poindings for every sale, even though there are restrictions on sale in ordinary poindings. The transaction costs are fairly high compared with other diligences and the proceeds of sales are low. However, that argument discounts or ignores the role of poinding as a spur to payment—a phrase that has been criticised, but we cannot think of a better one. In England and Wales, where, unlike in Scotland, there are statistics on the amounts recovered—payment is made through the court and can be monitored—execution against goods is mainly used as a spur to payment. The number of sales is not even counted because, statistically, it is insignificant. In England, there are 589,000 warrants per annum for execution against goods, not including council tax cases. That is set out in table J on page 31 of the memorandum. There are very few sales: the ratio is one sale for 500 enforceable warrants. However, the recovery levels are significant.
Fifthly, it is said that abolition is necessary because the poor and vulnerable should not be put under pressure to pay. There are three things to be said about that. First, abolition of poindings and sales would protect the rich as well as the poor—the "can pay, won't pays" as well as those who, as Mr Adams said in his evidence last week,
"can't pay and would like to."—[Official Report, Local Government Committee, 12 January 2000; c 442.]
Secondly, coercive pressure to pay is a necessary part of any system of debt enforcement. Without it, payment of debt would become voluntary and a matter of conscience. Thirdly—this is where the shoe pinches—pressure must be imposed by a form of diligence that is socially and morally justifiable. That is where the trouble arises, because it is becoming clear that poinding of goods that are not worth selling is no longer regarded as acceptable by society. The Debtors (Scotland) Act 1987 was based on the view that the appropriate response to social concerns was to keep poinding as a spur to payment, but to relieve the poor and vulnerable from undue pressure through time-to-pay directions and orders. It is now becoming clear that that spur-to-payment role, when it is applied to goods of insufficient value for sale, is difficult, if not impossible, to defend.
At present, non-exempt goods can be poinded when it is known to the officer and creditor that the expenses will swallow up the proceeds of sale. The sheriff has power in ordinary poindings to refuse warrant of sale on the ground that the future expenses of removing the goods to an auction room and selling them there would not be covered by the proceeds of sale. That test of whether a sale is worth while is very restrictive. Our memorandum discusses the case for expanding the test, so that the proceeds of sale must cover not only the expenses of removal and sale of goods, but all the diligence expenses up to that date and the interest; they must also make some contribution to paying the principal sum in the decree or summary warrant.
Furthermore, there is a very strong case that that test should be applied not at the later stage, when the sheriff determines whether a warrant of sale is justifiable, but at the stage of the poinding. At that stage, the sheriff officer knows, from the appraised value, what the likely proceeds of sale would be, and knows, from experience, what the likely expenses would be, and can compare the two amounts.
At the moment, creditors are bluffing debtors when they use poindings of goods whose sale would be economically unjustifiable. Bluffing is an integral part of our adversarial system of litigation. Cases are settled every day by parties who pretend that they have stronger cards in their hands than they do.
Under our law, it is not extortion to threaten to take legal proceedings. A creditor may send demands for payment to a debtor, saying that he will send the case to a debt collection agency if nothing happens. The debt collection agency can make demands and threaten to send the case to a solicitor. The solicitor can make demands and threaten to bring a court action.
At each stage, the threat may simply be bluff, because the creditor does not wish to throw good money after bad, or might not wish to lose customer goodwill. However, in a poinding, by virtue of holding a decree, the creditor and the sheriff officer are in a strong position, and the debtor is in a weak position. There is a disparity in such cases, as there is in local authority council tax poindings. The question for our Parliament to consider is whether that bluff is justifiable. Speaking provisionally, I find it difficult to defend.
What, then, is to be done? Parliament could abolish all poinding, or it could abolish household poindings. Our memorandum and discussion paper 110—at somewhat inordinate length—consider three different measures falling short of the abolition of household poindings. One proposal is the reform of poindings and sale. We could increase exemption levels. We could prohibit not only economically unjustifiable sales, but economically unjustifiable poindings, of non-exempt goods. We could regulate forcible entry much more carefully—it is not true that Scotland is the only country that has it. In this paper we refer to Sweden and Norway, to some Australian states and to some other states. An article in the 1997 "European Review of Private Law" contains a survey of different ways in which forcible entry is done in the European Union.
The second measure that we could introduce to improve debtor protection would be to improve what I call the diligence stoppers. That is in the memorandum at paragraphs 46 to 50 and in our discussion paper 110 at part 7. We could try to make time-to-pay directions and orders more accessible, although that is not easy, or we could introduce debt arrangement schemes, although that is controversial. Contrary to our provisional opinion in discussion paper 110, it seems likely that time-to-pay orders in connection with summary warrant poinding for council tax would be highly desirable. Sheriff officers could be required to give application forms to debtors who claim inability to pay outright in a lump sum. There is always the problem, of course, of helping debtors to make applications to the court. The 1987 act did what it could by providing that none of those applications would cost the debtor anything but, as we all know, the problem is getting debtors to act.
The third range of measures that we could use would be to divert enforcement away from poinding and sale. We have already made poinding and sale a diligence of last resort, at least against household goods. Compared with what happens in England, we have been enormously successful in that, as the statistics show. If we chose that course, we would be reinforcing an existing trend.
There are two ways of diverting enforcement, given that creditors get no help in identifying arrestable assets under the legal system. The first is to obtain information about arrestable assets from the debtor through compulsory means inquiries—oral examinations on the English or foreign models. We have always set our face against that, because of the difficulty that we have in getting debtors to turn up to means inquiries. We have statistics only for district courts, but they show that, in 68 per cent of summonses to appear at a means inquiry, the debtor does not turn up. We are then left with the coercive procedures of arrest. For all its faults, our legal system has since 1880 managed to avoid arrest and the threat of imprisonment for debt.
A more promising avenue is to enable the court or some other agency to obtain information from third parties, such as the clearing banks, building societies, the Inland Revenue, the Department of Social Security and the Driver and Vehicle Licensing Agency. That is set out in paragraph 45 of our memo and in part 6 of our discussion paper. It is interesting that, at the moment, the Lord Chancellor's Department is actively considering such measures as part of its current review. The department's consultation paper No 4, which was issued last week, says that, of all its procedures, oral examinations were criticised most. That confirms us in our view that we should not introduce them in Scotland. The department is considering means of persuading the Inland Revenue to help creditors, through the DSS and so on. We might be able to piggy-back on that, although that is not within the gift of the Scottish Parliament, as these are United Kingdom departments. The Scottish Executive will insist that it and Scottish interests are consulted to ensure that any new machinery fits into our system.
That said, even measures of increased debtor protection—let alone abolition of poinding and warrant sale—are likely, in my respectful submission, to have a serious adverse effect on recovery levels. That effect is difficult and perhaps impossible to quantify.
That is not decisive. The crucial question for our Parliament is how far the social benefit of abolition or increased protection for debtors will outweigh the disadvantage of reduced recovery levels. We are weighing moral considerations against recovery of money.
