Subordinate Legislation
Bankruptcy Fees etc (Scotland) Regulations 2012 (SSI 2012/118)
Good morning and welcome to the 18th meeting in 2012 of the Justice Committee. I ask everyone to completely switch off mobile phones and other electronic devices, as they interfere with the broadcasting system even when they are switched to silent. We have received apologies from David McLetchie.
The first item on the agenda is consideration of subordinate legislation. When, last week, the committee considered the regulations, it agreed to invite the relevant minister to attend this week’s meeting and respond to our concerns. My colleague Jenny Marra has lodged a motion to annul the regulations, and we will turn to that motion after this item.
I welcome to the meeting the relevant minister—as he is called in my notes—John Swinney, the Cabinet Secretary for Finance, Employment and Sustainable Growth, and Claire Orr, executive director, policy and compliance, at the Accountant in Bankruptcy. Under this item, members will be able to ask questions about the content of the regulations before we move on to the formal debate. The official can contribute in this item but cannot participate in the debate itself.
Thank you for your response to the committee, cabinet secretary. I believe that you wish to make a short opening statement.
Yes, convener. Mr Ewing would have been here this morning but the readjustment of diaries proved to be less disruptive to me, so I am the relevant minister for the purposes of this discussion.
We are delighted to have you, cabinet secretary. Whether you will be delighted at the end of all this is another matter.
I always get a warm welcome from you, convener.
The regulations consolidate and update the fees set out in the Bankruptcy Fees (Scotland) Regulations 1993 and subsequent amendments. Although it is normal practice for the fees order to be updated annually, the regulations propose to make the first increase to the debtor application fee since its introduction in 2008.
Ensuring that the people of Scotland have access to fair and just processes of debt relief and debt management is one of the Government’s key priorities, and we have a strong track record in delivering against it through the introduction of the low-income, low-assets route into bankruptcy, the introduction of the certificate of sequestration and improvements to the debt arrangement scheme. Those three measures were developed to ensure that those in greatest need got the necessary help to resolve their debt problems and have been very successful.
Following the introduction of the Home Owner and Debtor Protection (Scotland) Act 2010, the Accountant in Bankruptcy took steps to address concerns that LILA applications were not subject to enough scrutiny. Such applications are now subject to a more rigorous process that involves routinely checking the information that applicants provide. Given the consequences of bankruptcy for those in debt and their creditors, that is a positive development.
The process itself has brought to light a certain number of people who, in applying through the LILA route, have attempted to conceal assets that could be realised to creditors’ benefit and, in a number of cases, the Accountant in Bankruptcy has applied for bankruptcy restriction orders.
As the agency responsible for the bankruptcy process, the AIB operates within the principles of the “Scottish Public Finance Manual” and, as a result, follows the standard approach to setting charges for public services at full cost recovery. As part of its full cost recovery strategy, the AIB aims to ensure that it delivers efficiencies in its operational running costs. In the last financial year, it delivered more than £500,000 of savings by, for example, switching from putting notices of personal insolvency in the Edinburgh Gazette to advertising them electronically through the register of insolvencies, and it continues to actively seek cost reduction through efficiencies.
The fee increases proposed in the regulations are necessary, because the current fee does not match the cost of service delivery. The cost of delivering an application for bankruptcy through the LILA route has increased from £138 in 2008-09 to more than £200 based on projected volumes for 2012-13. That increase is related partly to the increased scrutiny that I mentioned.
The debtor application fee, which covers administration of an application to the point of making an award, has never fully recovered the cost of making that award and has therefore been revised to £200, which I believe is realistic to meet the work undertaken. As I am sure the committee is aware, the Scottish fee is significantly lower than fees charged by similar agencies across the United Kingdom. Moreover, the AIB’s debtor application pack makes it clear that the application fee may be paid by instalments, and money advisers are aware of that option.
