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Chamber and committees

Economy and Fair Work Committee [Draft]

Meeting date: Wednesday, November 29, 2023


Bankruptcy and Diligence (Scotland) Bill: Stage 1

The Convener (Claire Baker)

Good morning, and welcome to the 30th meeting in 2023 of the Economy and Fair Work Committee. Our first item of business is the final evidence session on the Bankruptcy and Diligence (Scotland) Bill at stage 1.

I welcome Tom Arthur, the Minister for Community Wealth and Public Finance, who is joined by Richard Dennis, the accountant in bankruptcy and agency chief executive, and James Clelland, solicitor with the Scottish Government. I also welcome Douglas Lumsden MSP, who is attending the public part of this meeting.

I invite the minister to make a short opening statement.

The Minister for Community Wealth and Public Finance (Tom Arthur)

Thank you, convener, and good morning, committee.

The Bankruptcy and Diligence (Scotland) Bill implements stakeholder-led recommendations to introduce improvements to current debt solutions and debt recovery processes. I accept that it is a small bill and that it does not propose radical changes. That reflects the fact that our system is, broadly speaking, acknowledged as an effective one. As you have heard from previous witnesses, there are no calls for fundamental change.

All the measures in the bill have been subject to at least one public consultation, and all have received broad support. Again, you will have heard from previous witnesses that they are seeking not so much to change what is in the bill as to add things to it.

The measures in the bill have been and are being very much designed with and by the stakeholder community. I pay tribute to the work of all stakeholders whose recommendations are being included in and enabled by the bill. In particular, I commend the members of the mental health moratorium working group. The members of the working group include mental health professionals who were able to contribute professional expertise in the field of mental health and draw lessons from the mental health crisis moratorium that was introduced in England and Wales in 2021.

As the committee will be aware, we are consulting on the details of what a mental health moratorium, enabled by the bill, would look like. I take the opportunity to apologise to the committee that it did not receive advance notice of the publication of the consultation. Officials have worked hard to publish it as soon as possible, which, I hope, will give the committee sufficient time to consider the consultation as part of its stage 1 deliberations. I also want to say to the committee that we will, of course, ensure that it has sight of the draft regulations prior to their being formally laid in the Parliament.

This bill is only one part of a programme of work to improve bankruptcy and diligence. We will introduce changes through secondary legislation, some of which I hope to lay before the Parliament during the progress of the bill.

We have also commissioned a longer-term review to assess how far current statutory solutions meet the needs of a modern economy. Committee members will know that Yvonne MacDermid OBE accepted an appointment to lead stage 3 of that wider review, and there will be some matters that merit further consideration as part of the review. On that point, I will conclude.

The Convener

Thank you, minister. I acknowledge your apology regarding the consultation on the proposals for the mental health moratorium. The delay has made it more difficult for the committee to scrutinise the provisions in some ways. I appreciate that you have confirmed that we will receive the regulations in draft form. Is there a timescale that you can share with us for when we can expect those to appear?

Tom Arthur

If I recall correctly, you raised the matter directly with the First Minister at the Conveners Group meeting. We will certainly endeavour to produce a draft of the regulations ahead of stage 3, while recognising that regulations could only be formally laid should the bill be passed by the Parliament.

Colin Smyth (South Scotland) (Lab)

Good morning, minister. I will kick off with questions on the mental health moratorium, which has been discussed quite a lot in the evidence that the committee has heard. I appreciate that the details will be covered by the forthcoming regulations, but one issue that has been raised concerns the criteria according to which the mental health moratorium may be used. As things stand, the moratorium will be available only to those in compulsory treatment, based on the Government’s position. What is the thought behind that? Roughly how many people do you expect the criteria to cover?

Tom Arthur

As the committee has heard in evidence at previous meetings, there is a recognition that the number of people who are likely to make use of the mental health moratorium is relatively small.

The rationale on alignment with existing statutory provisions, including those under the Mental Health (Care and Treatment) (Scotland) Act 2003, comes from wanting to ensure clarity and being able to start small but then, through the opportunity of learning, further review and reflection, potentially expanding or amending the criteria. That approach, which is afforded to us by using regulations, has been welcomed by and has had a positive reception from those in the debt advice community. I would not want to say that the process will necessarily continue like that ad infinitum. However, as a starting point, having the new provisions that we will introduce aligning with the existing statutory provisions provides clarity on eligibility.

Colin Smyth

Even if we have those tightly defined criteria to begin with, there is still a concern that not everyone who meets the criteria will take up the moratorium. Citizens Advice Scotland has called for everyone who enters compulsory treatment to be automatically offered access to a mental health moratorium. Would the Government consider that, rather than simply waiting for those who are working with a person in treatment to apply for a moratorium?

Tom Arthur

We set out a proposal in the consultation for a process that would begin with the mental health professionals who would already be supporting the person. The process would go from the mental health professional, to the money adviser and then the AIB. We seek further views on that as part of the consultation.

We are seeking to provide clarity and clear definitions on eligibility, although it is important to recognise that there are also other provisions within our existing suite of support, such as the existing moratorium. The mental health moratorium that is proposed in the draft consultation would be for those in the most acute and severe mental crisis, who would be subject to the compulsory treatment provisions that are set out in statute. The proposed process by which that would be effected is set out in the consultation although, as I said earlier, that is subject to the bill and the regulations being approved by the Parliament. We would of course reflect, review and continue to engage on the effectiveness of the scheme, and we would be open to further consideration of changes in light of experience.