In conclusion, I remind the committee that, historically, other creditors remedies, including, for example, wage arrestments and ejection from dwellings, have been used as engines of oppression of poor people in Scotland. However, the legislative response has always been measured and discriminating. Those essential remedies are still available for appropriate use in cases where they are not regarded as oppressive. I take wage arrestment as an example. We worked away on it until at last, in 1987, we seemed to have achieved a type of diligence that satisfied the different interests involved—the creditor, the debtor and the employer.
I respectfully invite the committee to consider whether, instead of agreeing to abolition, our Parliament should seek a consensus on reform of poinding and sale, reconciling the important competing interests in the same way as we reformed arrestments.
Thank you. Does Dr Nichols have anything to add at this stage?
Dr David Nichols (Scottish Law Commission):
No.
We are pressed for time, and we have much more evidence to take, but I want everybody to have the opportunity to ask questions. I ask people, in doing so, to be disciplined.
Mr Whitty, is there a difference between the collection rates of local authorities that actively pursue poindings and warrant sales and the rates of those that do not?
I believe that there is, although I cannot give you chapter and verse. It was referred to in the evidence given by the sheriff officers and there is something on it in the Institute of Revenues Rating and Valuation's report on council tax collection arrangements in Scotland, England and Wales. I will write to you about that.
Do you have any view about the effect of abolition on the subsequent willingness of creditors to lend?
I do not. The giving of credit is not part of the diligence system. Various views have been put forward. For example, where exemptions apply, the price of exempt goods could be excepted, so that people would not be deterred by the existence of exemptions to sell those goods on credit. That is used in one or two legal systems on the continent.
The last two sentences of paragraph 37 say:
"It is nowhere suggested there that poinding and sale should be abolished. Rather the emphasis is on retaining the existing diligences and improving the measures of debtor protection for use in appropriate cases."
Can you suggest ways in which that can be done?
That can be achieved by the measures to which I refer: the exemptions, the restrictions on economically unjustifiable poindings, the promotion of time-to-pay directions and orders and possibly even debt arrangement schemes and, by the Inland Revenue and other third parties giving information on arrestable assets to creditors, the diversion of enforcement away from poinding towards those arrestable assets.
Do you see any moral difference between poindings and warrant sales against private people and against companies? In your experience, is there any practical difference? Is one type of poinding more effectual than the other?
The Scottish Office central research unit research paper statistics show that poindings and warrant sales against business debtors are substantially more effective than those against individual debtors. Tables S and T on pages 94 and 95 and tables U and V on pages 99 and 100 of our discussion paper give some figures.
Recovery rates at warrant sale stage can be miserable. For individual debtors, warrant sales do not even cover the diligence expenses. In 4 per cent of cases, more than half the principal sum was recovered, while in 13 per cent of cases, under half the principal sum was recovered. That means that any contribution whatever to recovery of the principal sum was made in only 17 per cent of cases.
The picture changes for business debtors. In 8 per cent of cases, the entire principal sum and all diligence and other expenses were recovered. In 21 per cent of cases, more than half of the principal sum was recovered. In 25 per cent of cases, under half of the principal sum was recovered. Therefore, in 54 per cent of cases, some contribution was made. Members should remember, however, that there are very few warrant sales.
At poinding stage, the picture is much better. Table V shows that in 96 per cent of cases against business debtors some contribution was made towards recovery of the principal sum. In 61 per cent of cases, the entire principal sum and all expenses were recovered. In a further 18 per cent of cases, more than half of the principal sum was recovered. That means that in a subtotal of 79 per cent of cases, more than half of the principal sum was recovered. In a further 17 per cent of cases, under half of the principal sum was met. However, I do not want to keep giving statistics.
There are, of course, far more cases of poinding than there are of warrant sales. By warrant sale stage, there are only the people at the bottom of the barrel and the goods are almost unsaleable.
The document to which you refer has not been circulated to committee members, but copies are available from the clerks.
It would be helpful to have a copy.
We sent a copy of our document to each individual MSP.
If Dr Nichols has nothing to add, I will move on to Tommy Sheridan.
I beg your indulgence, convener. If I can keep my questions short, I hope to be able to get in two or three.
Mr Whitty and Dr Nichols, how many poindings have either of you attended?
None, in my case.
Back in the 1980s I attended one or two poindings. I often do not have any direct experience of the law with which I deal. I have dealt with domestic violence and divorce, but fortunately have managed to avoid both.
The reason I ask the question is that the evidence of the people who have suffered poindings and warrant sales is of the great stress, fear, humiliation and loss of dignity that the whole process causes.
You gave some historical examples. I have an example from last Friday, involving a disabled woman of Burndyke Square in Govan, who cares for her disabled daughter who is a victim of cerebral palsy and is confined to a wheelchair. The woman has a council tax debt, despite the fact that she is in receipt of income support and has informed the sheriff officers that that is the case. Nevertheless, the sheriff officers entered her home on Friday and carried out a poinding of, among other things, a hoover and a tumble dryer. Given that her daughter is incontinent as a result of her cerebral palsy, it seemed rather frightening that a sheriff officer could carry out a poinding for a tumble dryer that is used to dry clothes. A microwave oven was also poinded—
Tommy, I do not want to be unhelpful, as I am conscious of the sensitivity of the cases that you are describing, but I am also stressed out by the clock ticking on. Without diminishing the point that you are making, will you come to your question, please.
I will not go on to describe the other items, but the total amount that was poinded was £70, for a principal debt of £1084.
I give that example not because it is an exception, but because that is generally the case.
It is typical.
If, as you say, this is typical and it is happening today, surely you should accept that poinding and warrant sale is not being used as a last resort. In fact, it is being used as a first resort, to frighten the poor. Would you accept that?
I accept the fact that it is used as a threat against the poor, but I would not accept that, when creditors have a choice of using another type of diligence, they would use poinding and warrant sale. The statistics show that that is not the case. According to council tax statistics, for every 10 poindings there are between 66 and 99 ordinary bank arrestments, and between 66 and 125 earnings arrestments. The IRRV report said that, when it is possible, orders for deduction from income support or jobseekers allowance are used—which are the only two social security benefits that those orders can be used on.
I can only go on the written evidence that we can either read or which can be given to us. My strong impression, backed by the evidence, is that poinding and warrant sale is not used as a first resort. However, I agree that it is used as a threat against the poor: that is my whole point about the spur to payment.
If advice was given that debtors need not worry about poindings, as only luxury goods such as cars or valuable antiques could be poinded, would you think that that was good advice?
No, not under the present law. We know what the statistics are. They are in our discussion paper.
I ask because—
Can you make this your last point, Tommy?
I will make this my last point.
I ask because the advice that is given by the diligence committee of the Law Society of Scotland, in its submission, is that debtors need not worry, as only
"luxury goods such as a car, valuable antiques, stock and the like"
can be poinded. Is it not incredible that the Law Society of Scotland—such an eminent and reputable body—is so ill advised, yet ordinary debtors are supposed to be aware of this law?
I honestly do not think that the Law Society of Scotland had much time to prepare its submission. In fact, I know that it did not.
