January Pay Date
The final item of business is a members’ business debate on motion S4M-01586, in the name of Mark McDonald, on changing the January pay date. The debate will be concluded without any question being put.
Motion debated,
That the Parliament notes that many public and private sector organisations pay their staff early in December to facilitate a payroll shutdown, but that the pay date for January remains at the end of the month; further notes that this means that workers have to ensure that their December pay lasts for around six weeks, covering both Christmas and New Year, while January pay only has to last for four weeks due to the shorter month of February; considers that this increases the pressure on the budgets of Scottish households and further increases the likelihood of people turning to payday loans at the end of January; further notes that Aberdeen City Council has altered its January pay date by moving it to the penultimate week of the month, thus creating a five-week period for the December and January pay windows, and believes that a similar approach across the public and private sector would ease pressure on Scottish household budgets.
17:07
I thank members from across the chamber for signing my motion to facilitate the debate, although I note that, with the lone exception of Mr Macintosh, no members from parties other than the Scottish National Party are in the chamber, so we might all get home a bit sooner.
I lodged the motion because I wanted to open up debate and discussion around what I see as a very important issue. The issue ties in with others on the agenda in Scotland, such as the living wage and pay day loans, which my colleague Margaret Burgess has raised in members’ business before. It is about being mature enough as a Parliament to look at the important issue of the impact of the pay dates that currently operate in Scotland, particularly on those on low pay.
I am pleased that when I sought a response from organisations such as the Federation of Small Businesses, the Scottish Chambers of Commerce and the Chartered Institute of Payroll Professionals, they came back with very constructive responses in which they said that they would be willing to look at the issue in a bit more detail. I will come on to that later in my speech.
The key focus of the debate for me is the impact on low-paid workers. I have been a low-paid employee, as I am sure many members have. Employees receive their pay early in December, which can be a bit of a boost as it is often an expensive time of year with Christmas and new year to come. The drawback is that because many organisations and businesses pay early in December but continue to pay at the end of January, the pay window becomes a six-week window that covers one of the most expensive times of year for many individuals. Individuals who are on a low income have to make that low income stretch for a longer period than would otherwise be the case.
The reason why I thought that there might be an opportunity to discuss the issue is that the month of February is only a four-week month, so a six-week pay window for the pay that is received early in December is followed by a four-week pay window for the pay that is received at the end of January. It seems perverse that people are expected to make their pay packet stretch for six weeks over December and January but for only four weeks in February.
My motion highlights the issue of pay day loans. I have spoken to people who, come the middle to the end of January, find things tough and are tempted and seduced by the offer of a short-term cash injection. My colleague, Margaret Burgess, has previously made that point eloquently in the chamber, when she has talked about the difficulties that people on low incomes often face. As a member of Aberdeen City Council, some time ago I approached the then chief executive and suggested that the council might wish to consider changing its January pay date, and the council has now done so, paying in the penultimate week of January rather than at the very end. That approach has been broadly welcomed by the council’s low-paid workers and the trade unions.
I lodged my motion with the intention of instigating dialogue and discussion. I recognise that the proposal will not be universally appropriate and I do not seek a prescriptive measure that all companies and organisations must implement. I recognise that for small businesses that employ only a few people and which have cash-flow problems at the end of the month, it will not be appropriate to change the pay date, because they rely on certain income and outgoings being fixed. I do not seek to put such private sector businesses in an awkward position. However, it might be easier for the public sector to implement the measure. I hope that public sector organisations will look at the example of Aberdeen City Council and consider whether this is something that they could introduce. Larger private companies that do not rely so much on month-to-month cash flow might also consider implementing the measure.
This issue predominantly affects those at the lower end of the pay scale, who suffer the most in the six-week pay window. We should do anything that we can as a Parliament to highlight the issue, and I hope that this will not be the end of the debate but that we will go forward into constructive discussion. I certainly intend to send the Official Report of the debate to the organisations that I spoke to before I lodged my motion, to let them know what members have said and to try to instigate that constructive discussion.
I am interested to hear what the minister has to say. I reiterate that this is not about saying, “You must do this,” but about asking organisations and businesses across Scotland to seriously consider whether they could facilitate such a move to the benefit of their employees. I look forward to listening to the rest of the debate.
17:13
I congratulate Mark McDonald on securing the debate and I welcome the opportunity to take part in it. However, I say at the outset that pay, timing of pay, and working conditions generally are matters for employees, their union representatives and employers.
