Meeting of the Parliament

Meeting date: Wednesday, December 18, 2013

Official Report 832KB pdf

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Bankruptcy and Debt Advice (Scotland) Bill: Stage 1

The next item of business is a debate on motion S4M-08610, in the name of Fergus Ewing, on the Bankruptcy and Debt Advice (Scotland) Bill. I call Fergus Ewing to speak to and move the motion. Minister, you have 14 minutes.

14:40

I thank Murdo Fraser and the members of the Economy, Energy and Tourism Committee and its clerks for producing a sensible, considered and helpful stage 1 report. The bill will address one of the most serious problems that Scotland faces in the 21st century—debt, specifically unmanageable debt, which can give rise to bankruptcy.

I am pleased to say that the Government has been active on this important issue in a number of respects. First, we started out with a vision that was developed by the Accountant in Bankruptcy for what we call a financial health service for Scotland. Over the course of this year, we have been building on that vision and have translated it into the bill that is before us today.

Secondly, this year we have acted on payday loans. With others, we have pressed home our campaign to have the United Kingdom Government place a cap on the interest rates that are charged for payday loans. Just last week, I welcomed the Financial Conduct Authority’s decision finally to impose that much-needed cap. Of course, as we debated last week, the Scottish Government believes that that could and should happen sooner than 2015. We argued that it should happen in April next year, and we will keep pressing the UK Government to bring the cap in as soon as possible. As I informed the chamber last week, I have written to Jo Swinson, the UK Minister for Employment Relations and Consumer Affairs, to make that point. I recognise that there has been some movement on the regulation of payday loans, as I informed Jo Swinson when I met her fairly recently, and we welcome those steps forward. Nevertheless, we think that the cap could be introduced earlier.

Thirdly, in July our changes to the debt arrangement scheme delivered greater protection from accumulating interest and charges. In the first half of this financial year, almost a quarter of the people who entered the statutory debt solution in Scotland chose debt management instead of debt relief—a fact that shows the continuing, year-on-year success of the debt arrangement scheme, which allows people to pay off their debts rather than seek to write them off.

Fourthly, this autumn, in regulations, we made changes to protected trust deeds to ensure, inter alia, that contribution payments cannot be taken from a debtor’s benefit income.

Fifthly, more recently, at the Grampian Credit Union in Aberdeen, I launched our 12 days of debtmas campaign. The campaign will raise awareness across Scotland of the negative impact that high-interest borrowing can have. It also promotes credit unions as an ethical, sensible alternative. After this debate, we will have John Wilson’s members’ business debate on the topic, which I welcome. I am pleased to inform the chamber that, thus far, more than 18,000 people have visited the campaign website. A lot of members have worked hard on the campaign, including Kez Dugdale. I do not follow the programme “River City” avidly, but I know that it is promoting the issue and the real-life consequences that debt has for people. It is truly an issue of our time, and we are promoting it through the 12 days of debtmas campaign, which we will debate later.

Those are five positive, active and concrete steps that we have taken this year. All those initiatives support our vision of a financial health service, as does the bill, which delivers the most significant change to the bankruptcy process in Scotland for a generation and takes us closer to making the financial health service a reality.

I thank all the stakeholders who took part during stage 1. All involved should be congratulated on a process that has demonstrated the Parliament’s ability to scrutinise complex legislation thoughtfully and constructively.

I will respond to a few of the major points—I am afraid that I do not have time to deal with all the many recommendations—in the committee’s report. First, the committee has asked what impact the requirement that all debtors entering bankruptcy should benefit from advice from an approved money adviser will have on client numbers. If the increase is 8 per cent, which is at the upper end of the AIB’s estimated range, then, based on forecasts for bankruptcies in 2013-14, I am told that the AIB estimates that the change would give rise to an additional 500 cases per annum. That shows that our changes will have a proportionate and manageable impact compared with the United Kingdom’s welfare reforms, which will drive up the need for advice. Indeed, Citizens Advice Scotland estimates the rate of 10 benefit problems for every 100 benefit claimants each year.

Secondly, the committee has expressed concerns about ending automatic discharge in the bill. The key point to make here is that we expect that the trustee will apply automatically for the debtor’s discharge unless there is evidence to show that the debtor has not co-operated. It is reasonable to say as a generality that that is not the case and that, in most cases, debtors co-operate, so that point in practice must be borne in mind. However, we are looking at what would make this part of the process more straightforward and we will see what we can do at stage 2 in order to achieve that. We take the technical criticisms made by bodies such as the Law Society of Scotland on that aspect of the bill very seriously.