There are statistics on this in the central research unit report that show that 50 per cent of all poinded goods are electrical household appliances. A further 13 per cent are kitchen appliances, such as microwave ovens, and 30 per cent of such goods are furniture. The remaining 8 per cent comprises miscellaneous items. A small increase in the exemptions could have a devastating effect.
Even without increasing the exemption levels, the type of emotive case that you have just put forward would be stopped by our proposals. The poinded value is clearly nowhere near sufficient to meet the expense even of selling them. That would be outlawed under the present system if the sheriff was on the ball. Under our system, poinded goods up to a value of about £300 would fail any not-worth-it test. The poinding and warrant sale would not be justifiable under those circumstances.
Thanks. Two members will be able to speak before we close the discussion.
I want to make a general point. I do not know whether it is because I am getting old, but I had a problem catching everything that you said earlier, and all the legal bits. That is just a general point. I caught most of what you said, however.
My main point is on the second reform that you mention in your discussion paper, on allowing more time-to-pay directions and orders. The matter was raised last week, and the main point which came from it was the resource implication. Whether we continue with poindings and warrant sales or not, it strikes me that that is a measure that we would want to develop. Could you comment further on some of the practicalities and resource implications of that reform?
I must first declare an interest, deputy convener: my wife is an adviser in a citizens advice bureau.
This matter goes outside the diligence system. In my personal opinion, the CABs are terribly underfunded. It is ridiculous that they have to go to the national lottery to get money. One thing that we have said is that, if debt arrangement schemes—a kind of mini-sequestration scheme for people who only have income—are not introduced, Government must provide the resources. One reason given by Government for not introducing debt arrangement schemes is that it is adequate to have informal payment arrangements brokered by the money advice centres, trading standards departments of local authorities and the CABs. If Government uses that reason, it must resource those institutions, which provide their services for nothing—they are not paid a penny. The value that the public gets from them is an essential part of the welfare state. It is remarkable.
Niall, during your contribution, you recognised some of the social reasons behind the introduction of this bill. You also drew a distinction between personal debts and commercial or business debts. As you drew that distinction, would you think it practical for the bill to abolish warrant sales and poindings for personal debts and for homes or dwelling-places, while retaining them for business or commercial debts? If it were practical, would that be something that you would support?
I can only give a provisional view, Mr Muldoon. It is much easier to draw a distinction between goods in dwelling-houses and goods in premises other than dwelling-houses than to draw a distinction with business and commercial debtors.
I do not think that there is any case for abolishing the poinding and sale of goods in commercial premises: it does not bear thinking about. That, in my opinion, would go far beyond the appropriate social objectives of the bill. If that is accepted, the crucial question is then what to do about household poindings. My provisional view is that that the Parliament should not abolish household poindings completely.
The supporters of the bill will make the point—and this is quite true—that threats to poind could still be made against the poor. The creditor would still have the right to send in a sheriff officer to assess the goods that are there. We should not have tunnel vision only about the problems of the poor; we have to cater for all sorts of sectors in our society. We are a commercial nation as well as a caring and inclusive one.
We have to balance the various interests. It is going too far to allow middle-class people with plenty of antiques to keep them. I agree with Mr Sheridan: at the moment, such people are not affected by poinding and sale, but a different problem would emerge after abolition because the people who pay further back in the debt recovery process could well slip into an enforcement stage.
I cannot see how we can achieve the aim of protecting the poor, which you accept would be worth while, while domestic poindings and warrant sales are retained. The reason why many more middle-class debts do not result in poindings and warrant sales may be that creditors use other forms of recovery such as earnings and bank account arrestments.
But what is a creditor to do if he does not know where his debtor banks? Even bank arrestment may not be successful; if the debtor is self-employed, the account may be an overdraft. The creditor may not know details of the debtor's employment and there is no way of getting that information from the debtor. There is no option for the creditor but to poind. A local tradesman may go into a middle-class household—a posh house—and install a fitted kitchen. He can see antiques all over the joint but he cannot touch them if he does not receive payment. That is a serious matter.
Can I just ask—
Sorry, no. I said that that was the last question.
It is a point of clarification.
Very quickly, then.
I will be quick. You said that the test should be expanded. I take it that you mean that the goods available for poinding should be identified, and that the remaining goods would be worth a sum of, say, £300. Is that correct?
Not quite. The proceeds of sale must cover the diligence expenses, plus the interest; they must also make a significant contribution to the amount of the debt. We are consulting on that. When Dr Nichols mentioned £300, he was referring to the existing law.
But if the test were to be expanded—
You are stretching your question beyond clarification.
I thank Niall Whitty and Dr David Nichols for attending. We look forward to hearing your definitive position on the subject, as well as the provisional one.
Thank you. It has been a privilege to appear before the committee.
We will now hear evidence from representatives of the Credit Services Association, whom I thank for attending. Dr Roger Lucas is the vice-president, Stephen Lewis is the president and Cliff Poole is a council member. I will simply hand over to them, in whatever order they want to speak, after which the committee will ask questions.
Stephen Lewis (Credit Services Association):
Thank you, convener, for allowing us to give oral evidence today.
As an introduction, I am Stephen Lewis, president of the Credit Services Association. To my right is Dr Roger Lucas, our vice-president—to whom questions should be addressed—and to my left is Cliff Poole, who is a council member and past president. With Roger Lucas as chairman, we make up the association's committee on this matter.
The Credit Services Association is the national trade body for the UK debt recovery industry. We represent 114 member companies, which, in turn, represent 90 per cent of the debt collection industry. Last year, our members were tasked with collection instructions in excess of £3.5 billion. Our members work within a strict code of conduct, which is one of only nine industry codes endorsed by the Office of Fair Trading, with which we enjoy a good working relationship. We are considered to be the only debt collection representative body in the UK.
While most of our collection procedure is pre-litigation, our members have traditionally used the Scottish legal system for debt recovery, when and where appropriate, relying upon the Scottish system for effective enforcement. Because of our position in the recovery process, our members are aware of those debtors who require some help and protection. Within our industry, our proactive debt collection procedures recognise hardship as an issue and many members have specific departments to deal sympathetically with such cases. As an association, we also have council representatives who liaise with the money advice liaison group, which includes CABs and Money Advice Scotland.
That said, as stated in the Scottish Law Commission's discussion paper, effective enforcement procedure is necessary to give ultimate credence to the force of law in our recovery procedures. Such procedure is paramount to responsible lending practice, and to collection activity, if necessary, thereafter. As stated by the Scottish Executive justice department, it is necessary to have in place systems that enable the creditor to achieve effective recovery from those who seek not to fulfil their obligations.
We are fully aware of a need for a balance between debtor and creditor interest. However, without effective alternatives, the principle of this bill undermines that initiative and will probably lead to a change in lending patterns, which will be detrimental to the consumer as well as contrary to the principles of enforcement procedure in Europe.
Thank you, convener, for allowing me to make that brief introduction. We are happy to take questions.
Thank you. Tommy Sheridan will ask the first question.