In the past year, 9,000 applications were made for bankruptcy. In around 200 of those cases, individuals paid by instalments. The arrangement to pay by instalments will continue for the new fee level, and I hope that money advisers will make that facility known to their clients.
I am happy to answer questions.
I have a number of short questions.
Why has full cost recovery not been pursued since 2008? I put it to you that the Government subsidises many services in the name of the public good. The low-income, low-assets route is seen to be of immense public good for those people who are really struggling to declare themselves bankrupt.
As you pointed out, the number of people who have taken the low-income, low-assets route has been declining since 2008, so why is the fee being doubled now, when take-up is at its lowest point? Is it being doubled to make up for the shortfall in the number of applications?
My final point is probably the most powerful one. A number of loan sharks and pay day lenders are still being approached for the £100 that people need to be able to declare themselves bankrupt. Do you not think that that issue is definitely worth considering? An increase to £200 will put people in that position in a much more vulnerable situation with regard to loan sharks.
Ms Marra raises a number of questions.
On full cost recovery, the approach has been to gather the evidence base to determine whether it is being achieved. It has been clear for some time that full cost recovery is not being achieved. In considering whether full cost recovery is being achieved, it is necessary to give enough time to allow a pattern to be established. We have reached the point at which we consider that the arrangements around the LILA route have settled down to the extent that we can make a judgment about whether full cost recovery is being achieved.
My second point is about the decline in the number of LILA applications, which is pretty clear from the volumes information that the committee has seen and which the Government has made public. When the LILA route was introduced in 2008-09, there was always an expectation that there would be a spike in applications, because a number of people had been waiting for a vehicle to emerge that would enable them to apply for bankruptcy in a credible, orderly and sustainable fashion. The pattern that we now see is a move away from that spike.
Ms Marra asked whether the fee increase has been designed to meet the shortfall in the number of applications. The purpose of the fee increase is to deliver full cost recovery. To enable that to be achieved, we must look at the steps that are taken to ensure that the work is properly undertaken. If we look at the detail that surrounds the process of considering a LILA application, particularly in light of the Home Owner and Debtor Protection (Scotland) Act 2010, a significant degree of intervention is required by staff to carry out specific checks, which might involve the land register of Scotland, credit reference records, hire purchase information or vehicle valuations. The assessment of that information to guarantee that the public interest is being served is an important and time-consuming activity, for which we have never achieved full cost recovery. We are now taking steps to achieve full cost recovery. Following the passing of the 2010 act, the stringency of those checks has increased.
Ms Marra also asked me about loan sharks. It is clear that a facility is available as part of the LILA approach that enables any individual to pay by instalments. That facility can be discussed with the Accountant in Bankruptcy and is clearly advertised, and the information is made available to money advisers who provide advice to individuals in such circumstances. People have the opportunity to avoid having to go anywhere near a loan shark.
I go back to the information that I gave to the committee in my opening remarks. In the past year, 9,000 applications were made for bankruptcy, and around 200 individuals paid by instalments. Therefore, there is clearly every opportunity for the instalment facility to be more widely used before anybody needs to think about going anywhere near a loan shark to meet the costs.
I do not think that you touched on one issue that I raised: the public good and the basic principle of welfare. Your Government delivers many services that operate without full cost recovery. The economy is particularly vulnerable at this time and many people are struggling, so it seems very insensitive to double the charge now.
As I said, the route has never delivered full cost recovery. Essentially, the Accountant in Bankruptcy is required to operate within the constraints of the “Scottish Public Finance Manual”, which requires full cost recovery for such services.
Ms Marra is absolutely right. A range of public services are provided free or with public subsidy, but the service in question has never been one of them. There has been a charge for it, and the charge should have been applied on a basis that delivered full cost recovery. No Government can provide all its services with public subsidy; some services need to be charged for. Given the fact that we make available the ability for individuals to pay the fee by instalments, sufficient support is in place to assist them in navigating their way through the difficulties that they face and arriving at a solution that is well supported by the legislative framework that is in place without putting an onerous financial burden on them.