Thirdly, the committee has passed on concerns about the £10,000 threshold for entry into the minimal assets process—MAP—which is our new route into bankruptcy for debtors with a low income or an income solely from benefits. I am happy to say that we will come back in January with an amendment to raise the maximum debt level. We are proposing an increase to £17,000. That would set the threshold high enough to enable 75 per cent of all current low-income, low-assets cases to enter the MAP. I hope that that helps to provide the necessary assurance that that important debt relief will be available to those who need it most.

Fourthly, the committee has raised the important issue of bank accounts for undischarged debtors. It is important that we look at that and do what we can to make the necessary provision during the amending stages. I have written to the British Banking Association to enlist its support.

The committee has agreed with the Scottish Government on a number of areas. I am pleased that the committee has agreed with our proposal to extend the payment period after bankruptcy to cover 48 monthly payments. I know that not everyone supports that proposal, but it is important to have a debate on the basis of the facts. First, it is not correct to say that that change would mean that people in Scotland would have to pay back more to creditors than people do in any other parts of the UK. That is because there are insolvency measures in England and Wales, such as individual voluntary arrangements, in which the payment period is usually five and not four years.

Secondly, at the same time as that change comes into force, we will be fixing the common financial statement, which is run by the Money Advice Trust and is already applicable to debt arrangement scheme cases and, from November, protected trust deed cases, as the Scottish common financial tool. That is important, because it means that contributions will be set according to a consistent transparent determination that our research has shown should result in a more sustainable level of contributions. We also recognise, as the committee has done, the importance of providing guidance on the practical operation of the tool to ensure that it works in practice.

Thirdly, it is not true to say that longer payment periods automatically lead to an ever rising rate of breakages. With regard to DAS, for example, the proportion of live cases that are revoked per quarter has remained reasonably stable since 2011-12 at approximately 3 per cent. I think that a 3 per cent breakage rate means that in 97 per cent of DAS cases the debt is honoured or obtempered—in other words, the debtor pays off his debts in full. That is strongly to be welcomed. As paragraph 34 of the policy memorandum says,

“One of the key principles of the Bill is that those who can pay should pay.”

It is my understanding that the European Commission has recommended that, in principle, repayment periods should range from one to three years and that they should be for no longer than three years. I understand that no other part of the UK has a repayment period of longer than three years. Why is the Scottish Government recommending—against the advice of many of the people who gave evidence to the committee—that the repayment period should be extended to four years?

I am afraid that I must correct the member in a number of respects. First, in the consultation process, 27 respondents supported the three-year option and 32 supported a five-year option. Plainly, our four-year option is a compromise, but a majority of respondents supported a repayment period of five years.

Secondly, Ms Marra said that, in England, debtors do not pay over as long a period. Perhaps she was not listening to what I said a moment ago, which was that the individual voluntary arrangements that are used in England and Wales usually last for five years. That is longer, not shorter, than four years. I am afraid that those who argue that the position in England is that debtors do not pay over as long a period do not take account of the fact that the opposite is the case, because individual voluntary arrangements usually—not always, for various technical reasons—last for five years.

If the Labour Party is mounting a campaign, as I understand that it is, I suggest that it should take advice from Tam Dalyell, who knew a bit about campaigning. He said that the first thing that someone should do in a campaign is get their facts right.

Would the minister recognise that there is a difference between an individual voluntary arrangement and bankruptcy, and that he is comparing apples with oranges?

No. I am sorry to have to disagree with the member, because I respect the strong passion that she brings to the topic and the work that she does, but it is simply not correct to say that we are comparing like with unlike. Individual voluntary arrangements are perfectly comparable with the insolvency arrangements in Scotland. The truth is that the Labour Party’s campaign has got off to a faltering start, because it is not founded on the facts.

I have the Accountant in Bankruptcy’s analysis of the consultation in front of me. It contains a qualifying note on the answers that were received to the hypothetical question, “If yes, for how long should the period extend?”, which says that the majority of respondents who answered the question felt that an extension was not necessary. In other words, people answered five years on a hypothetical basis. Will the minister commit to going away and looking at the AIB’s analysis again?

No, I will not, because I have the AIB’s analysis in front of me, as I rather thought that the topic might come up. Question 10.41a asked:

“If yes, for what period?