I recognise that negotiations over the pay date should be between employees and employers, but given that many employers have moved to a monthly pay cycle from traditional weekly and fortnightly cycles, it is low-paid workers who suffer most and are most driven into the hands of pay day loan companies to try to make up the shortfall. The member who lodged the motion has said that. Some local authorities use a four-weekly pay cycle and others use the end of the month, as does Parliament.
I was going to address such issues later in my speech; I do not disagree with what John Wilson has said.
Having said that it is a matter for employees and employers to discuss, I think that it is right that we highlight the difficulties with the January pay date when the December pay is paid early. We live in very difficult times, and people—particularly those on low incomes—need every penny of their money to make ends meet. Any changes to the timing of income, however small and whether it involves changing from weekly to fortnightly payments—as my colleague mentioned—or a benefit not being paid on time can have a significant impact on family budgets, and can often leave people in real financial difficulties months later.
I appreciate that many employers pay early in December to facilitate the payroll, and I understand that many people depend on their December pay arriving before Christmas because that helps with the extra outlays that all of us—however careful we are—inevitably incur over the Christmas period. However, problems can develop if the next pay day is not for six weeks, because very few people can stretch their money that far. Often, the money to pay for essential items such as utilities, insurance and housing is used for food, travel and other everyday expenses. The family will often use credit cards, intending to catch up in January, but for many that can be the start of the debt trap. In February they are still short as another bill becomes due, and they are simply unable to catch up.
Anyone who works in money advice will tell you that often something seemingly small, like being paid early or late, can result in financial problems further down the road, with all the associated misery. People will try for months and months to juggle whatever little income they can, robbing Peter to pay Paul, in the hope that their situation will improve. By the time they seek advice, they often have unmanageable credit card debts and have taken out a high-interest pay day loan—and we know about the problems that those can cause.
The member can take extra time.
Thank you, Presiding Officer.
We could say that employers should not pay early before Christmas, but that could be unpopular with many employers, and it is also likely to be unpopular with those who rely on the December pay to see them through. It could also mean that people resort to credit cards or payday loans earlier, with the same miserable effects as I described earlier.
However, if the January pay date was to be brought forward, I believe that that would make a difference. It would help families because they would have only an additional week to wait for their next pay day. That would, one hopes, prevent them from resorting to borrowing and being sucked into the debt spiral. Families would have the flexibility of the bit extra before Christmas without being overstretched in January.
As I said earlier, something small can often make a big difference, and moving the January pay date could do that by preventing many people from getting into debt, which I do not want.
17:18
I thank Mark McDonald for bringing the debate to the chamber. He highlights a very worrying problem throughout Scotland, which involves not only the January pay date but increasing levels of personal debt and bankruptcy. Too much credit is available in some cases, and not enough is available in others. That all comes together at Christmas time, bizarrely, because bringing forward the pay date in December defers and builds up problems for January. Mark McDonald has highlighted a modest but practical solution that would offer some support, and I thank him for doing so.
The background to the problem that we are discussing is difficult. In November last year, R3—the Association of Business Recovery Professionals—published its sixth “Personal Debt Snapshot” report, which focused specifically on why individuals turn to pay day loans. It revealed the highest level of worry about debt ever recorded. It also identified a group of people who currently pay only the interest charges on their debt and not the debt itself, and said that that affects one in six people. That issue has been raised by many members from all sides of the chamber, including Margaret Burgess and my colleagues Johann Lamont and Neil Findlay.
I was particularly pleased to hear that Aberdeen City Council has offered a practical way forward, by changing its pay date, which presents an example to the rest of the public sector.
The overall statistics on debt in Scotland and throughout the United Kingdom are horrendous and make for grim reading. According to Citizens Advice Scotland, debt accounts for a quarter of all the cases that it deals with, and more than 40 per cent of those citizens advice bureau clients say that they go without food or fuel to try to pay off their debts. In many cases, that is because they are being aggressively pressured by their creditors.
Shelter has published evidence that 2 per cent of the UK population admits to having paid their rent or mortgage by means of a pay day loan and Shelter Scotland has confirmed that the proportion is similar in Scotland. There is a significant problem in Scotland and throughout the UK for the most vulnerable communities, who are particularly vulnerable at the end of the month and after a five-week pay period.
Those communities are vulnerable to two predators in particular: loan sharks and pay day lenders. It is estimated that annually about 85,000 people borrow from about 150 illegal moneylenders in Scotland, who are charging astronomical interest rates; the rates are off the scale. That is a huge problem, which affects the whole of Scotland.
