The next item of business is a debate on motion S4M-09365, in the name of Fergus Ewing, on the Bankruptcy and Debt Advice (Scotland) Bill.
15:34
We have had a good discussion on the Government’s final package of amendments to the bill, and I would like to think that the number of non-Government amendments suggests that, at the end of the process, we have arrived at an overall consensus on most things, even if we do not agree on everything.
I begin the final debate on the bill by thanking Murdo Fraser, the other members of the Economy, Energy and Tourism Committee, their clerking team and all of those who have assisted with Parliament’s scrutiny of the bill. I thank also my own officials and those in the Accountant in Bankruptcy’s office for their excellent, efficient and lengthy support during, and indeed before, the bill.
We as a Government, and my officials in particular, have appreciated the support of all of the stakeholder organisations that have engaged with us. It is a long list. Members will have noticed that there are very few tidying-up amendments, if I could call them that. Almost all of the amendments were introduced because the Institute of Chartered Accountants of Scotland, the Law Society of Scotland, Citizens Advice Scotland and the Sheriffs Association put forward points and made suggestions.
We had lengthy discussions with those organisations, before and after the introduction of the bill but especially during its passage. The bill is now in better shape, and I am extremely grateful to all of them for that. It is important that we listen to stakeholders, and I am particularly grateful for their support, advice and contributions throughout the passage of the bill.
I have already made it clear that there needs to be a balance in bankruptcy law between the interests of creditors and debtors. For creditors, we stand by the principle that, when the debtor is able to pay something towards the cost of their bankruptcy, they should do so. Creditors have a right to expect a reasonable return. The effect of bad debt on creditors, particularly small businesses, can be extremely serious. We need to bear that in mind in striking that balance.
When someone is able to make a contribution, we have extended the payment period from 36 to 48 months. As I alluded to in the debate on group 4, the Accountant in Bankruptcy’s analysis has indicated that that move should give rise to an improved return for creditors. That is what common sense would suggest. After all, if people pay for three years, broadly speaking they will pay for four years. That is the lesson that we learned from other vehicles, and I see no reason why it should not apply in this case. However, I was happy to give the assurance to Mr Fraser that he reasonably sought. The Accountant in Bankruptcy will monitor things closely.
As we move towards the final stage of the passage of the bill, I hope that all members will accept the critical point that a contribution is paid in less than a third of all bankruptcy cases. Only one third of the people who are bankrupt in Scotland will pay anything at all. The most financially vulnerable debtors will not be required to make any contribution. Those whose sole income derives from benefits will not pay a contribution. They should not, they cannot and they will not. It is incumbent on me to set that out extremely clearly. Credit unions have welcomed that change, and I have had positive discussions with the British Bankers Association and representatives of high street banks. Lloyds Banking Group has confirmed to me this week that it
“should be able to support the provision”.
On the debtors’ side, as well as mandatory advice we will introduce a new minimal asset process—or MAP—which will deliver quicker, more efficient debt relief to debtors who need it most, at half the cost. If I may say so—this is not in the script—it is a tribute to the efficiency of the Accountant in Bankruptcy and her staff in Kilwinning that they are able so efficiently to conduct their business that they do so at a cost of £100 per case. That indicates a diligence, devotion and ability that we should all appreciate from public servants who do a terrific job. Indeed, in the next couple of weeks I will have the pleasure of visiting once again the staff in the Kilwinning office formally to thank them for their work.
As well as the MAP, we will introduce a new common financial tool for Scotland, which will deliver, for the first time, a consistent determination of the amount that the debtor can pay. Up to now, various calculations have been applied. That simply cannot be right. I cannot overestimate the importance of this point: up until now, there has been no clarity or consistency in the various types of statutory solution that debtors enter. Those who enter the debt arrangement scheme, sequestration or protected trust deeds will pay contributions when they can, but there has been no consistency. Surely that is wrong. It is not an easy thing to devise a common financial tool that is fair to everybody, but it has already been done, and we will work hard to bring forward clear proposals on this matter and debate them in Parliament in due course.
There is more that we can do with the common financial tool. For example, we have been discussing with members of our common financial tool working group and the Money Advice Trust whether we can—as I mentioned earlier—build a small allowance for savings into the determinations.
The bill is aiming to assist financial rehabilitation, and members will have heard me refer previously to the Government’s vision for a financial health service. The passing of the bill today will mark a major milestone on the road to making that vision a reality. We need such a service to build the financial capability of people in Scotland, and, by working with organisations such as church groups and credit unions, we will help to support people to make better financial choices and prevent future problem debt.
We want our financial health service to act on behalf of the people of Scotland and to put the case to credit reference agencies that there should be more differentiation in credit risk scoring between people who have taken steps towards repaying their debts and those who have not. For example, credit reference agencies appear to give no recognition to those who are paying their debts under the debt arrangement schemes. That is plainly wrong, and we are working with the BBA to see whether it is possible to put it right.
In addition, we believe that banks should play their part to allow accounts to be opened or to remain open, which can enable debtors to benefit from things such as lower charges for household fuel, and by delivering specific products. If one has a bank account, as members know, one has access to discounts through paying bills by direct debit, for example. If banks do not allow undischarged debtors to have a credit-only account, those debtors cannot access the discounts that others can, and that cannot be fair.