From the evidence that was given by the Scottish Executive and most of the evidence submitted in relation to debt recovery, it has been suggested that the overwhelming majority of debtors are people who want to pay but who are in difficulty. Do you accept that assumption?
Dr Roger Lucas (Credit Services Association):
Our aim is always to find those who can afford to pay and who want to pay, to help them to do so. As debt collectors, our biggest problem is getting information and, initially, making contact with people. Remember, we start our work in the commercial world of lending, with banks, credit card companies and so on, and often at the early stages just a few payments of a routine nature have been missed. As soon as we become involved, we try to establish contact with the debtor.
At all stages, from letter to telephony, from advising that solicitors may become involved to actually involving solicitors, through to litigation and so on, we learn enough about individual cases to know whether, and to what extent, each individual debtor can afford to make repayments. Our aim always is to facilitate those repayments. We have about 600,000 cases a year in Scotland, the vast majority of which will result in payment arrangements. We would like, but do not often expect, to get payment in full.
Of those 600,000 cases, about 60,000 decrees are awarded in Scotland as a whole, of which 15,000 go to our members—about 2.5 per cent reach court action. By the time we take court action, we are fairly sure that the expense is justified—we would expect to recover the cost of the court action. We deal on an entirely commercial basis.
Thank you. That evidence confirms what others have said. If poinding and warrant sales were not available under Scots law, do you have any evidence to suggest that your debt recovery procedures would be severely hampered?
As the removal of poindings and warrant sales has not happened, the evidence, such as it is, comes from removing other steps in debt recovery. It is not a reversible experiment. We cannot tell half the population of Scotland that they will not be subject to poinding and warrant sales and see what would happen. We cannot experiment—we can only refer to other instances where particular debt collection practices have been stopped.
We spend much time experimenting with what are called champion and challenger techniques, where we set up a new collection procedure and measure how it performs against an established one. We do that regularly, particularly when litigation is not part of the equation. As long as it is not known to what we would call the debtor population, the effect is small. However, as soon as the changes become known, particularly in the commercial world, where there are only half a dozen big accountancy firms—once the word has got round that we will not sue for a certain type of debt—collections are affected.
I feel passionately—as passionately as Mr Sheridan feels about his bill—that collections will be seriously affected by the removal of poindings and warrant sales. The Scottish legal system is very effective—we have statistics to show that what we do here is more effective than what happens in the 5 million cases in England and Wales.
Do you agree that your feeling that poinding and warrant sales should be retained is subjective?
If we remove any stage of the collection process, there will be an effect further up. The effects of removing the ultimate sanction are unknown.
Do you have any comments on the evidence that we heard from the Scottish Law Commission? Is there any disagreement? Will you comment on the Scottish Law Commission's push as to how we might alter the legislation, aside from the bill's proposals?
I listened with interest to that presentation. I found myself in agreement with most, if not all, of what was said.
There was no disagreement?
I did not make any notes. There were one or two points that I would have expressed differently, but I agreed with the message behind them.
What about the suggestions for changing legislation? Can you comment in detail on that?
The proposal that we should be reasonably sure that the costs of an action will be returned and some contribution made towards the debt is excellent. We try to reach that decision on a commercial basis, with the knowledge that we glean from various sources. If we can, we talk to debtors—our collectors regard themselves as debt counsellors, examining income and expenditure in detail.
We also have information from other sources. Of course, when we begin to work with sheriff officers, on poindings and so on, information ultimately becomes available so that we know what the debtor owns, and what it would raise at sale. All the way through the process, we make decisions about whether the next course of action can be justified, in purely commercial terms. We do not sue people from whom we do not believe we will get back our court fees.
What proportion of final warrant sales did not give you a return on the debt?
Do you know how many final warrant sales we have?
You tell me.
Very few. We think that our members in Scotland are responsible for about 25 per cent of poindings, which means about 1,500 poindings. The association tries to survey its members, but statistics are hard to gather, because we are all commercial organisations, and hold our cards very close to our chest. We have conducted an informal survey of the main debt collection agencies in Scotland, some of which are represented here today: the number of warrant sales that they carry out can be in single figures. The vast majority of cases are resolved when information comes back from sheriff officers after a poinding.
I take it that the proceeds from those warrant sales cover all the costs
Probably. The sales will tend to be commercial and successful.
Mr Lewis stated that implementation of the bill would lead to a change in lending conditions. Can you be more specific about that?
Yes. We cannot speak for the British Bankers Association or the Finance and Leasing Association. We can only speak from our experience about the impact that we think our actions have on the lending market. We contribute data on our recoveries to credit reference agencies. We know how the data that are stored by credit reference bureaux feed into credit scoring systems. Lower recoveries for us will almost certainly lead to a tightening of lending criteria through those credit scoring techniques.
Do you mean that fewer people will have access to credit, or that there will be higher interest rates, or both?
On the balance of probability, I think that lower, slower and more costly recoveries will not affect the profits of lenders, because of their bad debt provisions, but will affect either the cost of credit or its availability. As this will become a geographical issue, on the balance of probability, I think that the effect will be on availability. That is the view of the association; I am not speaking on behalf of lenders.
I am intrigued by the Law Commission's suggestion that the exemption of goods could be extended. You thought that that was probably a good move. What is to prevent people who have assets from moving them before the poinding takes place? I believe that seven days' notice of poindings is given.
That highlights the difficulty of abolition in just one sector. In some cases of commercial debt involving sole traders and small, unincorporated, non-limited businesses, debtors are able to move goods rather more freely, for example, between a workshop and a house. It would be extremely difficult to determine which were private and which were commercial debts.
You said in your answer to Tommy Sheridan that you believed that the legislation would impact on your members' ability to recover debts to the same extent as at present. If poindings and warrant sales were abolished, what alternative debt recovery measures or enhancements of current procedures would your association like to be introduced?
We use the court system as a very effective recovery tool. We can express opinions, of course, but it is not within our competence to suggest alternatives.
There are people whose speciality is the diligence system, and we should leave it to them to suggest alternatives. We know that the Scottish system of diligence is effective. It is more effective than the system in England, and we would like it to be preserved until and unless it is replaced by something that is demonstrably more effective.
Would I be right in thinking that the great volume of your members' work relates to commercial debts and not to personal debts?
No, that is not the case. The value of commercial work per case is much higher, but the majority of our members are consumer agencies that work for banks, credit card companies, finance leasing associations, the mail order sector and so on.
Some years ago when I was a Lothian region councillor in the days of the poll tax, I spent a lot of time in this building in meetings with gentlemen like yourselves who assured us of the excellent conduct of debt recovery activities. We then met a lot of citizens, who gave a different view. Do you accept that the true picture of what happens in the average house is somewhere between those views, and that it is not quite as Santa Claus as you make out, but possibly not quite as unpleasant as some of the anti-warrant sales people make out?
I have not been called Santa Claus before.