Colin Smyth

As things stand, the regulations that you will draft and publish before stage 3 will refer only to compulsory treatment as a criterion. You are carrying out a consultation at the moment, and the timing of the consultation is not such that the regulations may differ.

Tom Arthur

The consultation closes on 22 January 2024. It is unlikely that we will be able to complete the independent analysis process ahead of being able to share the draft regulations. We would certainly endeavour to do that and it might be possible. We would be able to provide a summary of the consultation responses, which will help to inform the draft regulations.

Of course, engagement with the committee will further inform what we propose as final regulations. I am open to further public consultation on the draft regulations, beyond simply sharing them with the committee, to explore those matters in further detail. We have set out a series of proposals that reflect the recommendations of the expert working group and we are seeking further views on that through the public consultation that we launched earlier this month.

Colin Smyth

I am still not quite clear about the timescale. Are you saying that you might receive a response to the consultation that might or might not change your current thinking on the criteria in the regulations that you publish?

We are consulting for that very reason. If I were to say that we had already decided what we would do—

Colin Smyth

What I am getting at, whatever you decide, is whether the timing of your consultation and of the parliamentary process for publishing the regulations before stage 3 will give you sufficient time, should you want to change the compulsory treatment criterion. Or will you bring in that criterion and then, a few months later, decide that you are going to change it based on the consultation?

Tom Arthur

We are not going to artificially compress the timescale because that would prevent us from taking a fully considered view about what regulations are to be laid before the Parliament. We are trying to ensure that the committee has as early sight as possible of the draft regulations and we hope that the analysis will be completed, published and available to inform the committee’s deliberations. However, preliminary analysis of the responses to the consultation will inform the draft regulations that we introduce.

My concern is to ensure that what up to this point has been a highly collaborative process, informed by expert opinion, continues as we work towards the preparation of the regulations, informed by the consultation on the draft regulations that we bring before the committee, with the potential for further public consultation, and by input from the committee. From that cumulative process, we will be able to lay before the Parliament for approval a final set of regulations that can command the widest support and reflect all the engagement that will have been undertaken.

The Convener

That is an interesting line of questioning from Colin Smyth. I hope that the minister will reflect on the fact that the criteria that have been suggested for Scotland are very narrow, while those for England and Wales are a bit broader. They are not much broader, but they include people who are receiving crisis treatment, not just compulsory treatment.

I had a meeting with One Parent Families Scotland and the Poverty Alliance, and the people I met there would not be able to access the scheme, even though they feel that they are under significant mental health pressure because they are in debt. The scheme would not apply to them because of the narrowness of the criteria that it uses.

We could look at the council tax legislation. You said that you wanted the moratorium to be consistent with other legislation. My understanding is that the council tax legislation uses the term “severely mentally impaired”, which sets quite a high threshold, but not as high as that which the Government has suggested. I hope that the minister will reflect on the fact that the proposal uses a very narrow definition for access to the scheme.

Tom Arthur

I appreciate that we are likely to touch on a number of issues that witnesses have raised while giving evidence to the committee. I am keen to see the committee’s stage 1 report before considering what further proposals the Government brings forward. I want to give the commitment that the considerations that the committee shares through its stage 1 report will help to inform the process that we go through, along with the consultation and the drafting of the regulations. I am keen to consider those points further.

As I said, I set out the rationale of effectively starting small with an opportunity to expand, but significant further opportunity will be afforded for consideration of the detailed proposals in the regulations.


Maggie Chapman (North East Scotland) (Green)

Good morning, minister. Thank you for joining us. Given what you said about the limited criteria and starting small, with the potential to expand the criteria over time on the basis of lessons learned, I am interested in how we ensure that people who might benefit from the mental health moratorium and people who might give support or advice to debtors on it and on mental health or financial issues will be aware of exactly what the moratorium entails and the criteria. What mechanisms do you have in mind for ensuring awareness among mental health professionals, those in the money advice sector and others who support people with financial or mental health difficulties?

Tom Arthur

I am conscious that that area has been of substantial interest to the committee and that quite a bit of the evidence that it has taken has related to that. I have found that evidence very useful in enhancing my understanding.

Clearly, we want to ensure that there is the widest possible uptake of the scheme when it is appropriate for, and applicable to, an individual’s circumstances. I made reference to this being a stakeholder-led and collaborative process, which will, subject to the Parliament’s agreement, inform the process of implementation. We will want to continue to work very closely on that. The committee has recognised that, as has been highlighted by several of the expert witnesses from whom the committee has heard, it will be important to take a joined-up and collaborative approach. That will involve building on the skill sets and understanding of money advisers and mental health professionals.

We want to engage closely in order to fully understand what support can be provided. Of course, the key to that will be ensuring that there is the widest possible awareness of the existence of the scheme, should it be agreed to by the Parliament. That will be a clear priority in implementation.

If and when the bill is passed by the Parliament, do you see that happening prior to the scheme coming into force?

There has already been substantial engagement during the process by which the proposals have been developed. There is a clear awareness across the sector that the Parliament is considering the issue, and—

When you say “awareness across the sector”, do you mean the money advice sector, mental health professionals or both?

Tom Arthur

I mean the money advice sector, but I recognise that there is already overlap and that there should be co-ordinated working between that sector and mental health professionals.

If, subject to the Parliament’s agreement, the regulations come into effect, there will be a focus on ensuring that there is the broadest possible awareness. We are committed to using the resources at our disposal to ensure that there is the broadest possible awareness of the scheme and that there is understanding of how it can be applied to support the people whom it is designed to benefit.