The provisions in the bill are designed to tackle that issue and to act as a counterpart to the provisions that have been introduced down south. That is a worthy purpose, and we look forward to continuing to work with the BBA and individual banks, not least because, according to the CAB, only Barclays generally allows such a service at present. We hope that all the banks will follow that example.
We will have a financial health service that brings together different strands and sources of information and advice so that anybody with a concern or an issue to do with debt or borrowing can find, in one place, the help and assistance that they need. To that end, I can announce that the website of the Accountant in Bankruptcy will be rebranded in the autumn to become the website for, and a portal to, Scotland’s financial health service.
The Bankruptcy and Debt Advice (Scotland) Bill is not the end of the process, but a new beginning. The financial health service will soon be a visible reality, and bankruptcy will be no longer just about accounting after the fact but about prevention before the fact. Debtors will be better advised, informed and supported. The changes in the bill are commendable and, more than that, they are essential. I invite all members to support them and to support the bill.
I move,
That the Parliament agrees that the Bankruptcy and Debt Advice (Scotland) Bill be passed.
15:43
I agree with the minister that the bill that is before us today is radically different from—and, I agree, much better than—the bill that was introduced at stage 1. Labour has argued throughout the process that critical areas of the bill need to be changed in order for us to support it.
Those include putting Scots into bankruptcy for longer than is the case for those in any other part of the UK; ending automatic discharge, against the advice of the European Commission; and capping the amount of debt that the poorest can have before they enter bankruptcy and then charging those self-same poorest a fee to enter it.
At every stage of the bill, Labour members have sought to rectify what we believe are unnecessary measures that unwisely tip the balance towards simply recouping the moneys that are owed and away from allowing people and businesses to become financially active again.
Bankruptcy law is important for many reasons, but it is particularly important not just because it provides a right of recourse to those who are owed money but because it is a fundamental safety net of the state with a function to help businesses that have failed—particularly in an economy that is still recovering—and to support individuals who have fallen into financial difficulty.
Good bankruptcy law can help to build an economy that is inclusive not just for those who never have to worry about money but for those who find themselves in acute financial difficulty, which happens for a multitude of reasons. It can also support those who have risked their livelihoods by trying to start their own businesses and build a better life for themselves and their families.
Sometimes families break down and leave one party with nothing; sometimes house prices fall so far that negative equity can render people insolvent; sometimes the insurance company will not pay out after a natural disaster; and sometimes businesses are set up with the best of intentions but fail for economic reasons not of their own making. As lawmakers, we have to be sensitive to the reasons why bankruptcies happen, and the laws that we pass on bankruptcy must reflect that it is in the best interests of the Scottish economy to strive for economic inclusion as well as fair reparations.
In my opinion, if Labour’s amendments at stage 3 had been accepted, they would have done two very important things: first, they would have reversed the Scottish Government’s decision to put Scots into bankruptcy for longer than in any other part of the United Kingdom; and, secondly, they would have reinstated the principle of automatic discharge from bankruptcy, as envisaged by the European Commission’s expert recommendations.
The Government’s failure to agree those changes is a missed opportunity that will hold Scots in bankruptcy for longer than at present and make it more difficult and complex for Scots to get back on their feet.
My understanding is that the European Commission document to which the member refers does not really apply to the generality of those who are bankrupt but specifically to small and medium-sized enterprises. Does the member really feel that that document supports the arguments that she has set out?
It is my understanding that the document does support the arguments that I am making, but I assure the minister that I will go back and check that.
In light of the continued concern of not just the Labour Party but, among others, Citizens Advice Scotland—which I know the minister has listened to very carefully—will the minister commit to undertake post-legislative scrutiny in the form of a review of the two specific provisions on which I moved amendments within three years of their coming into effect? A similar point was raised by Murdo Fraser during consideration of amendments, and a review would give us some comfort around those provisions. We would be able to see what impact the changes were having on those going through bankruptcy and how they were affecting the efficient disposal of bankruptcies, which is essential for getting people financially active again.
The minister made significant changes to the bill. It is rare to debate 80 amendments at stage 3, including some that introduce new sections, but it was welcome today. I think that the minister listened to Labour’s concerns on the issue of interim recall and removed it from the bill. Although he did not reinstate the provision for automatic discharge, he lodged two separate amendments to clarify the process; although he did not remove the cap on debt for the minimal asset route, he raised it to a point where the vast majority of the poorest people will qualify for the new route; and although he did not abolish the charge for accessing the minimal asset route, he reduced it by half, after making the ill-judged decision earlier in this parliamentary session to raise it to £200.
Those changes and the fact that the minister listened to our points, combined with the creation of the financial health service, which is very welcome, mean that the Labour Party will reluctantly support the bill today.
15:50
I am pleased to contribute to the debate on behalf of the Scottish Conservatives. Usually, when we get to stage 3 debates, everything that needs to be said has already been voiced. I therefore do not have a great deal to add to what I said in the stage 1 debate and during the bill’s progress.
As convener of the lead committee, I thank once again my committee colleagues for their assistance in scrutinising the bill, along with our committee clerks, all those who gave evidence, and particularly our adviser, Nicholas Grier. As much of the bill is technical, it certainly assisted us to have both Nicholas and the team from the Scottish Parliament information centre on hand to guide us through it.