Good morning, cabinet secretary. Some of my questions have been answered to an extent, but I want to make a couple of points.
First, the total number of debtor petitions did not change greatly between 2010 and 2011, but the new certificate of sequestration was a factor in that period. It would help me if you could give a brief guide as to why more people would have been persuaded to use the certificate of sequestration route. Perhaps Claire Orr could attack that point.
Secondly, if we are going to double the fee, would it not be possible to double the period of time by which instalments could be made—through, for example, the Royal Bank of Scotland? Would extra flexibility on the time periods for payment be possible?
I think that there will be every willingness to come to an arrangement with the individuals involved on the instalment payment period. Such facilities cannot go on for ever, but there is certainly a willingness to design the instalment regime to be as flexible as possible and to provide arrangements that suit the individuals involved. If the committee endorses the regulations today, clearly that opportunity will be available to us.
10:15
On the balance between the LILA and certificate for sequestration routes—Claire Orr might want to add to my remarks—as I said in my answer to Jenny Marra, essentially we are seeing the rebalancing of the routes that are chosen, given that there was such a spike in the LILA route in 2008 and 2009. People will make their choice about the route that they prefer. The LILA route is focused on supporting those with low incomes, which will determine the market that is attracted by that option.
Claire Orr (Accountant in Bankruptcy)
The certificate for sequestration was introduced primarily as an acknowledgement that a number of people could not demonstrate that they would meet the LILA criteria and could not demonstrate apparent insolvency, which requires a creditor to have sent someone a charge for payment and for that to have expired. Creditors are perhaps not taking that action as often as they might have done in the past. The certificate for sequestration was designed to provide a new route in for people who did not fall into one of the other categories and it therefore broadened the debt relief support available.
To add to the point that I made to Jenny Marra, I should make it clear that the operation of the Accountant in Bankruptcy attracts a public funding contribution and does not operate entirely on the basis of full cost recovery.
Good morning, cabinet secretary. You have covered in your responses many of the points that I raised at the previous committee meeting. Many of us accept that those who can pay for public services should pay for them. The background material on the regulations indicates that those who access the bankruptcy service are probably some of the most fragile of our citizens because of a lack of finance and general support.
Two questions remain for me. I deduced from an earlier answer what one aspect of this might be, but can you outline for us the downside if the charge were to be removed for a service that is delivered to those on the margins of our society? Citizens Advice Scotland has lobbied you for a number of months to remove the fee.
Secondly, is it appropriate for the organisation that administers the fee to waive it when it identifies applicants who are at the end of their tether? It seems to me that even being able to pay by instalments might just push some applicants over the edge. I assume that the arrangements are intended to bring people back to some kind of stable financial existence.
Mr Pearson’s last comment indicates exactly the purpose of the LILA route, which is to try to give people a credible and sustainable way of resolving the financial difficulties in which they find themselves. The entire purpose of the LILA route is essentially about people getting out of the difficulties that they are in. I think that it works well and has performed effectively for a range of our citizens. There is nothing that I want to do in taking forward the regulations that in any way undermines that important point.
A fee of £100 has been charged and literally thousands of people have opted to pursue that particular route. The fee has not been an impediment or an obstacle to people resolving their financial difficulties in the way that Mr Pearson suggests. The fact is that the fee can be paid by instalments on which there is no time limit—the whole fee has to be paid before the bankruptcy award can be made, but there is no time limit on that.
The law would prevent us from exercising a fee waiver—it is a requirement of the legislation that a fee must be paid. Parliament has determined that to be the case. That has been a pretty widely held view across the Parliament simply from the point of view that, if an individual has got into financial difficulty, there must be a means of resolving that. Part of this was contained in my answer to Ms Marra’s question. Not every individual in society gets into financial difficulty. Parliament has recognised in the legislation that there must be a mechanism of resolving the situation, and there must be a fee because Parliament has required that. The question is whether we should require that fee to be £100 or £200.
