Alan McIntosh: Scotland must act to avert a problem debt crisis
Alan McIntosh explains why it is “vital” that the amendments proposed by Jackie Baillie MSP to the latest coronavirus bill are implemented.
The role of the Scottish government in this crisis is to protect its citizens, and as we move through this COVID-19 crisis and diverge from the rest of the UK in how we respond to it, that responsibility is now greater.
However, like with the public health crisis, Scotland is now in danger of being unprepared for the next stage in this crisis: the problem debt crisis.
With both the Coronavirus (Scotland) Act 2020 (No1) and the Coronavirus (Scotland) (No 2) Bill, it now appears the Scottish government is adopting a financial herd immunity doctrine of hoping if we let problem debt move through our society unhindered, we can minimise the inconvenience that it will cause for the rest of us, who will be okay (jack).
In both pieces of legislation, the Scottish government has shown itself reluctant to face the scale of the problem, especially when the financial support schemes of the UK government and the Financial Service Authority are scaled back.
However, if experience tells us anything, the financial failure spreads through a society and impacts a large number of people, even the financially fit, unless contained.
It is for these reasons, two amendments that have been proposed by Jackie Baillie MSP to the Coronavirus (Scotland) (No2) Bill 2020 are so vital.
The first of these, is to amend the Bankruptcy (Scotland) Act 2016 to ensure that statutory moratoriums, which can be used to protect people from diligence and sequestration, are also used to protect consumers from having interest, fees, penalties and charges applied to their debts.
Such a measure being introduced now would amount to the Scottish government introducing what the UK government is already planning for the rest of the UK and is likely to introduce later this year, or early next year; and in all likelihood will be introduced into Scotland’s Statutory Moratorium at some point anyway. The UK government has already consulted widely on their Breathing Space Scheme with creditors.
It is also a measure that will improve the chances of those most affected by the COVID-19 crisis, of being able to ride it out, without seeing their debts increased by hundreds, if not thousands of pounds. This, in turn, will increase the likelihood they will find a solution to their over-indebtedness, that is not a personal insolvency solution, and most likely to be the Debt Arrangement Scheme, which ensures creditors get paid in full.
The second amendment proposed by Jackie is to waive all application fees for bankruptcy applications.
This will allow more Scots, where they cannot repay their debts, to access appropriate debt relief, without having to overcome the financial obstacles, that independent research, commissioned by the Scottish government has shown, often leads to financial hardship, people going without essentials and the most vulnerable having to borrow money on the eve of their bankruptcy.
This proposed amendment builds on what the Scottish government have already proposed in the bill, to introduce fee waivers for those applying for Minimum Asset Procedure (MAP) Bankruptcies, providing they are in receipt of income-based benefits. That proposal, however, fails in its aim to protect the most vulnerable, and will not apply to those who are in receipt of New Style Jobseekers Allowance and Employment Support Allowance, despite the fact they will now often receive less than those on income-based benefits like Universal Credit.
Equally, it will provide no relief for those whose debts are more than the Scottish government’s new proposed debt cap for MAP Bankruptcies of £25,000, even if they themselves are dependent on income or contribution-based benefits.
Jackie Baillie’s amendment, however, strikes the correct balance in that it recognises even those who can pay towards their bankruptcies in Scotland, now do so for four years, unlike those in the rest of the UK, who only pay for three years; therefore meaning trustees in Scotland have more time to recover the cost of administering the procedure and returning money to creditors.
This renders an application fee increasingly hard to defend, even for those who can pay something, as they are now paying more and for longer.
It also acknowledges that it is fundamentally wrong that with bankruptcy we require the poorest and most vulnerable to pay an application fee (often several weeks benefit income), whilst requesting no such fee from those granting trust deeds or applying to the Debt Arrangement Scheme, even though they can always afford monthly contributions to their debts.
The Coronoavirus (Scotland) (No 2) Bill 2020, at Stage 3, will be debated in the Scottish Parliament on the 20th May 2020.
Alan McIntosh (LLB Hons) is a money adviser and writes in a personal capacity.