Throughout the stage 1 process, committee members had a thorough debate on a whole range of issues, many of which Jenny Marra has just mentioned, and we all learned a great deal about the bankruptcy process. I think that I was the only member of the committee who was a veteran of the Bankruptcy and Diligence etc (Scotland) Bill, which was introduced in 2005 and which went through the then Enterprise and Culture Committee, but my knowledge had dimmed with the years, so it was good to be refreshed.
It is fair to say that, on many of the controversial issues, some of which Jenny Marra mentioned, the arguments are fairly balanced on both sides. The committee’s scrutiny was useful in identifying exactly what the issues were so that, when it came to voting on the bill, we could be clear about the implications. I commend the minister for the way in which he has taken the bill forward and particularly the way in which he consulted interested parties.
The bill has widespread support. I heard Jenny Marra say that Labour will support it. We will do so, too, and I am sure that we will hear from other parties whether the support will be unanimous. The general approach has been constructive from all sides. It has been about taking forward the law in a non-partisan way and seeking to bring an improvement, and that is right, because the bill focuses on ensuring that Scottish people have access to fair and just processes of debt advice, debt relief and debt management.
A key aspect of the bill is the introduction of compulsory money advice for those who are facing financial difficulty. It remains to be seen how effective that will be, but it is certainly a laudable aim. We will need to monitor closely the extent to which additional resources are required to put it into practice and make sure that it works, and the committee discussed the matter in detail when it took evidence.
More generally, committee members felt that financial education, which is not the same as compulsory debt advice, would be useful. I believe that there is a role for it in schools. We need people to be aware of alternatives to expensive sources of credit such as payday lending. For example, we need to look at how we can expand the role of credit unions, which are a welcome and comparatively recent development.
One of the ironies of the process of taking evidence was that, when it came to many measures in the bill, the credit unions, which would usually be creditors in any bankruptcy process, took a much more hard-line approach, particularly to making debtors repay, than many of the other witnesses whom we heard from, including insolvency practitioners. That brings to our attention the harsh reality that credit unions have to recover the money that they lend in order to have a future and to ensure that they are financially solvent.
In the way in which we address all the issues, a proper balance has to be struck. If debt relief becomes too easy, we create a moral hazard because it becomes too simple for people to walk away from moneys that are due. On the other hand, if it becomes too onerous, we simply trap people who have fallen on hard times in a cycle of debt from which they can never escape. It is always a challenge to strike that balance. In my view, the bill is successful in that regard, but time will tell.
A welcome measure in the bill, which the Scottish Government introduced at stage 2 and which the committee identified during our scrutiny, is the provision to allow undischarged bankrupts access to bank accounts. That mirrors a similar provision that was brought in down south on a previous occasion. It is important because, as the minister fairly said, having a bank account is essential in modern life. In future, with the introduction of universal credit, all benefits will be paid into bank accounts, so removing accounts from bankrupts would have caused them real difficulty. Now that the legislative framework is in place, it is up to the banks to make the necessary changes to their policies to ensure that accounts are made available, and I encourage the minister to ensure that they do that.
Finally, I welcome the introduction of the new minimal asset process. As the minister will know, there continues to be a debate about whether the fee for entering the MAP, which is a maximum of £100, is appropriate or whether it is too high and will act as a deterrent. I welcome the evidence that we received from the Accountant in Bankruptcy, which was that the figure will be looked at in the light of experience and that, if possible, it will be reduced.
I will have the opportunity to add some comments later, but for the moment I simply confirm that the Scottish Conservatives are pleased to support the bill.
15:55
The bill has an unfortunate acronym, because there is nothing bad about it. It represents a necessary updating of bankruptcy legislation and offers benefits for both debtors and creditors. Much of the Parliament’s concern is rightly focused on the difficulties that debtors face, but creditors should not be ignored. My concern for creditors, though, does not include those in the payday loan industry, nor am I much concerned about the banks. I am concerned for small businesses that face real problems in dealing with bad debts: the man who fixed the washing machine; the local garage; the corner shop that helpfully offered credit. I am also concerned for credit unions, the good intentions of which often work against them.
The returns to such creditors have often been very low—far too low—and that is why I like the bill, which offers benefits to debtors and creditors. That is in part because the common financial tool is fairer to debtors and will achieve better returns for creditors by the mechanism of extending payment, for those who can afford to make it, over four years rather than three years, which is important. Jenny Marra argued that that will increase breakages, but evidence from the experience with the DAS suggests otherwise: breakages, when they occur, are much more likely to occur in the first two years and not, as has been suggested, in year 4.
As the minister said, it is important to note, too, that those on the very lowest incomes will make no payment at all. Those who can pay often say—indeed, many people told the committee this—that they want to pay off their debts; they just require circumstances that make that possible.
There are benefits too for the efficiency of the AIB. For instance, the MAP must have a ceiling on debt that can be dealt with without complication and therefore efficiently. I welcome the AIB’s aim to get payment for the MAP down to £100 and perhaps even lower, which would be impossible with a higher debt ceiling. In the same interest of efficiency, I welcome the AIB taking on some of the administrative work that has been done by the courts.
The Scottish Government has demonstrated good practice in developing the bill. It has worked with stakeholders throughout the process and, more important, listened carefully to them; where possible, it has implemented the recommendations that it favoured. I am delighted that the Government is taking action to help debtors keep bank accounts and to raise the threshold for the MAP to £17,000.