Mr Pearson asked what the implications would be of the regulations not being in place. I think that there would be two implications. First, the route that he correctly identified—the Government’s objective of a credible and sustainable route for people in financial difficulty—would not be sustainable. Secondly, if the increase in the fee from £100 to £200 was not delivered, there would be a shortfall in income of about £460,000. Those are the wider financial implications—that is what the motion to annul would do.
Given the lobbying that Citizens Advice Scotland has done, it obviously feels that there is a real issue about those whom this avenue is designed to help. Some elements of that group cannot get access to it because of the current £100 fee. Has that point been fully considered? At the end of the consultations and discussions, do you feel that the current proposal is the best that is available to us at this time?
I think that the current proposal is the appropriate one at this stage. The Accountant in Bankruptcy has been undertaking a wider consultation, which has just closed, and further options that we can consider may come out of that. It would be premature of me to open up that prospect, but we are keen to understand and appreciate the suggestions that have been made as part of that consultation exercise. If there are other options that address the issue that Mr Pearson has raised, we will be happy to consider them and to discuss them further with the committee and with Parliament.
Good morning, cabinet secretary. I have a couple of questions. First, you mentioned in your opening statement the cost of the fee in comparison with the fee charged by the UK Government. What is that comparative fee and why is there a difference in the management of applications?
On a like-for-like comparison, the £200 cost in Scotland of the route that we have in front of us today would be £700 in England and Wales and £640 in Northern Ireland. The difference relates to the core fees that are charged by the Accountant in Bankruptcy and there are also elements of difference in relation to court costs, which are higher in England, Wales and Northern Ireland. The cost of providing such a route into bankruptcy for individuals is much lower in Scotland than elsewhere in the United Kingdom.
Thank you for that. My other question relates to your answer to Roderick Campbell’s question. You mentioned that only 200 people have taken up the instalment route. That number seems awfully low. Is enough being done, or can more be done, to get more people to take up that route?
The statistic that I quoted was that, among the 9,000 applications for bankruptcy, 200 applicants took up payment by instalments. The other, er, 8,800—
I am glad that you got that right, as you are in charge of the finances. [Laughter.]
I am always wary of doing mental arithmetic in front of committees, convener.
In all those cases, the individuals must have been able to pay the fee without recourse to instalments, because they would not have got their award of bankruptcy without payment. The question that Mr Yousaf raises relates to Graeme Pearson’s point, which is whether there is a perceived obstacle to someone who is in financial difficulty paying a £100 fee or a £200 fee, in that they might not be aware that the instalment route can be delivered as flexibly as we say it can be delivered. That is the key point.
I am committed to ensuring that there is wide awareness that the option is available. I assure the committee that we will look afresh at whether information on all the options is clearly available to advisers. It is important that there is wider knowledge to ensure that people are aware that the instalment option is available and that they can take it up to avoid the fee being an obstacle for them.
That is the key. I do not think that we can necessarily assume, as you have done, that the fact that the 8,800 people were able to pay the fee means that they did not get themselves into further difficulty, perhaps of the sort that Jenny Marra mentioned. If you could come back to the committee with any information on how wider awareness of the option can be encouraged among those who might go down that route, that would be appreciated.
My final question is to ask how the £460,000-plus shortfall that you talked about would be made up.
It could be made up only by an alteration to other fees or by an increase in the public funding contribution to the Accountant in Bankruptcy. I should point out, however, that if the motion to annul the regulations is agreed to today—that is the proposal that you have in front of you—the shortfall will be £1.5 million, because various other changes are implicit in the regulations.
Thank you.
Jenny Marra wants to come back in.