Maggie Chapman

You said that the process will be stakeholder led. We have heard quite clearly from several stakeholders that there is a need or a desire for slightly broader criteria, but I note what you have said on that so far.

Stakeholders, particularly those in the money advice sector, also have questions about their ability to deliver such support, given capacity and resource issues. Do you have any comments on that?

Tom Arthur

It is anticipated that the number of individuals who use the scheme will be relatively low, so we anticipate that the additional demand that will be placed on the sector will be minimal, at least initially. Of course, we will want to carefully monitor the number of individuals who use the scheme and continue to have close engagement with the sector to ensure that, if capacity issues that relate specifically to the introduction of the mental health moratorium are identified, we are in a position to understand and respond to those challenges.

Richard Dennis (Scottish Government)

The committee will probably know that, down south, all the advice that is given to people who qualify for the moratorium is delivered, under a separate contract, by an organisation called Rethink Mental Health, because the view was taken that there is a need for specialist expertise and experience to deal with this particular client group. It has been accepted that it takes more time to deal with this client group than it takes to deal with an ordinary member of the public.

One question in the consultation is about whether we should think about doing the same. Initially, money advisers have been very clear: they all want to have the ability to take a role in the scheme. However, if a front-line money adviser gets two or three such people a year through the door, does that give them the experience to build up exactly how to take that forward successfully in the way that they have got used to, which is income maximisation? Almost every client who comes in to see them will need to go through that process. It is an open question, therefore, and we await views in response to the consultation.

I have been to see Rethink and have talked to its people about the experiences that they have had in the 18 months of running the scheme down south. They make a strong argument that we should think about a specialist debt advice provision. At the moment, the debt advice community here is saying that it would like provision to be more general.

Maggie Chapman

I have a couple of questions about the relationship between the mental health moratorium and what we refer to as the standard moratorium—the six months for which people can get relief at the moment. Are there any plans to reduce that six-month period? Previously, it has been less, as applies elsewhere.

Tom Arthur

As we have previously stated, when the consensus is that the pressures of the cost of living crisis have abated, we will reconsider the position. However, given the challenges that we currently face—it is very much a live issue that is causing significant distress to many households—there are no immediate plans to change from the current provision of six months.

Maggie Chapman

To follow on from that, given the limited eligibility for the mental health moratorium, if people are within the six-month standard moratorium, is there any possibility—under advice or guidance from either mental health professionals or money advisers—of that period being extended if they are still struggling to get to grips with their financial situation because of mental health but do not meet the compulsory treatment order level? Have you given any consideration to that?

Tom Arthur

That is an interesting question, and I recognise the nuance in it. If someone was in a standard moratorium and, during that process, met the criteria, they could, of course, benefit from that. The situation that you articulated, if I have understood it correctly, is someone’s being in a standard moratorium but developing problems with their mental health or wellbeing that do not meet the compulsory eligibility.


Tom Arthur

We are not giving specific consideration to that. Again, there is a need for clarity over the proposed criteria for when a mental health moratorium would begin and end. One element is defined by the period of compulsory treatment, and there is the six-month recovery period as well. I clarify that, although the six-month recovery period aligns with the six-month standard moratorium, the period is not fixed in length. We recognise that those who are in a period of recovery will require additional time beyond what might be regarded as a shorter period—for example, it has been suggested that a standard moratorium could be for 12 weeks. One witness raised the potential of that happening in the future. The periods are not fixed or linked.

When it comes to the existing moratorium, we have no intention at the moment of changing the criteria around the ability to extend the period of six months. We recognise that there are, for example, opportunities to seek forbearance through engagement with individual creditors, but there are no specific plans in that space.

Maggie Chapman

You might get some interesting consultation responses in that space.

My final question is on legal capacity. The expectation is that patients will need to have legal capacity to consent to an application for a mental health moratorium. What consideration have you given to circumstances where that is not the case—where somebody does not have legal capacity or a representative who could give that consent on their behalf?

Tom Arthur

I recognise that it is a sensitive issue, and we specifically seek views on it in the consultation. I also recognise that, if an individual already experiences an element of compulsion with regard to treatment, we would want to have an additional element of compulsion with regard to their financial circumstances. As you recognise in your question, there is provision for the representative of the individual to take those decisions. However, we will reflect carefully on the views on the overall question of capacity that the committee brings forward in its report and those in the consultation.

Richard, do you want to add to that?

Richard Dennis

We had initial discussions with Professor Donna McKenzie Skene, who, as you know, is one of the legal experts in the area. She is pretty clear that there is a way that that could be done if it was chosen to be done, but she and we think that choosing whether to do it is a complex issue.

It would be possible to have a process by which someone, probably in the mental health support team, became designated as having the ability to apply for a mental health moratorium on behalf of the individual, but that is jumping quite a few steps in relation to individual rights.

Kevin Stewart (Aberdeen Central) (SNP)

Minister, it was good to hear you say that we should start small and move to expand. We have heard from people that there has to be flexibility in the regulations and the ability to adapt as we move forward. You said that most of this has been stakeholder led, but how many voices of lived experience have you heard in the formulation of the bill and, indeed, will you hear as we move forward towards the regulations?

Tom Arthur

I will ask Richard Dennis to come in, in a moment. On the more detailed aspects of the working group and the processes that have informed the recommendations, my direct engagement has been with those representatives, many of whom the committee will have heard from in person or in writing. The process involved those who support and provide advice for people in relation to their financial circumstances, money and debt.