Bankruptcy is inevitably a difficult process. That is why I warmly welcome the bill and the recent improvements to the debt arrangement scheme, which increasingly offers people a better alternative to bankruptcy. I note that since the number of applications for the DAS has risen, the number of bankruptcies has gone down, which I welcome. The Scottish Government and the Accountant in Bankruptcy are to be commended for that.
15:59
In parliamentary terms, I am now very wizened. Although I was not a member of the Economy, Energy and Tourism Committee when it considered the Bankruptcy and Debt Advice (Scotland) Bill, I was, like Murdo Fraser, a member of the Enterprise and Culture Committee in 2005 when it considered the Bankruptcy and Diligence etc (Scotland) Bill. The goal of what was another highly technical piece of legislation was to strike a better balance between the rights of creditors and the rights of debtors and to uphold the can-pay, should-pay principle while helping those who, for whatever reason, genuinely struggled to meet the financial demands of their debts. Such a balance is not always easy to strike and achieving it in this bill has clearly been at the forefront of committee members’ minds.
In the stage 1 debate, we on this side came to the conclusion that the correct balance had not been struck between those competing demands, particularly with regard to the increase in the debtor contribution payment period from 36 to 48 months. Indeed, that was the subject of amendments 1 and 2 in the name of Jenny Marra, which were debated in this chamber this afternoon. Although the minister has said that the measure is not about full-cost recovery for the Accountant in Bankruptcy, Citizens Advice Scotland and others have expressed the opposite view and voiced concern that the move is not primarily in the interests of debtors, who, after all, do not take lightly the step of entering into such arrangements.
As a result, I think that it has been right to test the Government’s stance on this issue, and I agree with Citizens Advice Scotland’s assessment that even if the provision is intended for individuals who have been assessed as being able to make the contribution, the fact is that increasing the debtor contribution payment period by a further year is very likely to cause them hardship. An additional year of payments, administration fees and charges will not assist them in restoring their financial position, which is, after all, the point of the bankruptcy process.
However, as colleagues have said, we acknowledge that during stage 2 there was movement from the Scottish Government in a number of important areas, including the raising of the minimal asset process bankruptcy level as well as the offer of £200,000 to support financial education, which will, of course, be welcomed by all parties in the chamber. The provisions on compulsory money advice for bankrupt debtors and financial education for those who it is deemed would benefit from it are ambitions of this legislation that can be supported.
I believe that my party has a strong track record in improving the laws of this land for people who become unable to meet their financial obligations and who require assistance to restore their financial position while, at the same time, delivering fairness to creditors. Indeed, when we were in government, we achieved those goals through measures such as the debt arrangement scheme and support for money advice. It is always right to review legislation in this area to ensure that it is fit for purpose, and I am sure that ministers have been right to do so in this instance. However, although we welcome a number of provisions in the bill as representing progress in our bankruptcy laws, we maintain strong reservations about the practical impact of other elements.
I suspect that this will be one of those pieces of legislation for which post-legislative scrutiny will be particularly important; indeed, as Jenny Marra has highlighted, it will be most important with regard to the debtor contribution payment period. It will be necessary to reflect further on this legislation once it has been passed so that we as a Parliament are assured that, in practice, it is delivering a legal framework that effectively provides the balance in the law that I mentioned earlier of maintaining creditors’ rights while assisting those who cannot meet the demands of their debt.
The bill must be part of that much broader work of Government to help people who are in debt get out of it and, most important, to do whatever we can to ensure that people do not take on unmanageable debt in the first place.
16:03
I hope, Presiding Officer, that you will allow me to start with a point that is very much about Parliament rather than the minister’s handling of the bill. The Government lodged 80 amendments, which, by any standard, is a lot. Mr Ewing very reasonably set out the case for that; indeed, on occasion, he very reasonably did not read out his whole brief, which I suspect was a relief to the chamber.
However, perhaps the minister should have read into the record the justification and arguments that he was making on behalf of his stage 3 amendments. On a number of occasions, he cited ICAS, the Law Society of Scotland and other bodies that had no doubt come forward with helpful suggestions at this last stage, but neither Mr Fraser’s Economy, Energy and Tourism Committee, which was responsible for scrutinising the bill, nor the Delegated Powers and Law Reform Committee has considered those amendments or measures. In short, there has been no effective committee scrutiny of a great raft of changes that have been made to a piece of legislation that we are clearly going to pass this afternoon.
Perhaps I was not being sufficiently generous to Mr Fraser and his committee members, but it is fair to say that a great many of the amendments that we have accepted on the particular advocacy of stakeholders pursued issues that had been very clearly identified by the committee, including in its report.
I am sure that that is correct. I reiterate that I am not criticising the Government of the day or the minister responsible for the bill. My point is that, even in these circumstances, Parliament does not have a mechanism that allows us to look at such issues. We do not have enough time between stages 2 and 3 of a bill, to take the very point that Mr Ewing has correctly made. I ask that, in our consideration of our own procedures—because this is a matter for Parliament, not Government—we reflect on how we work. Today, we are talking about a bill that we broadly agree with, and Mr Ewing has very reasonably made the case for his amendments. However, there is other legislation that is the very definition of controversial—a recent example is that of the justice measures that were very firmly pushed through Parliament at stage 3 in highly controversial scenes. I repeat that that is not the case today.