Pay day lending is perhaps a more recent phenomenon. As members know, it is a form of credit whereby the borrower authorises the lender to make an automatic withdrawal from their bank account, as a security for a short-term loan. The loan must be repaid in full, plus interest, on the borrower’s next pay day. The pay day loan industry targets lower-income and minority groups. It targets the vulnerable and the low paid. Loans are given without regard to borrowers’ ability to pay, and borrowers sign a payment authority that can be cancelled only by the lender. The lender has it every way and the borrower is trapped. The original loan gets rolled over again and again, and the interest and costs keep rising.
Evidence from CABx tells us that clients who have pay day loans have an average of three debts more than clients who do not have pay day loans, which suggests that people who are in long-term financial difficulty are more likely to turn to a pay day loan. Interest rates can be in the thousands—3,000 or 5,000 per cent. It is estimated that the pay day loans sector is worth some £2 billion, so members can see why there is such interest in companies in the area.
There are solutions, such as credit unions, and practical measures such as have been suggested by Mr McDonald. I am happy to express my support and the Labour Party’s support for such measures.
17:22
I congratulate Mark McDonald on bringing an important debate to Parliament.
Just before Christmas, I contacted Aberdeenshire Council, the neighbouring authority to Aberdeen City Council, to ascertain whether it had contemplated moving the January pay date, as Aberdeen City Council was about to do. I was advised that the council had considered that in the past, but thought that there was no real need or desire for a move, even after talking to the trade unions. I was not shocked by that, but I found it strange, so I intend to go back to the council on the matter.
Perhaps Mr McDonald will take this important issue to the Convention of Scottish Local Authorities, so that it can debate it. I hope that he can secure COSLA’s support, so that every local authority will consider following Aberdeen City Council’s lead on the January pay date. Mr McDonald is not going about with a big stick, trying to force the issue, as he said; he is going along gently, prodding and probably at times pricking people’s consciences. Such an approach is particularly appropriate in the private sector, which can change the January pay date with little effort.
Ken Macintosh and Margaret Burgess talked about the hardship that people face around Christmas and January. Many people are driven to loan sharks and pay day lenders, through no fault of their own, so that they can get the basics that they require. Then they get into an absolute mess, to get out of which they need the assistance of our CABx and other professionals. Often, they are in so deep that even with that help it can take years to pay off even the smallest of loans.
Christmas is a difficult time for most families, because people always go that extra bit further and always get that extra present. My family has always set a budget and said, “That’s it. That’s the budget—no more.” However, we are not good at sticking to that budget, and I am probably the worst culprit, but my family can cope with that, although I know that, when it comes to the end of January, we are thinking, “I wonder what’s in the freezer. Did we eat everything that we ordered for Christmas and new year?” I think that every family is exactly the same as that.
Mark McDonald is to be commended for bringing this important debate to the chamber. I think that society needs to think about how we can impact on pay.
When I worked for Strathclyde Regional Council in the late 1970s and early 1980s, we were on a 13-month pay cycle, which meant that we got paid every four weeks. That might be something that health boards and local authorities could consider as an alternative to what Mr McDonald is suggesting. However, I sincerely hope that our local authorities, health boards and organisations in the third sector can perhaps think about their moral obligation and support Mr McDonald’s suggestion on how to deal with this important issue.
17:26
I thank Mark McDonald for bringing this debate to the chamber. I recognise the work that was done in Aberdeen, where he is a councillor. I understand that Aberdeen City Council implemented the measure in 2010 and repeated it in 2011, and that it has proved popular with the staff. I am told that Ewan Sutherland, the head of human resources, has confirmed that, although the measure is not a formal policy of the council, it will continue to be implemented unless there is a good reason for it not to be.
The debate has demonstrated that the issue that we are discussing is one that affects many people’s lives, as they have to deal with having a six-week gap between the times when money comes into the house. It is a practical issue that affects people on low wages. Mr Macintosh referred to the proportion of people in society in Scotland—an alarmingly high proportion, if those figures are to be relied on—who are affected by the problem, with the worry that that entails.
Margaret Burgess has spent a lifetime advising people who face those daily predicaments, and I used to advise people who had serious debt problems. Debt corrodes people’s spirit and often leads to family breakdown and exacerbates all sorts of other problems.
Mr McDonald is also to be commended for the fact that he has proposed a solution. Very often, we have debates in which we have diagnosis but no prognosis—in which we complain about something but offer no solution. We must recognise that Mr McDonald has presented us with a practical solution, of a kind. It is not a total solution, but it is one that would alleviate the pressure for many.
The way in which he has argued that the measure be introduced is the right way. It would be wrong to proceed by compulsion—indeed, it might not be possible to do so. As was recognised by many of the speakers, this is not a matter over which we have power, and private businesses will determine their own practices. Some businesses might determine pay cycles with regard to their cash flow. In some cases, their business might be seasonal, and they might not have much income coming in in January, which means that speeding up the payment of the January payroll by even a week would constitute a factor that would have to be taken into account.