I ask Richard to comment on the work that got us here through the stage 2 working group and the mental health moratorium working group.

Richard Dennis

This is second hand, but the debt advice charities have significant experience of dealing with those people. Rethink, in particular, had a lot of hints and suggestions for us, which were based on its extended discussions with people who were going through the process down south.

We have not tried to convene a panel of people in mental health crisis to talk to the Government about their debts and how to handle those debts. In bankruptcy more generally, I have found that getting people to talk about their lived experience is very difficult, so we allow the debt advice bodies to pass over to us their experience of what their clients face.

Kevin Stewart

I am a former Minister for Mental Wellbeing and Social Care, and, having established a number of lived experience panels, I can say that those do not have to be formal. Folk will often gladly tell you their tale for the simple reason that they do not want anyone else to go through what they have gone through.

My very strong suggestion in relation to the work as we go forward is that you, minister, in collaboration with the Minister for Social Care, Mental Wellbeing and Sport, ask some of the lived experience panels that already exist regarding what their life experience of that kind of situation has been. That would help to formulate much better regulations.

That is a very helpful suggestion, which I know is informed by your expertise in your previous roles and which I am happy to ensure that we take forward.


Kevin Stewart

I will move on a little bit. We have talked quite a lot about eligibility and criteria. Again, you have said that you would be flexible in relation to looking at change and not simply allowing this for folk with compulsory treatment orders. The convener talked about some other aspects of law and some of the old-fashioned criteria that are often in those laws. I think that the convener used the term “severely mentally impaired”, which does not sit well with me, I have to say.

It is a recognised term in the legislation; it is not a judgment.

Kevin Stewart

I know that it is, convener. I am not criticising you in any way, shape, or form; I am criticising the legislation as it has been formulated over many years.

As we move forward and reach new definitions, if that is where we go, I wonder whether we can bear in mind the work that has been undertaken during Lord John Scott’s mental health law review, so that what we come up with there, as that goes through the legislative process, becomes embedded, if you like, in your regulations. Do you think that that can be done?

Tom Arthur

Yes. As the issue of severe mental impairment has been specifically raised, I note that it is an area that I have had correspondence on and that my officials in council tax have explored. My understanding—our understanding—is that the term is something that can be amended only via primary legislation. That is a frustration for me, as I am very sympathetic to the argument that it is an outdated and stigmatising term that we would want to see changed and brought up to date.

My position is that, should an opportunity arise for us to amend that term in primary legislation—we recognise that a very specific change is required—I will be very alert to that. We are looking for opportunities for it to be changed within the existing legislation. Looking forward to the wider work, I am conscious that we have a stage 3 review. The MacDermid review is being taken forward independently, but I will certainly be looking for opportunities to update and reform the language that we use.

I recognise that there are many aspects of the language that is used within bankruptcy and diligence. It is highly technical and can seem somewhat opaque and esoteric to those who are not initiated into and engaged with that area of law and specialism, which can perhaps create challenges and barriers in the use of such language. That point is addressed in the Scottish Parliament information centre briefing that was prepared at the introduction of the legislation, where it talks about the use of the term “debtor” and the stigmatising effect that that may have. I have had discussions with stakeholders on those issues.

I am conscious that there are long-standing reasons for the use of some of the terminology, and, in making any changes, it is important to ensure that we do not unintentionally create other adverse issues. However, I am very much in alignment with the central point that Mr Stewart has made.

Kevin Stewart

I am very pleased to hear that, minister, because a huge amount of the language that is used in some of the legislation is very outdated indeed—and, in fact, insulting to people.

You talked about changes that can be made in primary legislation. Without doubt, the opportunity for that is there as the Government moves forward with the primary legislation required by the Scott review recommendations. I take it that, when it reaches that stage, you will be willing to ensure that whatever comes out of that review is reflected in the regulations that you set in the future, as you expand from your “starting small” proposal.

Tom Arthur

Yes. In the longer term, given the timescales, I think that any translation into legislation of the outcome of the stage 3 review will be a matter for the next session of Parliament. I imagine that, in the next session, Parliament will want to consider whether there is a wider need to update the language in the primary legislation on statutory debt solutions if such a need is reflected in the review.

Thank you. We will make some progress. I call Colin Beattie.

Colin Beattie (Midlothian North and Musselburgh) (SNP)

Minister, you made reference to capacity in the money advice sector. If I interpret what you said correctly, the assumption is that the existing capacity is adequate to deal with any potential additional work arising from the new initiative. However, concerns have been expressed about the money advice sector having the capacity to deal with supporting people who want to access the mental health moratorium. In addition, I take on board what Richard Dennis said about the likely volumes and the experience that will be gained by individual money advice staff.

Will the Scottish Government provide the industry training and the additional funding that might be needed? Will the Government train all the money advisers who are needed, or will there be specialist money advisers who deal only with the mental health moratorium? In that case, capacity issues will immediately arise. For example, money advisers who operate in a specialised area might not be available locally. How will that be handled?

Tom Arthur

I want to ensure that I provide clarity here. I understand the exceptional pressure that the money advice sector is currently under, which, in many respects, is a consequence of the cost of living crisis. I pay tribute to those who work in the money advice sector, commend them for the invaluable work that they do and recognise the significant toll that it can have on their wellbeing and mental health, which I know has been reflected in evidence to the committee. It is not the kind of job that allows people to just go home at night and switch off. The work that they do stays with them, and I commend all those who do that invaluable work.