Turning to the bill, I recognise that, as the minister has just said, during its passage the Government has addressed many of the concerns that were highlighted. We on the Liberal Democrat benches recognise that work and support the bill.
I highlight in particular the financial education measure, which I have long believed in and for which I have argued at a number of levels. I recognise the Scottish Government’s commitment to provide additional finance to deliver in that area. The increase in the debt ceiling for minimal asset processes that Mr Fraser mentioned also appears to be an eminently sensible development of policy and practice.
I recognise the work that has been done with the money advice sector to predict the likely impact of the requirement for compulsory money advice. Liberal Democrat members hope—as do other members, I am sure—that demand will be monitored and that resources will be reviewed in line with any upward demand or changed requirement.
We are cautious about the ending of automatic discharge, on which we hope the Government will reconsider its approach. I noted with considerable interest the debate on Jenny Marra’s amendments. I am not quite sure that I understood Mr Chisholm’s remark that the proposal in the bill makes the Government more right wing than the Conservative Party. I see that Mr Swinney is listening; I suppose that, on corporation tax, that would indeed be the case. Nevertheless, the position, following the debate on Jenny Marra’s amendments, is clearly more balanced than it was at an earlier stage. That movement, although limited, is welcome.
We were worried about the transfer of powers from the judiciary to the AIB, given the conflict-of-interest arguments that were made. I acknowledge the minister’s observations on progress to reduce that conflict. I trust that he will assure Parliament that that change will be carefully monitored to ensure equality in sequestration cases and in other areas where work continues.
There is one area where we still have concerns, and that is why we supported Jenny Marra’s amendment 1. We believe that the extension of debtor contribution orders to 48 months will, if not carefully monitored, push people into further financial hardship. That cannot be the intention of the minister or the Government; it certainly should not be the intention of the law. There are continuing concerns about that, given what happened today.
Citizens Advice Scotland is not an organisation to be underestimated. I am sure that many of us spend considerable time with citizens advice bureaux in our areas across Scotland, listening carefully to their points about the reality of everyday life for many people, and that members have taken note of the CAS briefing on the bill. I was therefore concerned that the minister did not specifically pick up the points that it made to Parliament in that briefing.
There is no doubt that the bill includes many sensible and progressive measures. Many members have mentioned them and I will not repeat them just for the sake of having them on the record. Although the bill achieves a policy ambition that we very much support, we add a note of caution about the need for on-going monitoring of the changes to ensure that a policy that should be supported is delivered in reality.
16:10
In my experience, which largely concerns owners of small businesses, the vast majority—although not all—of those that enter bankruptcy do so as a last resort. The bill is also for them, subject to the conditions that Jenny Marra mentioned.
Entering bankruptcy is not an easy option, and neither is leaving it, given the attendant consequences. The bill cannot reflect or recognise the feelings associated with bankruptcy, which are sometimes hopelessness or desperation. However, it significantly adds to and improves the existing regulations relating to debtor conditions, protected trust deeds and the debt arrangement scheme. That aspect partly mitigates the emotional consequences of bankruptcy. Above all, the bill seeks to marry as well as it can the debtor’s obligation to the best and most acceptable solution for the creditor.
I wish that full comprehension of personal assets and liabilities was integral to everyone’s education, but it is not, of course. However, as per the debt arrangement scheme and protected trust deeds, education and understanding of the whole financial landscape that underpins debt and debt solution are paramount.
Tavish Scott mentioned money advice. With the appropriate resource and quality controls, compulsory money advice should be a bulwark against recurring bankruptcies and an acknowledgement to creditors of the action that is to be taken. That will focus, as now, on a few new entrants to bankruptcy—the estimate is some 500—but when it is linked to a requirement for financial education for existing debtors, whether that be online, additional face-to-face or hard-copy support, the spectrum of understanding might and should be greater. The proposed monitoring and measurement of those educational outcomes will determine the success of that much-needed function, as espoused in the bill.
Education and understanding also need to be embraced and understood by creditors so that the process of debt relief and debt management ensures a balance for both creditors and debtors alike. To be fair to creditors and debtors, in striking that balance, there has to be a balance of certainty. After the consultation, it was right to set a payment period of 48 months from the date of the first payment to ensure that certainty entered the arena. That is the stake in the ground. However, as I mentioned in an intervention, there is also recognition that if the debtor’s circumstances change, variability comes into play, as per proposed sections 32B(2)(b) and 32B(2)(c) of the Bankruptcy (Scotland) Act 1985, which will be inserted by section 4 of the bill.
The success or otherwise of the bill rests on the role of the Accountant in Bankruptcy. Whether it is acting as a trustee or as a replacement trustee, an adjudicator on discharge or the prime decision maker on administrative matters, its responsibilities are fulsome. I believe that they will be discharged appropriately, with support in specific cases, as required by the courts.
That said, in circumstances—there are perhaps too many of them—in which a debtor cannot be located so that the regime in the bill can play through, it is right that there should be no debt relief and that discharge should be deferred indefinitely. That underpins the statement in the policy memorandum that the
“intention is that those who can pay should pay.”
That does not absolve immediately the trustees or the AIB, as an original or a replacement trustee, from the need to make every effort to locate the debtor, but it should be clearly understood that those who can pay should pay.
Given the subject matter of the bill, it is difficult to welcome that which has made it necessary. However, I welcome the bill, as it will instil greater confidence—and greater competence—in a process that I believe will treat debtors and creditors alike fairly.