We represent 120 to 130 debt collection companies, but there are many more. For example, the Scottish Business Directory, in which companies pay to advertise, lists 52 companies. We have 18 members in Scotland. There are many more unregulated agencies than the regulated ones that we represent. We regulate the industry through a code of conduct, which, as the president said, is approved by the Office of Fair Trading, and we have six-monthly meetings with the Office of Fair Trading to police the operation of the code. We also meet regularly at the money advice liaison group, and in other forums, to ensure that the industry, as far as we are concerned, is properly regulated.
We represent the vast majority of consumer transactions. The bad press and the majority of complaints that are received by the Office of Fair Trading and by us concern agencies that are not members of the Credit Services Association. I am afraid that the debt recovery industry attracts other companies that are not members.
Thank you. That was helpful.
Will you indulge the chair and let me ask one question that relates to Bristow Muldoon's point? Obviously, many organisations are seriously concerned about the way in which warrant sales and poindings impact on people's lives. Given that concern, which is held not only by those who wish to abolish poindings and warrant sales, does your organisation see a role for itself in looking for, and developing, alternatives? As warrant sales and poindings exist, you are not looking for an alternative, but an effective alternative could come from organisations such as your own, or from your members.
We appreciate being asked, and for every issue on which we have been asked to contribute we have done so—from the Data Protection Act 1998 through to the enforcement review that the Lord Chancellor's Department is undertaking just now. We are contributing actively to all those areas, and we would like to be asked to contribute on this matter, but until we have been asked and until we have put some work into the issue, it would not be right for us to make suggestions.
My point is that as long as the warrant sales system is in place, the work on alternative systems will not be done, yet when there are moves to abolish warrant sales, you argue that your work would be damaged by their removal. That is a circular argument. At what stage would your organisation be willing to examine alternatives? Will you look at alternatives while the current system is in place?
Yes. The order in which to proceed is to find, develop and discuss alternatives before removing the current system. That is the approach which is being taken by the Lord Chancellor's enforcement review. We have had the Woolf reforms at the earlier stages of litigation and have now moved on to an enforcement review. A similar process should be set in train here.
Cliff Poole (Credit Services Association):
Alternatives are already being explored in our industry, way before court action takes place. We are pioneers in what we would call proactive collection. We make telephone calls to debtors with a view to making contact and getting a resolution of the settlement. That includes helping and counselling debtors. Everything that we can do before initiating litigation is attempted. That includes using vastly improved technology to make contact with large numbers of people.
Do any other members wish to ask questions, as we have a bit of time left?
This follows on from one of the answers that we have just heard. You made the point that most of the complaints that are received about the debt recovery industry concern unregulated firms. Would you therefore support a move towards regulating all debt recovery firms?
Every firm has to be licensed by the Office of Fair Trading. The Consumer Credit Act 1974 has as its ultimate sanction the removal of the licence. The law is widely drafted, so that virtually any issue can become a licensing issue without another law such as the Criminal Justice and Public Order Act 1994 being contravened. The Office of Fair Trading currently takes the view that self-regulation is better than other forms of regulation, which is why it is so keen to work with us to police our industry. We are making great strides in that regard and our business is a great deal more professional than it was 10 or 15 years ago.
How would you deal with the businesses that are causing most complaints about the industry?
We have no jurisdiction over those businesses, but the Office of Fair Trading and local trading standards officers do. There is good feedback to trading standards through the CABs, and the OFT always has a number of matters of a licensing nature under consideration. Consumer debt cannot be collected without a Consumer Credit Act 1974 licence.
I will take questions from three more members, if they are all relatively quick.
While Mr Lewis was speaking, I scribbled down the words "lending practice"; I did not get the whole context. Regardless of how we progress with Tommy Sheridan's bill, do you think that there is any scope for improving the public responsibility of lenders, some of whom seem to act in an extraordinarily irresponsible fashion? I am not blaming you for bad lenders, but I was wondering whether you had any comment on that because you have to pick up the pieces.
It is difficult. We cannot speak for the lenders, but we are in a credit society. I think that that has prompted your question. When people switch on the television or open a newspaper or magazine, they are bombarded with offers of credit. This is a problem for society in general. We must make rules for responsible lending, responsible collection and responsible borrowing. That is a task for everybody, from social services through to the individual in the street. For good or for bad, that is where we are.
My concern is that poindings and warrant sales are very discriminatory, in that they are discriminately used against the poor. The middle-class people whom Keith Harding talked about who wilfully avoid paying their debts are usually clever enough to know how to avoid a poinding as well. It is easy for someone to do that if they know the law. Do the majority of cases that you come across in which poinding procedure or warrant sales have to be used affect the poor?
We do not work in the summary warrant environment. We work only with commercial lending and commercial debt.
As I said earlier, if a case reaches consideration of poinding, it is because we have been unable to get the information that we require to make any other decision. If we were able to get information earlier, perhaps we would not reach that point. Poinding is occasionally the first opportunity that we have to make the decision that we should not pursue a case. I do not think that it is used against the poor, but it is used against people with whom we cannot communicate; if those coincide, it is unfortunate. It would never be our intention to spend money on a hardship case that we could never recover.
It is not in our interest to throw good money after bad. The more information we have before we take action, the better. In some cases, a gap of silence appears and poindings can help us to bridge that gap and sometimes to make a commercial decision to write off the debt. In debt collection, that is good practice, because it enables people to concentrate their efforts on debts that can be collected.
You mentioned alternatives that are being used or thought about by your association. Will you tell us more about those alternatives?
The alternatives to which I referred were ways of recovering debts much earlier than at the court stage. The earlier we can make recovery or create payment plans or some form of successful settlement, the better it is for everybody, including the debtor. Being proactive is one alternative approach—to bridge the silence or to prevent a reactive situation with the debtor, we try to make contact first. Eighty-four per cent of people have telephones today and probably 90 per cent have access to one, so we can make the first move by negotiating with the debtor that way.
Thank you again for coming to meet the committee and for taking so many questions.
Meeting suspended.
On resuming—
I welcome Colin Campbell, who has just joined the committee. I also welcome the representatives of the Federation of Small Businesses. They are June Deasy, the federation's deputy parliamentary officer, and Jane Todd, a policy development officer.
June Deasy (Federation of Small Businesses):
Thank you for the opportunity to address the committee today.
The members of the FSB in general find poindings and warrant sales distasteful. Small businesses are part of the social community and they share its concerns. The challenge is for the Scottish Executive to find the will and for the Scottish legal community to find the way to replace this often ineffective and unpopular system with a more effective and socially acceptable approach.
The FSB is not here to present solutions to the challenge or to argue points of law, but to represent the views of the small business community.
The current system has proved to be financially ineffective. Forty-six per cent of business warrant sales make no contribution to the debt and meet only partly the expenses of the case. In only 8 per cent of cases is the debt entirely repaid. It is also widely accepted that business or domestic goods are accorded values that do not reflect the importance of such items to the debtor and which are a pittance of the replacement cost. Such valuations are a primary cause of the distress that is inflicted on the debtor.