As Richard Dennis touched on, we recognise that there is a strong desire across the sector to be involved in the mental health moratorium, but we also recognise—given the numbers involved and the more specialist nature of that particular case load—that there might be a case for taking a different approach. That is why we have flagged that specific issue in the consultation and posed a question on it. The responses that we get to the consultation, any reflections that the committee has in its the stage 1 report, and our further engagement with the sector will help us to land on a position where we can command the broadest consensus.

We are all focused on ensuring that the best service possible is provided for those individuals who require it. I know that money advisers are also focused on that, which is why we are open to the process of engagement. We recognise the sector’s desire to engage, but we appreciate that there may be other means of delivering that support.

Would you like to add anything, Richard?

Richard Dennis

The only thing that I would add is that the Scottish Government already annually funds training for money advisers through the MATRICS programme, which is delivered by Money Advice Scotland and Citizens Advice Scotland. We can tweak that programme if some additional training is necessary. My organisation can sometimes provide that. For example, at the moment, we are going around the country helping people to learn how to complete debt arrangement scheme applications properly and making sure that they get bankruptcy applications right first time.

That is the sort of thing that we can help with and for which there is already good provision. You have probably come across programmes such as Wiseradviser. Although it might take tweaks to the training programme, given the timetable that we are talking about—the documents refer to the first moratorium potentially being available in April 2025—I think that there is more than enough time to make sure that people in the money advice community are well trained and well able to deliver their role.

As some of your witnesses also said, money advisers already deal with people under severe mental stress on a regular basis. There might be a slight change in degree, but there will not be a change in the nature of either their advice or the client group with whom they are dealing.

Colin Beattie

In the previous session of Parliament, our predecessor committee carried out some scrutiny work that mainly covered the debt arrangement scheme. That revealed huge pressures within the money advice sector and the availability of advisers to assist and support people who were in financial difficulty. Clearly, the bill covers a highly specialised area. Providing assistance in that area is not something that will be easy or simple for a money adviser. They need training and expertise.

I think that the minister said there might be only three cases a year, and there was a question of whether that would give someone the level of experience that is needed to give the best support. Is it the intention that every money adviser will receive training or be authorised in some way to make the judgments that are necessary in relation to the mental health moratorium?

Tom Arthur

We have set out in the consultation a proposal on how the process would operate. There would be an initial process with the mental health professional. With regards to how the second aspect—that is, the engagement with the money adviser—would take place, the proposal is for the adviser to ascertain that the individual understands what the process entails, agrees to it and understands that, within the recovery period, there will be further engagement with the money adviser.

As Richard Dennis touched on, money advisers already have an exceptional amount of experience of engaging with individuals who have varying degrees of mental health conditions.

As I mentioned earlier, the position on the overall delivery is reflected in the consultation. I would not want to repeat myself, but although I recognise that there is a real desire among many in the advice community to be involved, a different approach might be more effective.

As I said, we have been stakeholder led in developing the policy and I intend to be stakeholder led in how we implement it. We will, of course, bear in mind Kevin Stewart’s points to ensure that lived experience is brought to bear in the process, too.

Richard Dennis

The deputy convener mentioned DAS, which gives me a chance to tell a story about DAS that I have been wanting to tell the committee this morning. I think that the debt arrangement scheme is now widely thought of as something that Scotland can be really proud of. Through the scheme, 15,000 people have repaid their debts in full and £400 million will have gone back to creditors by the end of this quarter.

However, when the enabling legislation went through in 2002, the scheme did not really work. It depends on how you count it, but there were between 17 and 19 sets of regulations before the amendments that were introduced in 2019, which we think have now got the scheme into a really strong position. That is the one scheme that has grown year on year through the pandemic and the cost crisis. It is working really well, but it has taken us a long time to work out how to get it to work well. Part of the 2019 reforms was about, hopefully, making the work of debt advice bodies on the debt arrangement scheme self-financing. They now get a contribution from what goes back to creditors to pay for the cost of the up-front advice.

It takes us time to develop such measures because they are very complex. There are some really big issues in the consultation. For example, one that we have not mentioned is that we do not propose to give creditors a right of appeal against the award of a mental health moratorium. That is a big issue to grapple with, and I would be amazed if we get it right the first or even the second time. However, I hope that, through working with stakeholders and people with lived experience, and through listening to the debt advice community, we can get to a product that really drives improvement in people’s lives. It might take us a decade to get there.


Colin Beattie

One of the major issues that I am circling round to is whether, when a person contacts a money adviser, there will be the option for a face-to-face discussion. If it becomes a specialised area with only a handful of real experts in the money advice sector, there will be a tendency for them to be focused in urban areas and so on, so people outside those areas might be expected to go online. All the members around this table deal with vulnerable people. I do not know about others, but I do not deal with any of them online. Online contact does not seem the right way to empathise with a person who has mental health issues, and take them through the process. The key question is: will face-to-face advice be available regardless? I suspect that most of it will have to be provided face to face.

Richard Dennis

Curiously, Rethink Mental Illness has found that it does almost all of the work by telephone, and that is people’s preference. However, I completely agree that we need to find a system in which debt advice can be given through the channel and at a time and pace that suits the individual. What suits the individuals who we are talking about will be different to what might be suitable for the general population. Under the scheme proposed in the consultation paper, initially, all the debt adviser needs to do is to explain the scheme to the individual and make sure that they want to proceed. That is as far as the debt advice goes until the crisis is over. That would allow time for face-to-face discussions or discussions through whatever channel the individual wishes to pursue at a later date, when they are in a position to do so.