A) 3 years

B) 4 years

C) 5 years”.

As I said earlier, 27 respondents answered three years and 32 respondents answered five years. A majority of respondents were for a longer period than the one that we are proposing. It could be said that the numbers are evenly matched between three years and five years. That being the case, it is difficult to see how it would be unreasonable to propose four years as a compromise, as it is exactly equidistant between three years and five years.

Another point that must be made is that in Scotland we think that debtors who can pay their debts should do so. As I have pointed out, those who pay under the debt arrangement scheme on average pay for a longer period than we have proposed for insolvency cases. That is because it usually takes longer for people to pay off their debts in full. However, people want to do it—and, in fact, it is what most people do. We should celebrate the fact that most people want to pay off their debts when they can. The bankruptcy process exists to provide debt relief; although such relief should be provided, it should not be an easy option, because that would be unfair not just to those who enter into debt arrangement schemes but to people throughout Scotland who pay their rent or their mortgages not for three, four or five years but for 20 or 25 years and expect those who are able to pay to do so. It will be interesting to see whether this particular campaign is pursued beyond its faltering start when almost every fact on which it is based seems to be wrong.

In conclusion and reverting to the bill’s provisions, I am very pleased to say that, in recognition of the concerns about the funding of the bill’s financial education provisions, we intend to support the roll-out of that programme with an additional £200,000 of ring-fenced funding. I informed the convener of the Economy, Energy and Tourism Committee of this announcement shortly before the debate. I certainly hope that it demonstrates the value that we place on the scheme, and I think that the £200,000 will be money well spent.

Will the minister give way?

I am afraid that the minister is finishing.

I am very sorry—I might come back to the member in my closing speech.

The stage 1 report demonstrates that a lot of solid work has been done on this matter. I welcome the chance to work further with the committee on amendments at stage 2. Indeed, I have indicated a number of areas where we will listen carefully to suggestions and lodge amendments and there are other technical areas on which we will work with all stakeholders. This is a very important bill and I hope that later this evening members will agree to support it.

I move,

That the Parliament agrees to the general principles of the Bankruptcy and Debt Advice (Scotland) Bill.

I call Murdo Fraser, who will speak on behalf of the Economy, Energy and Tourism Committee.

14:57

I am pleased to open the debate on behalf of the committee. First of all, I put on record my thanks to everyone who worked with the committee, including all those who gave evidence; Accountant in Bankruptcy officials; our adviser Nicholas Grier, who, with intelligence and good humour, guided us through the bill’s sometimes very technical provisions; our researcher from the Scottish Parliament information centre; and, of course, our team of committee clerks.

The committee reached some worthwhile conclusions that we hope will improve the bill and the overall bankruptcy and debt advice process. I should say that the minister has already pre-empted many of the points that I was about to make, which means that I will be able to ditch some of my speech. That is very good news because, as it stood, my speech was way over 10 minutes. Unfortunately, however, I do not think that it will be any shorter than 10 minutes as a result.

Although advice and education are separate issues, I will address them together. The committee recognised that support for money advice and financial education was not overwhelming. Although support was expressed by Citizens Advice Scotland, StepChange Debt Charity Scotland and Money Advice, some of that support was more for the idea in principle than for the substance of the proposal. Some felt that it would be better to provide financial education on a voluntary rather than compulsory basis, but the committee concluded that it was important for money advice to be available across all statutory debt solutions. We did not think that money advice would be an unnecessary burden on debtors and, indeed, the process for well-informed debtors could be relatively quick and straightforward. We also supported the mandatory provision of financial education but considered that it would be beneficial to have some form of monitoring or pilot before it was fully implemented across the country.

On the costs of provision, organisations expressed a great deal of concern about the additional burden that would be placed on the advice sector and the fact that no additional resources had been provided in the bill. We took a lot of evidence on this matter, with the money advice sector itself suggesting that it would be looking at a 6 to 8 per cent increase in the number of cases. Although I welcome the additional resources that the minister announced just a few moments ago, I wonder whether he could expand a bit more on that in his winding-up speech and tell us where the £200,000 will come from and whether it is intended to be a one-off or to be provided on an annually recurring basis. I am sure that the committee will be interested in hearing some more detail about that.

On the qualifications of money advisers, we accepted that the quality, standard, relevance and consistency of the advice that is given is important. Citizens Advice Scotland said that advice should be “suitable and appropriate” to debtors’ needs. The committee looked for a response from the Scottish Government to that concern. We also supported the call for insolvency practitioners to be included as approved money advisers, and we are looking for further information from the Scottish Government on how it will monitor the provision of money advice.