Poinding is effective mostly because of the threat of the warrant sale—which is a threat because it is often destructive. It is often the final humiliation for the debtor, yet the creditor rarely gains from it. There might also be a divide between rural areas and urban areas. Urban-based businesses might consider poinding and warrant sales because they do not have a close personal relationship with the debtor, but in rural and remote areas the use of that method of debt recovery is a sterling way for a business to lose customers and to destroy its reputation.
We have major concerns about the summary warrant procedure, which is regarded by businesses as a fast-track procedure. It is used significantly by the Inland Revenue, Customs and Excise and local authorities. There has been an increase in calls made to the Federation of Small Businesses regarding summary warrant enactments by the Inland Revenue. Callers to our UK legal helpline have expressed the view that they might use poindings and warrant sales to recover debt because the Inland Revenue would not think twice about it.
Recent figures from Dun and Bradstreet show that Scotland recorded 4,554 business failures in 1999—an increase of almost 14 per cent on the previous year. Liquidations increased by 19 per cent to 1,311 and bankruptcies increased by 11.9 per cent to 3,243.
Like many domestic debtors, many businesses on the receiving end of summary warrants are experiencing circumstances that have disrupted their usual cash flow, such as divorce, dissolution of partnerships or changes in the marketplace. In an era when the debate about business birth rate has increasingly been seen as shadowing the necessary debate on business death rate, we cannot afford a system that forces viable, but temporarily fragile, small businesses to go to the wall.
The FSB would like the Inland Revenue, Customs and Excise and local authorities to make greater use of their capacity to negotiate settlements.
From the perspective of improved debt recovery for small firm creditors, reinforcement of the small claims court might be the answer. Raising the threshold to £5,000—in line with England—might open up a more simplified and effective route for debt recovery.
To conclude, the FSB asks the legal experts in the Scottish Executive to devise and implement a reasonable alternative to an increasingly unpopular and ineffective system of debt recovery. We stress, however, that despite the fact that the current system is often ineffective, it cannot be abolished until another more effective system of debt recovery is put in place.
Jane Todd (Federation of Small Businesses):
I have very little to add to what my colleague has said, except to say that when we started taking soundings from our members in various sectors of the small business community, we were surprised at the consensus of feeling that this method of debt recovery was distasteful. Even the people who provide the removal vans that take property to public places for sale and who acquire business from the practice, find the whole process distasteful and would like a more effective means of debt recovery to be developed.
Thank you.
I should declare an interest, as I am a member of the FSB. Do the witnesses have any information about the methods that members of the FSB use? Is there one method that is used predominantly, instead of resorting to warrant sales? I was interested in your suggestion that the ceiling on recovery through small debt claims—which is £750 or £800—should be increased to £5,000. Will you expand on that, please? It seems like a reasonable idea.
I am advised that the limit for small debt claims is £750. The threshold has been raised to £5,000 in England, where small debt claims are used much more widely as a means of pursuing this form of debt recovery. It might, therefore, be an avenue that we should consider in Scotland.
The feedback we have had is that a lot of businesses that choose not to pursue the poinding and warrant sale route frequently write a debt off, because an effective means of pursuing that debt—or a means that they choose—is not available.
Those who choose that route frequently do so because they believe that the person who owes them money is a serial debtor. In such cases, people are, perhaps, a little more prepared to accept such a route than in cases of individual debt. However, even those who choose that route have indicated to us that they would be interested in using the small claims court system if it covered the amounts of debt that they are talking about.
Do you have any evidence of the impact on recovery of raising the threshold in England to £5,000?
I am sorry, but I do not have such figures with me, although I am sure that we could find them for the committee if that would be of use. Figures from our legal helpline—which receives 100,000 calls a year—indicate that far more members are happy to pursue the small debt claims path now that the threshold has been raised.
In England, it is recognised that the recovery of the debt, even in the event of a small claims court judgment in a member's favour, can be a problem. A proposal is, therefore, being considered under which a court official would become responsible for securing payment of a debt. That is, in some ways, a very radical approach, but it is one that the small business community in England is keen to see being adopted.
One of the principles attached to small debt claims is that people can represent themselves. I have heard, however, that that is a daunting task. Does raising the threshold to £5,000 give people a bit of leeway? For £750, someone could barely get a lawyer to write a letter, let alone represent him or her in court. Does the figure of £5,000 take into account the possibility of some assistance from a lawyer being made available?
I have no indication that that is the intention behind the £5,000 threshold, which we understand was set at that level to cover larger debts, rather than financing lawyers' fees. Although it can be daunting to represent oneself, it is becoming increasingly acceptable to do so, and there are other ways in which people can be assisted in that process that do not require employment of lawyers and large financial commitments.
If I understood you correctly, you felt that public authorities such as the councils and the Inland Revenue often resort too quickly to debt recovery procedures and that, with more sensible treatment, bankrupt firms could work through their difficulties. Does that happen?
Public authorities do not have to go through as many mechanisms before they reach the stage of warrant sales, which means that the debt recovery procedure is faster than non-summary warrant procedures. Those authorities also choose to make the process faster.
Does your organisation have any anecdotal evidence about, or statistics on, the number of firms that have been unnecessarily put out of business?
We could certainly find some.
We have anecdotal reports from quite a few of our members who have found themselves on the receiving end of summary warrant procedures, which have been raised by the Inland Revenue in particular. In such cases, firms almost have to choose to settle a debt—which they recognise that they owe either to the Inland Revenue or to Customs and Excise. Being pushed straight into the summary warrant procedure makes them feel that they have lost any room for manoeuvre in negotiating a settlement over a period of time, which would allow them to operate as a viable business. As people find themselves frequently in such a situation through a combination of circumstances, they need an opportunity to catch their breath. The Inland Revenue tends to move more quickly to summary warrant procedure now than it did three or four years ago, when the business community felt that that organisation was more willing to negotiate.
In the light of the written and oral evidence that the committee has received, and of my discussions with your chair and other members of the federation at business forums, it seems remarkable that your opinions are very much in line with those of citizens advice bureaux and other bodies that represent debtors. They say that, although they want other reforms, they see no place for poindings and warrant sales as they are currently. Does that accurately reflect how you feel about such measures?
When we consulted our members, we were surprised to find that they are so unhappy with a situation that helps neither them nor the debtors. However, their emphasis is on finding a new way, but without removing existing measures until a more effective method is in place.
I appreciate that some sectors of the business community feel an alternative to poindings and warrant sales should be found before those measures are removed. That is a difference of emphasis from that of citizens advice bureaux, which feel that poindings and warrant sales should be removed anyway, and which seek further reforms. However, do not you accept that the difficulty for small businesses is that some larger businesses use what is called contractual mugging, which leads to major problems with jiggling small businesses' debts? As a result, with the Inland Revenue breathing down the necks of small businesses and threatening summary warrants, some such firms can go to the wall. Would the introduction of a debt protocol alleviate debts by recognising that some problems are caused by the larger companies not paying up in time?
It is valid to say that there are contractual issues—which can place pressures on small businesses—concerning the relationships between large companies and small businesses. When there are undue cash-flow pressures, such businesses become vulnerable to the summary warrant procedure, which can challenge the viability of a business.