Cabinet secretary, you said in your answer to Graeme Pearson that the £100 fee is not an impediment. I would be interested to know what evidence the Government has to support that. According to Citizens Advice Scotland, only 19 per cent of people who go down the low-income, low-assets route can afford the £100 fee. It seems counterintuitive to double the fee for people with low incomes and low assets, especially if less than 20 per cent of them can afford to pay the £100 fee.
My final question is on the proposed no-income, no-assets route. Why are we raising the low-income, low-assets fees before the no- income, no-assets route is established?
My point on the affordability of the fee is essentially evidenced by the fact that, in 2011-12, nearly 4,700 people were able to pay it. That is the number of individuals who came through the LILA route and paid the fee.
The point relating to Citizens Advice Scotland is, I think, from a survey that it ran. If we look at all the points that were made, people gave various other answers.
The survey asked:
“Would you be able to afford the £100 fee?”
The full collection of answers is as follows. Nineteen per cent said yes; 13 per cent said yes, but I would have to stop making some repayments to get £100; 28 per cent said yes, but I would have to save up over time—that is my instalments point; 30 per cent said no, but I could source £100 from elsewhere; and 12 per cent said no. We have to look at all the information in the Citizens Advice Scotland survey in that respect.
10:30
My point about the move from the £100 fee to the £200 fee is that, in essence, the law requires that we undertake a certain amount of scrutiny of the applications that are being made to guarantee that the people who are using the LILA route are people with low incomes and low assets, and not people who could come to better arrangements with their creditors—people who have more assets than the entitlement in the LILA route allows. We have found that, in a number of cases—this is why some of the checks had to be strengthened—people who have more assets than are allowed under the LILA route are trying to get in through that route. We have to ensure that the routes that are available to people are used appropriately in our society.
For those reasons, it is important that we carry out the checks on the applications and ensure that they are subject to appropriate scrutiny, and that gives rise to the necessity for full recovery of the costs involved in the process.
Why are we doubling LILA fees before NINA commences?
We must ensure that the people who are using the low-income, low-assets route are the appropriate individuals to do so. That requires us to undertake certain checks, which requires us to ensure that we get full cost recovery for those services, and that is why the fee has been set at £200.
The no-income, no-assets option is one that the Government is considering as part of the consultation exercise that I referred to in response to Mr Pearson. We currently provide the low-income, low-assets route, under which we require certain checks, and those checks have to be paid for.
Could you delay the LILA fee increase until the NINA route has commenced?
No, because the regulations essentially require that the fee arrangements be put in place to deliver the financial sustainability that the Government requires.
That ends the discussion. I move on to agenda item 2, which is the formal consideration of a motion to annul the regulations. I invite Jenny Marra to move motion S4M-02953.
Motion moved,
That the Justice Committee recommends that the Bankruptcy Fees etc. (Scotland) Regulations (SSI 2012/118) be annulled.—[Jenny Marra.]
The question is, that motion S4M-02953 be agreed to. Are we agreed?
Members: No.
There will be a division.
For
Marra, Jenny (North East Scotland) (Lab)
Pearson, Graeme (South Scotland) (Lab)
Against
Campbell, Roderick (North East Fife) (SNP)
Finnie, John (Highlands and Islands) (SNP)
Grahame, Christine (Midlothian South, Tweeddale and Lauderdale) (SNP)
Keir, Colin (Edinburgh Western) (SNP)
McInnes, Alison (North East Scotland) (LD)
Yousaf, Humza (Glasgow) (SNP)
The result of the division is: For 2, Against 6, Abstentions 0.
Motion disagreed to.
I thank the cabinet secretary for attending.
As a motion to annul was moved, we are required to report to Parliament on the regulations. That will have to be done this week. Does the committee agree to delegate to me authority to sign off the report? I will put the report round today to let members see it before it goes. I assume that it will be a short, routine report that simply highlights the main points raised during this morning’s discussion.
Members indicated agreement.
I suspend the meeting for two minutes to allow the next group of witnesses to come in.
10:34
Meeting suspended.
10:39
On resuming—