I really—

I am sorry, but I want to make progress.


The Convener

I have two brief questions about the moratorium before I bring in Gordon MacDonald. The consultation suggests that the Government is considering a public register of people who have participated in a mental health moratorium. Will you share with the committee the reasoning behind that?

I ask Richard Dennis to come in on that.

Richard Dennis

It is about creditor protection.

The Convener

Will you expand a bit on that? We have heard concerns about someone who decides to access a mental health moratorium. Other members have spoken about the stigma around mental health. Given that it would be a public register, what would that mean for a person’s future, perhaps when they are looking for other financial support? Are you not concerned that people who access a mental health moratorium will be on a public register for everybody to see? There are concerns around that.

Richard Dennis

Yes, we are very aware that it could be unnecessarily stigmatising. The person’s existing creditors will be aware, because we will contact them to say, “This individual has accessed a moratorium. Please do not correspond with them. Freeze interest and charges on their accounts. We will let you know when that moratorium reaches the next stage.” In relation to other creditors, people with mental health issues sometimes might not take rational decisions about seeking further credit, for example. Should a creditor have the ability to know whether the individual applying for further credit already has existing financial problems or worries and is already in a moratorium?

The Convener

Does such a public register exist for anybody else who has experienced debt problems, or would it just be for people who have accessed a mental health moratorium? At the moment, when people have unmanageable debts, how would a creditor know that the person is in that situation?

Richard Dennis

If they are in a statutory debt solution, they will be on a public register that is searchable. If they are not, the situation will almost certainly be on their credit report. There is a line of argument—it is not one that I buy, but I will set it out for the committee’s information—that says that, because creditors in making lending decisions almost invariably run a credit report on an individual, that will show whether someone is defaulting on payments on a regular basis. Even if someone is in a moratorium, the report will show that they are not making payments—the defaults will show. One could say that that gives enough protection, but there are some creditors who do not run credit reports and they can be the ones who are most exposed and can least afford any lending that will not have much chance of ever being repaid.

Do you know whether the breathing space in England and Wales comes with a register of people who have accessed the mental health moratorium?

Richard Dennis

It does.

There is a public register.

Richard Dennis

There is a register of all breathing space applications. Those applications are not separated out, but it is my understanding that an ordinary breathing space has an end date on the register but a mental health one does not, so, if you know what you are doing, you can spot whether your clients are on a mental health moratorium.

The Convener

In England and Wales, the breathing space protects people from eviction and extends to preventing enforceable action against someone who is jointly and severally liable for a debt. There is no proposal to include that in the Scottish moratorium.

Tom Arthur

There is a specific question about that within the consultation, which highlights that that is not something that we are proposing, although it invites views on the matter, in recognition of the different statutory protections that exist, for example for tenants, and the fact that, in cases of joint and several liability, other individuals who would be impacted would have access to the various solutions that are available. We will carefully consider the responses to the consultation.

It is in the consultation, but do you anticipate that being something that you would want to include in a Scottish moratorium, to bring it into line with England?

The position that we have set out in the consultation it is that we would not want to do that, but we are asking the question.

The Convener

I realise that the issue of prepayment meters is reserved, but have you given any consideration to how any moratorium would affect those meters? The question is about a creditor’s ability to force a household to use a prepayment meter. Is that something that you are aware of or have considered? I realise that that is a reserved matter, but has there been any discussion with the United Kingdom Government about preventing that?

Tom Arthur

I do not think that there has not been any specific discussion, although Richard Dennis might correct me on that. I am aware that the committee has raised the issue and I would be happy to reflect further on that and to raise it directly with the UK Government as the legislation progresses through Parliament.

Gordon MacDonald (Edinburgh Pentlands) (SNP)

A number of issues about bankruptcy reform have come up during the committee’s stage 1 inquiry into the bill.

The first relates to minimal asset process bankruptcy. A number of organisations, including Citizens Advice Scotland, have called for that to happen more regularly. Currently, a person can apply for that form of bankruptcy once every 10 years, but there has been a suggestion that that should be reduced to once every five years, in line with the limit for full administrative bankruptcy. What is the Government’s view on that?

Tom Arthur

I have already engaged with stakeholders about that. I had a meeting early in the autumn, which I think was referred to by one of the witnesses who gave evidence to the committee. Members will be aware that that is something that we can address through existing powers, under secondary legislation.

I understand the policy intent behind the argument and am also conscious of some of the comments that have been made by witnesses. Although I am sympathetic about what such a measure would seek to do, it is incumbent on me to ensure that we take a rounded view and that there are no unintended consequences. The undertaking that I have given to stakeholders is that I will wait to see what view the committee forms. I am conscious that the Convention of Scottish Local Authorities has written to the committee about the matter.

Richard Dennis

That was not about this matter.

Tom Arthur

I beg your pardon. To correct that particular point, I am conscious that the matter might be raised with the committee, and that there are other areas of suggested change about which COSLA has written to the committee.

I would like to have the opportunity to reflect on the position that the committee arrives at on this matter and to have further engagement with those who might have an interest in this particular area. I am sympathetic to what such a measure would be seeking to do, but it is important to hear a broader range of voices. I will have further engagement with stakeholders on the matter in the new year, when I have had an opportunity to consider what the committee has to say.