It is important not to lose sight of the fact that small businesses can be the victims of poinding and warrant sales; they are not always the instigators.
With the exception of increasing the limit for small debt claims, do you have any suggestions that the Scottish Executive might introduce to replace this bill?
If the legal establishment were to come up with suggestions, we would be happy to be involved in the consultation process, to point out the practical implications of any proposals. However, we have no suggestions of our own.
Are there any other questions?
Members indicated disagreement.
Thank you for your contribution to the committee—I think that members found it useful.
We have a responsibility, at this stage, to pass on our comments on the evidence that we have heard. It is suggested that we write a letter to the Justice and Home Affairs Committee. The clerk has suggested that we decide on the content of that letter and that we leave it to the clerks to draft it. Members will then have an opportunity to look at it via e-mail and to add comments. We can finalise the letter at our meeting next Monday in Glasgow.
If that is acceptable to members, we should focus on the areas on which we would like to comment. The thrust of the argument today seemed to be whether we should, by removing the current procedure, first put pressure on organisations to find an alternative, or whether we should keep warrant sales until an alternative has been identified. That would involve judging the extent to which people would look for alternatives while the current procedure exists.
My instinct is to include in the letter something about the responsibilities of the appropriate bodies—local authorities and so on—to offer early, genuine debt advice and counselling, when it will have an effect, rather than it being a theoretical service that exists somewhere out in the ether. People should be directed to such counselling, which should help to support them in addressing the problems that they face.
The other issue is whether the warrant sale system does what is claimed for it. Does the threat of it affect the "won't pays" rather than the "can't pays"? There is some debate about that, which we need to pull together to give the clerks an idea of what members want to discuss.
In our response to the Justice and Home Affairs Committee, we should indicate clearly our support for the general aims and principles of the bill. We might want to raise the question whether there should be any differentiation between the ways in which individuals and businesses are treated.
I hope that the bill will achieve the clear aim of protecting individuals. I do not know whether Tommy Sheridan has given any consideration to the question of businesses, rather than individuals. If he has, I would be interested to hear what he has to say.
In general, we should express support for the principles behind the bill and we should emphasise the need for the Justice and Home Affairs Committee—or any other appropriate committee of the Parliament—to give due consideration to alternative measures of debt recovery. However, those alternative measures do not need to be put in place in advance of the bill.
I am concerned about what Bristow Muldoon said, and will return to one point that he made.
Since we have been taking evidence, no one has come up with an answer to the problem of the effects on the people against whom a warrant sale is carried out. The evidence on which we have concentrated has been based on the recovery of the debt rather than on its effects. In whatever system finally emerges—if we put in place new a system, rather than simply abolish the old one—the effects on the individual should be the prime consideration.
However, if we try to come up with a system that separates the individual from the business, we will have to be careful, when dealing with a business such as mine—I am the business, as it is a private company—about what measures we take in relation to European law. I have tried to quantify anything that could happen against an individual, directors or a business. In my own case, I could not be protected as an individual, as I am the business—the name of the company is Gil's Motor Factors.
Are you giving out leaflets, Gil? [Laughter.]
The thought went through my mind that we could have such a separation. However, I do not think that it is possible. I am anxious—from my experience of the poll tax campaign—about the effects on individuals. As a businessperson, I do not think that warrant sales hold the candle.
Does any other committee member want to come in? I will allow Tommy Sheridan to speak in a minute on the points that have been raised.
We should support the general thrust of the bill. With respect, there is a third way forward. It is not necessary to abolish warrant sales to implement an alternative at some future stage. Nor is it necessary to introduce an alternative before abolishing warrant sales. On an issue such as this, when a head of steam is built up, that steam should be used, whatever it does—it boils the kettle, or something.
It would be reasonable to have a bill that specified that, in two or three years' time, warrant sales would be abolished and that, in the meantime, various other measures would be put into effect. That sort of pressure makes the clever guys get stuck in and invent something. If that does not happen, the forces of conservatism will continue to rule.
Until the previous meeting, I, like Bristow Muldoon, was coming to the conclusion that perhaps we should draw a distinction between private people and small businesses. However, I was extremely impressed by what the two ladies from the Federation of Small Businesses said, so I would now drop that idea.
The issue of having much better counselling and so on needs to be addressed seriously. That would involve putting money into citizens advice bureaux, for example, which successive Governments and local authorities have dismally failed to do.
This may be utopian, but I think that the Parliament should examine the disgraceful way in which credit is flogged, from the Bank of Scotland to the wee man in Pilton with the two heavies who knock down the doors of people who do not pay up. That is perhaps outwith our powers but, bearing in mind that prevention is better than cure, we should aim for better credit control and better advice on debt and for a twin-track approach whereby we push for the bill but date it some way ahead. In the meantime, people could think up a better way of dealing with the "won't pays".
I would be interested in Tommy Sheridan's comments on this suggestion: it might be a way forward to stress the supremacy of home and a decent way of life. If we take that as a foundation stone, we can build legislation on it. That would be an important guiding principle, which could take us through the minefield of the individual versus the business.
I echo what you, convener, and Donald Gorrie have said about the patchy provision of advice—it is good in some areas, but not so good in others. As Donald suggested, offering an advice service may require money—for the CABs—but it will also take political will. If my memory serves me correctly, provision of advice is not a statutory part of councils' work load, but it is sometimes a bolt-on luxury that is available in some cases but not in others. From personal experience—concerning a member of my family—I have seen how important money advice has been in picking one's way through the minefield of debt.
I agree that it is important for this bill to be passed. I do not want a delay of two or three years before it is implemented—if it is implemented. I would like work to be done simultaneously on all the humane alternatives to poindings and warrant sales. Whether it takes two or three years or two or three months, I am sure that the powers that be can come up with an alternative if necessary.
I am not sure that I agree with what Donald Gorrie said about credit control. I am concerned that, if poindings and warrant sales are abolished without more humane alternatives being available, organisations either would be less likely to lend legally or would lend at higher interest rates, which might force some desperate people into dealing with loan sharks.
Even if we want to control people's ability to borrow, it may be the case that Christmas is coming—those people's children want the same Christmas as other children have. With that in mind, we should do our best to try to see this bill through as early as possible.
I want to return to some specific points, one of which was raised just now by Kenny Gibson, about loan sharks and the worry that, if poindings and warrant sales were abolished, there would be a decrease in the willingness of lenders to provide credit.
I hope that members of the committee will accept that there is no evidence to suggest that that will happen, although assumptions have been voiced and opinions have been given on it today. I ask the committee to consider the current situation, in which the very existence of poindings and warrant sales encourages sheriff officers to seek lump sum payments so as to avoid the process. The fact that debtors are asked for lump sum payments is what forces them into the loan shark scenario. In order to get a lump sum, they have to go to family and friends first. If that does not work, they have to go to the next alternative. All the evidence from individuals, through the Communities Against Poverty Network and Citizens Advice Scotland, shows that that is the case here and now.