As we completed our consideration of amendments ahead of schedule, I am minded to accept a motion without notice from Joe FitzPatrick, on behalf of the Parliamentary Bureau, that decision time be brought forward to 4.40 pm.
Motion moved,
That the Parliament agrees, under Rule 11.2.4 of Standing Orders, that Decision Time be brought forward to 4.40 pm.—[Joe FitzPatrick.]
Motion agreed to.
I call Malcolm Chisholm. You have four minutes or thereby.
16:15
Here was me thinking I could speak for as long as I liked.
It will be a generous four minutes, Mr Chisholm.
This is the first debate in which I have spoken on the subject of bankruptcy since I took part in the debate on the Bankruptcy (Scotland) Bill in 1992. Having heard the remarks that I made earlier, the minister will undoubtedly think that that is perfectly obvious. Then, as now, we were amending the Bankruptcy (Scotland) Act 1985. We did not really have any choice, because the previous piece of legislation on bankruptcy was the Bankruptcy Act of 1621. I suppose that it is a mark of the success of devolution that we have had several pieces of legislation on bankruptcy in just 15 years.
It was interesting for me to read the debate on the Bankruptcy (Scotland) Bill. One of the interesting things about it was the fact that, in an amendment, the Labour Party asked for a special committee to be set up because it was a technical subject, which made it necessary to hear the evidence of experts in the field. I am sorry to say that that proposal was stubbornly rejected by Ian Lang after being eloquently proposed by Donald Dewar. That made me think how superior our processes are, certainly at stage 1. The Economy, Energy and Tourism Committee did a magnificent job with the Bankruptcy and Debt Advice (Scotland) Bill. It produced a very lengthy and detailed report, and all the people who had an interest in it had an opportunity to give evidence.
Having said that, with reference to Tavish Scott’s point about the scrutiny of detail, I remember that, during the committee stage of the Bankruptcy (Scotland) Bill, we sat all night examining the detail of the bill. I still remember us being in the committee room at dawn after discussing the bill all night. It was a different procedural world, which had its advantages and disadvantages.
Another similarity is the fact that the Bankruptcy (Scotland) Bill gave the Accountant in Bankruptcy a big extra role because of a deficiency in the 1985 act, and the bill that we are considering today will transfer some judicial functions to the Accountant in Bankruptcy. As the Law Society of Scotland said in its briefing, it still has reservations about the removal of judicial involvement.
Like Jenny Marra, I welcome several of the changes that were made at stage 2, one of which dealt with stakeholder concerns about the transfer of functions from the sheriff to the AIB. The reduction of the risk to banks in offering accounts to undischarged bankrupts was welcome. The removal of the concept of interim recall was a Labour proposal that was accepted and implemented by the minister at stage 3. The changes to the cap on debt for the minimal asset route were welcome, too, as was the reduced fee. All that was well covered and acknowledged by Jenny Marra.
Other welcome features were in the bill from the start, such as the provision of access to fair and just processes of debt advice, debt relief and debt management, the provision of financial education through the financial health service and the use of the common financial statement as the common financial tool. There is much to be welcomed, some of which came about as a result of the stage 2 process. It is clear that, on this occasion, stage 2 was successful for members of the Scottish Parliament, as it often is.
However, I must briefly repeat the concerns that Jenny Marra highlighted when she spoke to her amendments earlier. There are continuing concerns about the debtor contribution period. I would like to make two points in response to what the minister said. He made quite a lot of the situation in England, but like was not being compared with like—apples were being compared with oranges.
The minister referred to the credit unions’ views. There is an issue relating to credit unions, but the way to deal with it was to give them preferred creditor status. It is regrettable that the opportunity to do that has not been taken.
I am in no position to know whether ending automatic discharge is against the European Commission’s advice. Jenny Marra said that she would check the detail of that, but it seems clearly to be against the European Union norm. The minister should reflect on that. As I said in earlier comments, it is also against the progressive approach of the Conservative Party in 1985—although I had better add that that applies to this issue only.
I hope that the main additional point that Jenny Marra made in her opening speech will receive a positive response from the minister when he sums up. We talk a lot about post-legislative scrutiny in the Parliament, but we do not do a great deal of it. We have an excellent opportunity to look at the two issues that she highlighted. I hope that, after three years or so, the Government and the Parliament will look formally at those two contentious issues to see whether worrying and unintended consequences have arisen—Murdo Fraser’s committee made a point about that in relation to ending automatic discharge.
16:21
I will add briefly to my earlier comments and I will reflect on some of the speeches. I very much welcome Malcolm Chisholm’s recognition of how progressive the Conservative Party was in 1985. I listened with interest to his and Richard Baker’s reminiscences about dealing with previous bankruptcy legislation, which were in addition to my own. However, I counsel members about being too enthusiastic on the subject, because I understand that a bankruptcy consolidation bill is in process. I am sure that a party whip near you will be coming soon to seek members to serve on the consolidation bill committee, so members should be careful about showing too much interest in the subject, or they might find themselves inveigled into such positions.
Tavish Scott made a perfectly fair point about parliamentary process. To be fair to the minister, the stage 3 amendments that he lodged were not contentious and were in response to lobbying by third parties. At stage 1, the committee identified many of the issues involved. However, it is an issue that Parliament had a matter of a few days to consider the amendments before we debated and voted on them. In considering how the Parliament operates, we all need to reflect on whether that is sufficient time to consider properly what could be important matters.