Gordon MacDonald

I also want to raise the issue of the discharge of trustees. Currently, there is no automatic discharge. Where a debtor is either uncontactable, unco-operative or just cannot be found, that can result in a trustee being in post indefinitely. If the trustee is an insolvency practitioner, it can mean that there are on-going charges that eat into the money that is available for creditors. Both the Institute of Chartered Accountants of Scotland and the Insolvency Practitioners Association have called for a solution to the issue. What is the Government’s view on the automatic discharge of trustees?

On that specific point, there has been some consideration. I will ask Richard Dennis to provide some of the detail.

Richard Dennis

I think that we accept that there is an issue. Trustees have accepted those appointments, so they have gone into it with their eyes open, but I do not think that it is sensible to continue to administer a bankruptcy through annual reviews and through paying my office an annual fee, forever, when there is no chance of resolving it. We accept that there is an issue and we are working with those organisations to see whether we can come up with a solution. It might be included in this legislation or elsewhere.

Gordon MacDonald

The other issue that came up was extending the timescales for serving a bankruptcy petition, where it is difficult to find the debtor or the person lives quite far away from the central belt, where a lot of the sheriff officers are based. Is that something that the Government is looking at?

Yes. We are going to have further engagement and discussion on that to see whether we can find a solution.

Gordon MacDonald

My last question relates to interest. I understand that a recent court case suggests that, where a bankruptcy is recalled, the law has been left in a bit of a state of flux, because interest may or may not be payable. Again, the Law Society and ICAS have asked for that to be reviewed and have suggested a six-month period, after which interest can be charged. What is the Government’s view on that?

I will ask Richard Dennis to come in with the detail on that.

Richard Dennis

I might actually ask James Clelland to help me on this one. Recall was designed for when bankruptcy has been awarded in error and you want to put the individual back in the position of not having been made bankrupt. We think that the law is pretty clear. One of the conditions for recall is that you can pay your debts in full. Does that include interest? We are pretty sure that the law says no, it does not. We were involved in that case—His Majesty’s Revenue and Customs thought that it was due interest, we thought that it was not and the court decided on our side.

That is fine if the recall has happened six months after the bankruptcy, but what happens if it happens five years after the bankruptcy? Was recall designed to deal with that situation? Probably not, but there is nothing to stop the individual applying for recall as soon as they can repay their debts in full. It is probably one of those areas where a solution is very complicated. There are not many recall cases every year, but I think that we accept that there is an issue there. I am just not entirely sure that I would know what to do about it.

James Clelland, do you have anything to add?

James Clelland (Scottish Government)

There is not much more that I can add, based on what has been said already. The case was HMRC v Accountant in Bankruptcy, and the position in that case was that interest would not be paid if recall of sequestration happened. Therefore, the matter is subject to the final policy position.

Okay; thanks.

The Convener

I have a couple of questions on diligence reform. We received some representation about the arrestment reforms in the bill. The banking sector was particularly concerned because the bill would mean that banks and employers would have to tell creditors why attempts to arrest a debtor’s assets had been unsuccessful. That would change the current situation, in which they do not have to inform creditors. They are concerned about extra costs and wonder whether, rather than requiring arrestees always to provide a reason why an arrestment has failed, the Government would consider arrestees being required to respond only if they are asked why an arrestment has failed. I do not know what discussions or reflections the Government has had around that.


Tom Arthur

We have had engagement specifically with representatives in the sector. We recognise that the reform places an additional requirement, but we think that we can work to ensure that the process is suitably streamlined, efficient and straightforward, so that the policy’s intended benefits can be realised. Richard Dennis might want to comment on the engagement that we have had.

Richard Dennis

Part of the problem with diligence is that we have so little information about what is effective and the impact on the person who is subject to diligence. I cannot tell you how many diligences succeed, because we do not know. I cannot tell you how much money is got back through diligence and I cannot tell you which diligence is the most cost effective, because we do not have the data. The proposal is an attempt to start building an evidence base, so that we can start to assess whether the system is efficient or effective.

I am assuming that, when a bank has an arrestment served on it, it already has to check its system to see whether it has an account for that particular individual and the level of funds in it. The banks already have to do that work. The extra burden that we are putting on them is not only reporting that information up their chain, but reporting it to us. With sheriff officers, we should be able to design a way in which that can be done very cheaply and quickly, and we will do our utmost to do so. Yes, it would impose an additional burden on the banks, but I hope that it will lead to a better diligence system, which will be worth the costs.

The Convener

Thank you.

The other issue is around calls to reform diligence against earnings. The minister has recognised that we are in a cost of living crisis and the Government previously increased to £1,000 the threshold for bank accounts. He knows that there are calls for a similar move to be introduced for earnings, so that there would be a £1,000 threshold before money could be seized.

I suspect that the minister is going to tell me about stage 3 of the review, but we heard in evidence that, for some people, that is too long to wait. There are people in desperate situations and the amount that is able to be arrested from earnings is causing additional pressures on them. We are not talking about people in wealthy households. It is about whether we can increase to £1,000 the amount that is protected.

There have also been calls for flexibility. I cannot remember, because I did not write it down but I think that, at the moment, the protected amount is about £656. For the creditor, perhaps there could be some flexibility, rather than there being a set amount. There are calls for that to be done, and the bill is an opportunity to do something about it rather than wait until stage 3 of the review has concluded. We have increased the threshold for bank accounts, so that change would bring earnings in line with bank accounts. The arguments for the bank account threshold to be increased that were made at the time also apply to earnings arrestment.