In promoting the bill, John McAllion, Alex Neil and I considered the differentiation between personal and commercial debt. We came to a similar conclusion to that of the Law Commission—sometimes it is possible to agree with those with whom we usually disagree—that the inability to differentiate means that such a division would become meaningless and ineffective.
Forgetting for a moment the economic arguments and the percentages that show that poindings and warrant sales are an inefficient method of debt recovery, we also felt that it was immoral in the 21st century for debt recovery to rely on fear, intimidation and humiliation. All the evidence that has been heard by the three committees that I have had the pleasure to attend shows that other forms of diligence are not only effective but widely used. It must be said, however, that those other methods of diligence require reform—for example, there are no conditions to control the amount secured in a bank arrestment.
Before we conducted the detailed debate, one of our fears was that the small business community would oppose the change. I heard talk of bankruptcies and businesses going to the wall. However, during the evidence-taking sessions, I have heard that small businesses hardly ever use poindings and warrant sales. They find them ineffective and, as the Federation of Small Businesses put it, distasteful. More effective methods of debt recovery are available, including inhibition of property, sequestration, bankruptcy and bank account arrestment.
Convener, you repeated the phrase used by the Law Commission—that poindings and warrant sales are a spur to payment. I think that they are a cruel spur to payment and I hope that this bill will be a spur to change, even though it is a member's bill and so bound to have some weaknesses because of the limited resources available. Once poindings and warrant sales are abolished, you can bet your bottom dollar that all the people involved in debt recovery will come up with better and more humane ways of doing their job. I hope that the committee will give the bill fair wind and I hope to see it passed.
The question that I was trying to pursue was whether organisations will ever try to change their methods while poindings and warrant sales remain. While that method is available, how can anyone create the dynamic to encourage those organisations to take responsibility for finding alternatives?
There are some areas of agreement. We support the aims and principles of the bill. Gil is right to say that we are particularly exercised by the impact that the system has on families and by the broader ripples that affect young people from those families at school and in other areas of their lives. We are aware of the question of appropriate counselling. As well as offering counselling to those who choose to take advantage of it, the approach must be proactive and seek out those who need help. We must also consider how quickly alternatives could be put in place. My feeling is that something has to give if alternatives are to be sought.
I agree with what you have said, convener. However, as the Local Government Committee, we must not lose sight of the Convention of Scottish Local Authorities' reasoning on council tax debts. A proactive approach to counselling is needed even if we do not get rid of poindings and warrant sales, but the practicalities and resource implications of supporting councils must be considered.
This is a small but important point that arose from the final piece of evidence that we heard. The FSB suggested that the Inland Revenue is apt to pull the ceiling in on a business and collapse it rather more quickly than was the case a few years ago. That is only an allegation but it could be important from the business sector's point of view. I would seek the clerk's advice on how we should consider that issue. If there is any truth in the allegation, someone should look into it.
If Inland Revenue staff are not on bonus points, they may be on commission.
I should have spoken about the letter from COSLA at the beginning of our discussion. COSLA has not yet provided full written evidence but paragraph 12 of the report published last year indicates its position. I believe that it will provide us with something further.
I do not know whether the time scale will allow for that submission to be included—I doubt it.
I do not want to be petty but the request for submissions on the bill was made several months ago and a lot of organisations provided evidence. It is disappointing that COSLA has not, particularly because a lot of COSLA members support the abolition of poindings and warrant sales. Perhaps COSLA has not given evidence as a body because there is disagreement within it. The committee has heard evidence from the trading standards department of Glasgow City Council and there is evidence from COSLA members from West Dunbartonshire Council and Clackmannanshire Council.
I hope that the committee will not hold back its submission to the Justice and Home Affairs Committee, which is operating at breakneck speed and is anxious to have a stage 1 committee report by the end of January. If this committee delays its submission, it is in danger of knocking everything else off the rails.
We can deal with COSLA's position at our meeting next week. If we have the information then, we can add it in.
Perhaps we could get information from some of the councils. Did the councils that you mentioned give evidence elsewhere, Tommy?
West Dunbartonshire Council and Clackmannanshire Council gave written evidence to the Justice and Home Affairs Committee in support of the bill.
My understanding is that West Dunbartonshire Council argues that, under the best-value policy, it ought not to use warrant sales, as they are inefficient.
We should not delay the bill just because COSLA has not yet submitted its evidence, especially as there may be differing views within COSLA. The local authority on which I served had a policy of not pursuing warrant sales, but was not among the lowest collectors of council tax in Scotland. It would be interesting to see the range of ways by which councils currently collect council tax. The removal of warrant sales could act as a spur to COSLA to come up with alternative ways in which to improve collection levels.
In the evidence that we have heard, everyone says that we should not remove poindings and warrant sales until something else is in its place. Do we support what Donald said and agree that warrant sales should be abolished but within a time scale that allows an alternative to be introduced?
That is not my impression from the balance of contributions. The debate is on which should come first. The committee's view is that alternatives should be sought to avoid a meltdown scenario for council tax, with people who can afford to pay not paying. Committee members see the need for alternatives but I get no sense from the committee that it wants to delay the bill. We can look at that issue in detail when we consider the draft. We are clear about the general areas that we want to cover and about our general position, but the detail will have to be sorted out on Monday.
Perhaps I am being a bit awkward, but I think that COSLA's position is clear—the comments of the joint Executive-COSLA officer group count as a submission. The letter stated:
"In our view, abolition of poinding and warrant sales would have a major adverse effect on Council Tax collection levels (and therefore council services)".
COSLA is saying that the comments do not represent its worked-out position—they reflect where it is in terms of developing a position. Perhaps that quote is an indication of the way in which COSLA is thinking.
I was a councillor for a number of years, and I know that councillors can talk until the cows come home, but my view is that abolishing poindings and warrant sales will be a problem. We should send the strongest possible message to the Justice and Home Affairs Committee that it must, as a matter of urgency, seek an alternative course of action, notwithstanding anything that Tommy Sheridan has said. I predict that there will be chaos in council budgets if we just abolish poindings and warrant sales.
And there will be resource implications.
Yes.
John McAllion, Alex Neil and I will be visiting West Dunbartonshire Council to view the recovery unit that it has established as an alternative to poinding and warrant sale. The unit is proactive in contacting debtors and reaching arrangements with them, and is extremely effective. That is happening here and now. If poindings and warrant sales were not available to local authorities in Scotland, perhaps what West Dunbartonshire Council is doing would be replicated more enthusiastically.
Is not it also the case that a lot of local authorities feel that, if their recovery rates are not appropriate, they are under pressure to use warrant sales, simply because the system exists? They end up using a system of which they do not approve. We can make it clear in our letter that we are aware of the importance of the security of council funding, and that people are troubled by the prospect of abolition not simply because they have a deep abiding affection for warrant sales; we can say that the issue can, and should be, resolved. We will have a draft letter before Monday's meeting, when we will reach the hard decisions about what should be in the final version.
We will leave that item there. I suspend the meeting until 4.15 pm, when we will hear from the minister.
Meeting suspended.