As for the wider debate, I think that bankruptcy is a good thing. We need to remember that bankruptcy is intended to protect debtors—people who fall on hard times—and to ensure that they are not continually harassed and chased by those to whom they owe money. Bankruptcy protects debtors and lets them get back on their feet.
However, bankruptcy has implications, such as making it difficult for people to borrow money and perhaps to set up in business and get on with their lives, so people should never enter into bankruptcy lightly. We need to be careful to strike the right balance because of moral hazard, to which I referred earlier.
Mike MacKenzie made a good point in today’s debate, which he raised throughout the committee’s scrutiny of the bill. He reminded us that we must consider the interests not just of debtors but of creditors. The word “creditor” sometimes conjures up images of a large institution such as a bank or—worse still—a payday lender that does not really deserve to get back the money that is due to it. In reality, many creditors might be small businesses that are due money for work that they have done. If that debt is not repaid, a small business could find itself in financial difficulty and could be brought down. In all the debate, we need to remember that there is a balance; making things too easy for debtors has a negative impact on creditors, which is not always a good thing.
It has been excellent to see how much consensus there has been around this debate. There have been a few issues of concern—Jenny Marra raised the issue of the 48-month period for debtor contribution—but people have been pretty much in agreement.
The provision of debt advice is an important aspect of the bill. A few weeks ago, I went to Aberfeldy to visit the new debt advice centre that has been set up by Christians Against Poverty, which provides help and assistance to people in that part of highland Perthshire who are in money difficulties and have fallen on hard times. That is the sort of hands-on, practical advice that is being provided at a local level that is vital to people and helps them to avoid getting into the process of bankruptcy in the first place.
Bankruptcy is never a pleasant process for anyone. It is there to provide relief from debt for those who have fallen on hard times. It is the mark of a civilised society that we are able to deal in a compassionate way with people in those circumstances while avoiding the creation of any perverse incentives for people who might seek to abuse the rules.
As I said earlier, the bill strikes the right balance, and the Scottish Conservatives will be pleased to support it at decision time today.
16:26
In the desperate attempt to think of a way to inject colour into this closing speech, I toyed with the idea of making play of the acronym for the bill—BADAS—but I assumed that somebody would probably beat me to it and, indeed, Mr MacKenzie did not disappoint, as he pointed out that its acronym was, perhaps, more exciting than some of the passages of consideration.
However, I continued that search for colour. I was drawn to the many touching obituaries for Clarissa Dickson Wright that we saw in our newspapers. She was, of course, famous as one of television’s “Two Fat Ladies” and was latterly a resident for some years of East Lothian—fortunately for me not the part of East Lothian that forms my constituency, as I fear that Ms Dickson Wright was probably not a natural Labour Party voter.
That was not the only eccentricity that she displayed. Her whole life was one of great colour and eccentricity. One aspect of that was that she was declared bankrupt on no fewer than three occasions. Clearly, she saw bankruptcy as being a valid way of managing one’s finances across time. Indeed, famously, when she was rector of the University of Aberdeen, she caused consternation by going as far as advising the student body that the best way for students to deal with their student debt was by declaring themselves bankrupt, thus divesting themselves of their responsibility to pay it. Her approach to bankruptcy was pretty flippant but, as Murdo Fraser has said, bankruptcy is a serious issue and should not be entered into lightly. Usually, it is only entered into in the most difficult of circumstances.
Labour’s concerns throughout the scrutiny of the bill have been around proposals that we believe tipped the balance of financial obligation and economic re-engagement against the debtor while placing a new administrative burden on our money advice services. Those concerns were not partisan, and Mr Fraser made clear that, in the course of the scrutiny that was conducted by the committee of which he is the convener, he had similar concerns. They are certainly not trivial. For example, early in the scrutiny process, ICAS said that the bill would
“engrain ... conflicts of interest”,
which is quite a serious statement for it to make.
However, the story of the bill, from its introduction in June to the point that it has reached today, is, as most speakers have acknowledged, a story of significant change. That, surely, is encapsulated by the fact that we passed 80 amendments to it today, many of which were substantial and inserted two new sections to the bill.
What began as a bill that perhaps threatened to roll back much of the good work that has been done over the years to modernise our bankruptcy and debt relief laws and to encourage effective financial re-engagement while ensuring that there is a system of fair payment for creditors has, we believe, become a bill that is made acceptable by the significant efforts of Citizens Advice Scotland, the Law Society, ICAS and members from across the chamber. In fairness, that has also been achieved by the minister’s willingness to listen to those people and to respond by amending the bill. He amended the bill to ease the burden on our money advice services when, at stage 2, he announced additional funding. He has raised the cap on the minimal asset process; he has rightly ensured that those who are most in need of access to bankruptcy will have that access; and, today, he has further clarified the process of discharge and has repatriated some of the powers to our courts that had previously fuelled concerns about conflicts of interest, to which I have referred.
Does Iain Gray agree that it is a great strength of the Scottish Government’s approach to the bill that it has listened carefully to stakeholders, not just at the consultation phase before the bill was introduced to Parliament but all the way through, and has responded to stakeholders’ concerns?