I will refer to the approaches that are taken in a few sectors of society. The Scottish Government gives staff the option of receiving a Christmas salary advance of up to £300, which is payable around 15 December and is recovered from end-December pay. In 2011, 250 staff used that facility. It provides the staff with an option to make up their own minds about whether to receive some of their December salary early. Also, there is no knock-on impact into the new year and January salary payments remain unaffected.
The Scottish Government considered the possibility of paying December and January salaries early and there was a consultation with Scottish Government staff on the issue in 2008. That resulted in a broadly 50:50 outcome between those in favour of early payments and those against. Perhaps that is a danger of holding a referendum—whether that is an irrelevant comment, I will leave it to others to judge. In any event, no change was made because there was no clear result; December pay day remains the last working day of the month minus one and January pay day remains the last working day of the month.
Local authorities are entitled to formulate their own policies, and I think that they would resist a national arrangement. COSLA has indicated that that is the case, highlighting the fact that not all local authority payrolls operate a four-weekly cycle, with some staff being paid on a fortnightly basis. In addition, the date on which salaries are paid is not uniform. Therefore, it would not be possible to implement a single approach across all local authorities. Nevertheless, as Dennis Robertson said, one can achieve quite a lot by reasoned argument and advocacy made to individual councils, as Mark McDonald’s example illustrates.
Some national health service boards in Scotland have considered the proposal, and it has been considered elsewhere in the public sector. It is a matter that staff themselves can raise or ask to be raised directly with the management or through their trade union representatives.
The Chartered Institute of Payroll Professionals points out that, in terms of company cash flow, there may be particular times of the month when the invoicing credit control procedures take place and income is expected. That will have been taken into account in making the decision about the date of the month on which pay day will fall. Bank closures may also be the reason why early payment is made in December in some cases, making it a matter of administrative necessity rather than an act of intended assistance.
I strongly agree with the points that have been made about pay day loans. There are some circumstances in which the use of a pay day loan can mean that an individual avoids paying a substantial overdraft charge, for example, that could exceed the interest on a pay day loan if the loan is paid back at the end of the next month. However, we know of horrific examples of what happens if it is not repaid—if it is rolled over—which we debated when Margaret Burgess rightly raised this important topic some time ago in one of the first members’ business debates of the year. The Scottish Government is pursuing the matter in a number of ways.
Pay day loans are what people resort to when the money runs out, and the situation could sometimes be alleviated were payment of January salaries to be made a week early. Those are precisely the circumstances in which some people resort to pay day loans, and Mark McDonald’s proposed solution could play a part in reducing the number of people who resort to pay day loans. As has been said, when somebody takes out a pay day loan, that can lead to a huge debt problem. Margaret Burgess concentrated her remarks on the phenomenon of debt: once it starts, it is like a snowball rolling down a hill, gaining momentum that cannot be pulled back from, with horrific consequences. That is the case not least because the annual percentage rates that are charged by some pay day loan companies if the loan is not paid back on time are horrendous. I have an example of a representative APR of 4,214 per cent from Wonga.com.
Credit unions play an important part and I take this opportunity to pay tribute to their work. I hope that the Scottish Government and the UK Government will do more to promote credit unions.
My final substantive point will be to, once again, promote the debt arrangement scheme. By coincidence, tomorrow I will visit Kilwinning to see Rosemary Winter-Scott, the Accountant in Bankruptcy, and her staff, who do a marvellous job of administering the debt arrangement scheme, which is a diligence and interest stopper. If people can get their debts sorted out and pay them off over a period of time to an agreed schedule, that will remove stress and anxiety in many cases because they will feel that they have coped with the problem and found a solution to address the issue. We should encourage that and I pay tribute to the Daily Record for the work that it did recently when we had some television advertising to promote the availability of the debt arrangement scheme. We encourage people to pay their debts, not just get relief from them by using bankruptcy or the trust deed option. When people can pay, we encourage them so to do. I recognise that people should resort to the debt arrangement scheme when they need to, and I hope that that is relevant and within the remit of tonight’s debate.
I am conscious that my time is not only up but exceeded. I conclude by thanking Mr McDonald and all members who have stayed this evening to take part in the debate. There is no single solution, but public and private sector employers can and should talk to their employees to find a practical and mutually beneficial way of managing cash flow. I hope that these issues will be actively considered in Scotland to the betterment of all.
Meeting closed at 17:37.