Tom Arthur

I am conscious of those calls. As you highlighted, we have already made changes around earnings arrestment for this year. I am content to give further consideration to that, through engagement. We can make changes to the threshold through existing powers in secondary legislation.

I am conscious that various proposals have been brought forward. It is about understanding the underlying rationale for a particular amount and how it could be related more widely to other factors. I am happy to give that consideration.

COSLA had flagged up that particular point in correspondence with the committee. I want to ensure that, in taking forward consideration of the matter, I hear the broadest range of voices and opinions. No one would be unsympathetic to the policy intent, and we are looking to explore what, practically, could be done to increase flexibilities and variance.

However, I want to ensure that we still have a system that is efficient and straightforward to administer and does not lead to unintended consequences. I particularly recognise the perspective of local authorities, as one of the primary users of that particular diligence. We must take their opinions and views into account as well.

Richard Dennis

I would add that there is a third party involved—it is not just the creditor and the individual, but the employer. Our habit has been to raise those thresholds once every three years from 1 April, with at least four months’ notice. That allows the software providers who provide employers’ payroll software to make adjustments. Every time that we adjust the thresholds, it imposes a cost for software providers as well as employers. If you were to change those things too rapidly, too often, the burden would become significant.

The Convener

That would not have to be done too often, because it would be a move from the current amount to £1,000, so that the level is the same as that for bank arrestments. I think that that would happen infrequently.

Richard Dennis

We are talking not only about raising the threshold, but also about the possibility of varying the amounts for agreement between the creditor and the individual.

The Convener

My understanding is that you could do both—we would welcome them both. However, one or the other would be helpful and would ease the situation for people.

I have a final question before I bring in Evelyn Tweed. The minister talked about unintended consequences. Has any consideration been given to whether increasing the bank account protected level from around £650 to £1,000 has had any adverse consequences or presented any challenges? I appreciate that there are differences between earnings and bank accounts.

That came into effect relatively recently.

Richard Dennis

I thought that one of the compelling arguments that demonstrated the sense in doing that was that universal credit payments were getting larger. You want to protect the universal credit payment when it arrives in a bank account. As you know, it was widely assumed that as soon as money arrived in a bank account, it lost its special privileges—it could be treated as just money, regardless of the source—and it became arrestable. It could not have been the Parliament’s intention for somebody to be paid universal credit and then for that money to be paid straight to a creditor.

There was recently a court case in which the sheriff took the view—I will get James Clelland to bail me out with the reference—that you could not arrest income when the client’s sole income was from benefits, meaning that the money in the bank account must have been their benefit payments. However, up until that judgment was given, everybody thought that the law was the other way around.

Tom Arthur

I would be happy to have further conversations about that. I would be keen to get a sense of the committee’s view in the light of the views that others might express. We are having to take account of the impact that varying provision would have on employers. With regards to uprating, there is the question whether that is an exceptional one-off event, or whether the committee takes the view that there should be an underlying rationale for a more predictable rhythm of uplifts to reflect other circumstances, such as prevailing economic conditions. We need to recognise that, as well-intentioned as any such decision would be, it also creates administrative and compliance burdens for others, which we would want to take into account.

The Convener

The committee has heard compelling evidence of the impact that earnings arrestment has on people—a survey was done by one of our witnesses. You mentioned COSLA; it does affect council tax debt and the families concerned are on pretty low incomes. To put a bit of ease into that system would be helpful—probably more helpful than what the mental health moratorium could provide at this point in time.

Tom Arthur

I recognise the issue. If arrestments are taking place that are inhibiting people from paying their council tax, that creates an additional problem. I know that witnesses have raised that issue. I am happy to have further engagement about that, recognising that we have the means to address that through existing powers and secondary legislation.

Evelyn Tweed (Stirling) (SNP)

Good morning, minister and members of the panel. There are concerns that the debt advice and information package is too technical and too long and that it does not get key information across to people who are in debt. What is the Scottish Government doing to review the content of the leaflet and should it be available in an interactive format?

In true “Blue Peter” fashion, I already have a copy of the leaflet to share with the committee.

Ta-da! Here’s one I prepared earlier.

Tom Arthur

I can confirm that we are reviewing the contents of the leaflet and that we will engage with representatives of the advice sector. Picking up on Kevin Stewart’s point, we will do further engagement with those who have direct experience of using the leaflet to help inform the consideration and review process. We have copies of the leaflet available for any member who is interested and wants to consider it in more detail.

Evelyn Tweed

That is good news.

Minister, you will be making various regulations as part of the wider reform of diligence. I understand that some of those reforms may have a bigger effect than anything that is in the bill. Given their likely impact, will you commit to further public consultation on proposals relating to information disclosure orders, inhibition and summary warrant before doing so?

Tom Arthur

I have committed to further engagement, and if the committee’s view is that that warrants engagement at the consultation level, then I am happy to consider that. I recognise some of the issues and sensitivities that have been raised, and I am committed to further engagement. Richard, is there anything that you want to add?

Richard Dennis

I would just say that there is quite a strong link between information disclosure orders and bank arrestments. The costs that banks are—rightly, I think—raising as a concern, are partly because sheriff officers have no idea where the client has their bank account. I think that the practice is to serve an arrestment on the four main clearing banks. If sheriff officers can use information disclosure orders so that they know where the client has a bank account, that will reduce the number of bank arrestments by 75 per cent.

The Convener

I thank the minister and the other witnesses for joining us. That brings us to the end of the evidence session. I briefly suspend the meeting for a changeover of witnesses.

10:27 Meeting suspended.  

10:40 On resuming—