I agree with that. A number of members have talked about the bill process and have acknowledged that the minister listened to much of that evidence. However, although the bill has been improved, it is still not perfect. The decision to reject our amendments today was a mistake and has weakened what could have been a better bill. That is the basis on which we have called for a commitment to review the legislation within three years, which we think is an important and useful part of the parliamentary process.
I am pleased that we can find enough consensus on the bill, although perhaps not on everything in it, to pass it this evening and move forward to the next stage of what many members have described as a long journey—going back to the 17th century, as Mr Chisholm said—of our bankruptcy and debt arrangement legislation.
I call Fergus Ewing to wind up the debate. Minister, I would be grateful if you could continue until 4.40.
16:32
I have thoroughly enjoyed this very useful debate. We have seen a remarkable degree of consensus, co-operation and forbearance, especially as members have had to listen to me speak for nearly two hours, which must have provided quite a degree of provocation for some.
Thanks to the contributions of members, the Economy, Energy and Tourism Committee and stakeholders, the bill is now in much better shape than it was. We have been willing to engage, discuss and listen carefully to what stakeholders have said, and we have responded where appropriate. I am grateful to Iain Gray for acknowledging that we have been willing to move on matters, although I am afraid that I do not have time to respond to all the points that have been raised.
Mr Chisholm asked why there has been no alteration of the status of credit unions to make them preferred creditors. That was considered in the 2012 consultation, but the proposal lacked any support from beyond credit unions at the time.
Jenny Marra raised the issue of automatic discharge. I remind her that amendments that were agreed at stage 2 will ensure that the process of discharge will commence automatically at the 10-month point, and that the trustee will submit a report that will provide information on the co-operation of the debtor, which will allow the Accountant in Bankruptcy to make a decision on discharge. Discharge at the end of one year will be the case for most debtors; only those who have not co-operated will not receive a discharge. The point is that we are seeking to ensure that those who do not co-operate do not get a discharge. That is provided for in the existing legislation, but the bill gives it a new focus. The vast majority of debtors co-operate, and for them the process will be automatic.
In response to Malcolm Chisholm’s comments about one’s place in the political spectrum, in relation to the 1985 act, I point out that the period of discharge that was brought in by the 1985 act, which itself offered welcome clarity, was three years. It will now be one year, for the most part, which is a step forward.
As Murdo Fraser said, during this parliamentary year we will introduce a consolidation bill, which is to commence by April 2015. That bill will modernise the language, where appropriate, and it will make it easier for practitioners and advisers to follow what is currently a long, tortuous and complex chain of legislation, which begins, I think, in 1985, continues in 1993 and involves three or four subsequent pieces of legislation. The process is now difficult for practitioners, lawyers, citizens advice and money advisers, sheriffs, accountants and insolvency practitioners. I think that the forthcoming bill will be the first consolidation bill that this Parliament will consider, and it is right that we will do so.
I am happy to give the assurances that Mr Fraser and Ms Marra sought about a review of the extension of the payment period from 36 to 48 months. It might be better to carry out the review four years after commencement, when the change has taken effect. However, for the avoidance of doubt, I undertake—as I have already said—that the Accountant in Bankruptcy will monitor the situation closely, as she does all important material issues. That will form part of our work, and I am sure that I will rightly appear regularly before the Economy, Energy and Tourism Committee to account for the Government’s stewardship of regulation in debt, which is important. There is a great deal more work to be done in that regard.
I am grateful to Mike MacKenzie for highlighting the impact on creditors—Murdo Fraser paid fair tribute to him for doing so. There are thousands of small businesses around the country, and a bad debt can put such companies out of business. What, then, is the effect on such families? Ministers receive letters along those lines, and Mr MacKenzie, who I believe was formerly a small businessman himself, ensured that during the bill’s progress we did not forget the need to strike a balance between the interests of the debtor and the interests of the creditor.
I am pleased that the British Bankers Association has confirmed that it is comfortable that its members would apply the same approach to opening basic bank accounts for undischarged bankrupts in Scotland as they would apply in England and Wales, should legislation be made in each jurisdiction that has the effect of removing the after-acquired-property potential liability.
It is clear that we have paved the way for banks to resume activity in this important area. As I said, people who want to get a discount on their bills by paying by direct debit cannot do so if they are bankrupt and cannot get access to a bank account. That is surely unfair. I hope that members of all parties agree that we should urge the banks to adopt a fair approach. Yes—there can be credit-only bank accounts, but a fair approach in that regard would make a significant difference to people who are in financial difficulty.
I am pleased that the Labour Party decided to support the bill. I hope that I am not being ungenerous when I point out that it took a different view at stage 1—I think substantially because it thought that the payment period was not correct. I am not aware that there has been substantial change to the bill since stage 1, although there have been many technical amendments, so why the Labour Party has changed its view is not immediately apparent to me. However, it is better that one sinner repent. I make no issue of that, in any way whatever.
I repeat my thanks to everyone who played a part in the bill, in and outwith Parliament. I thank our advisers and, in particular, Chris Boyland and Claire Orr and all the other staff who assisted in the complex work that the bill involved.
The bill will establish the basis for a financial national health service in Scotland, which is the beginning of a process to which we will return as we rightly try to ensure that people in Scotland, especially young people, are properly educated to manage their finances. It is a great day when this Parliament can move towards establishing a financial health service for Scotland.
I am indebted to you for carrying on until 16.40, minister.