Alan McIntosh begins the first of a series of blogs he will be writing exclusively for The Firm on Scotland’s coming Bankruptcy law Reform.
It goes without saying that policy that underpins the decision to make legislative reforms, or not as the case may be and is based on premises that are not supported by evidence, produces bad laws or allows bad laws to remain in place.
We have already seen this in relation to the Bedroom Tax and calls to amend S16 of the Housing (Scotland) Act 2001. The Scottish Government’s position is that such reforms are not necessary because if local authorities adopt no eviction policies, then there will be no evictions. However, as tenants throughout the country begin receiving threatening eviction letters from Housing Associations (and councils), such reassurances deliver no comfort.
Equally as dubious is the Scottish Government’s stated intentions that in the coming year they will rebalance Scotland’s personal debt laws by introducing a series of legislative reforms that will make it fairer and more effective.
This may appear reasonable, but when the premises that such legislation is being built on is unfounded, such as the Scottish Government’s view that financially distressed debtors are not paying enough, it should come as no surprise to realise we may end up with debt laws that are unfit for purpose and cause untold hardship.
Evidence of this is transparent in the first of the Scottish Government’s measures to reform the law in this area. The Debt Arrangement Scheme (Amendment) (Scotland) Regulations 2013 should send a warning blast from the whistle of Scotland’s personal debt flagship. It’s not that it doesn’t introduce some welcome reforms, such as the ability for debtors to get adverse decisions reviewed and widens access for joint couple applications; but it also introduces provisions that will reduce the length of time many will be allowed as payment breaks and most worryingly, it doesn’t use the Parliament’s full powers to protect debtors from the rising problem of pay day loans by freezing interest at the earliest opportunity.
This is particularly concerning as arguably a more pressing issues is the number of Debt Payment Plans (DPP) that are being revoked. There is some evidence to suggest that if the Debt Arrangement Scheme was any other financial product, promoting it to debtors could be mis-selling. Recent statistics show that although the numbers applying last year increased by 39.6%, other figures show the number of cases being revoked are now averaging 12% annually, which with the average lifespan of a DPP being 7.2 years, suggests significant numbers will never be successfully completed (in actual fact the figures for the last quarter of 2012-13 showed 21% revocations).
There is no evidence based insights into why such levels of revocations are occurring; however, a strong likelihood must be that in these times of austerity, debtors are struggling to sustain long term repayment plans. Considering it is the Scottish Government’s intention to try and make the Debt Arrangement Scheme the default remedy for all debtors, unless they can satisfy some contrived test that personal insolvency is the better option, this must be a cause for concern. Debtor’s paying for years and getting no resolution to their problems is not a remedy.
It also comes as no comfort, in light of this, that the Scottish Government has also recently announced it intends to draw up new spending guidelines which all debtors will be required to use when calculating how much they can pay towards their debts. These figures they have previously announced will be more stringent than those currently used by advice agencies in the UK and which are accepted by the British Bankers Association and Financial Leasing Association.
It’s not as if there are no recent examples of bad policy making that the Scottish Government could learn from. Last year they made another presumption that wasn’t evidence based and which they didn’t consult on: that low income, low asset bankrupts could afford a 100% increase in the application fee from £100 to £200. Despite evidence to the contrary from Money Advice Scotland and Citizen Advice Scotland the changes were rushed through and the result was a 58% reduction in the number of poor debtors who were able to access the remedy.
It must be accepted the Scottish Government have made some concessions on their initial debt law proposals, but most of these have been to the money advice, creditor and insolvency industry. Those that have not been consulted yet have been the consumers who are financially distressed and who will be most affected by the reforms that are in the pipeline.
It can be in no-one’s best interest for tens and over the long term, hundreds of thousands of consumers to be left cash strapped and impoverished because of debt; particularly as the vast majority of those creditors they owe are in actual fact high street banks and lenders who have been bailed out by the public purse (and very often have sold on the debts for pennies to debt purchasers who speculate on profiting from diminished returns).
The truth is the proposition that is being advanced by the Scottish Government that debtors are not paying enough and can afford more, has no evidential basis. The arguments are based on the same Jeremy Kyle School of thought that underpins much of the UK Government’s benefit reforms. On the contrary, there is substantial evidence of poverty being a problem for many debtors and the only evidence of systemic failure that exists, is not in Scotland’s current debt laws or insolvency industry, but in the credit industry that left so many debtors with unaffordable levels of personal debt.
Over the next couple of months I hope to review in more detail the Scottish Government’s plans for legislative reform, highlighting the good, the bad and the ugly of what is being proposed. I also hope to show what is being developed is a personal debt strategy that in many ways risks being based on unfounded premises, antiquated prejudices and in some cases an outdated, Dickensian attitude towards debt in a modern, credit based economy.