Many witnesses told us that they thought that financial education would be better placed in a school environment rather than being only for those who are in financial difficulty. The Money Advice Trust referred to the finding of its research that

“the timing of such educational interventions is crucial”.

We were interested to hear that both the Accountant in Bankruptcy and Money Advice Scotland are developing a module and national standard for financial capability education. The committee is seeking details from the Scottish Government on what monitoring and reviewing it will put in place with regard to the content of that module and the standard, which external bodies will be involved, and its overall approach to teaching financial education in schools.

We heard a lot in evidence about how that financial education will be provided online, but we were conscious that it needs to be provided to everyone, including those who have access issues with online formats, not least because they live in a rural area where broadband is of poor quality.

The committee spent quite a lot of time looking at the common financial tool issue. The common financial statement will allow money advisers and debtors to identify a debtor’s income and outgoings—household expenditure, for example—and what disposable income the debtor then has to pay off their debt. Different views were expressed to the committee. Some people were concerned about the adoption of the common financial statement as the common financial tool. For example, the Institute of Chartered Accountants of Scotland, the Law Society of Scotland and Citizens Advice Scotland referred to flexibility and said that it was too rigid. There were strong concerns from StepChange Debt Charity Scotland, which has its own tool and wanted to continue to use it. In the end, the committee came to the view that it would be preferable to have a single common financial tool and that it was better to go with the one that is proposed in the bill, but we accept that that is a matter of judgment. We also recommended that a cross-section of key bodies be involved in the preparation of the guidance that will accompany the new tool when it is introduced.

The 48-month discharge period to which the minister referred was more controversial. The bill seeks to extend the debtor contribution period from 36 to 48 months, although that could be shorter where a debtor makes sufficient payments from income or assets to settle their debts in full, or longer because the debtor has taken a payment break or because they have agreed to make payments for a longer period.

We heard many concerns about the rationale for that extension. For example, Citizens Advice Scotland was concerned that increasing the contribution period may result in a growing number of debtors who are unable to maintain those contributions and that that may result in increased hardship. Other concerns were expressed by, for example, the Association of Business Recovery Professionals, the R3 Scottish technical committee, the Carrington Dean Group and ICAS, which questioned whether any analysis had been carried out of debtor contribution breakage timescales or the cost benefit to a sequestrated estate of that extended time period. The minister told us that he thought that

“48 months is about right”.—[Official Report, Economy, Energy and Tourism Committee, 6 November 2013; c 3542.]

We heard that again this afternoon. However, strong views were expressed by a cross-section of organisations that took the opposite view. On balance and on a division, the majority of the committee supported the proposal in the bill.

The issue of undischarged bankrupts and bank accounts came up in evidence. That is not an issue in the bill, but it could be addressed at stage 2. I was interested to hear from the minister that he intends to take that forward. I think that the committee would welcome that.

The bill will bring in a new minimal assets process for those with little in the way of income or assets as an alternative to the low-income, low-assets—LILA—route. The Scottish Government believes that the entry criteria will be clearer and will end alleged confusion among stakeholders, and that, since the LILA route was introduced, it has been necessary to transfer a number of cases from it to full bankruptcy, because the criteria for accessing the route were not made clear.

We heard a range of views on the proposal to allow debtors, under the MAP, to exit their bankruptcy after six months. Some, including the Law Society, thought that that period was far too short. The committee recognised that there was a well-intentioned purpose behind the introduction of the six-month discharge period under the MAP. We therefore considered that a cautious approach should be adopted by the Scottish Government, particularly as the MAP will apply to arguably the most vulnerable of the debtors. On balance, we agreed to support the provision, but we invite the Scottish Government to publish one year after the MAP is introduced a report on the impact of the new early discharge provision.

There was a lot of discussion in the committee about the fee level. The bill provides for a fee in the region of £100 to be charged for the new MAP. Citizens Advice Scotland was concerned that there would be a fee at all and said that people would struggle to afford it. Other concerns were expressed about the level of the fee. We heard from the Accountant in Bankruptcy that she must ensure that her organisation balances its books and takes money in to cover its costs. It appeared to the committee that one of the reasons for the use of an application fee under the MAP is to ensure that the office of the AIB, as an executive agency, will be self-funding. Again, the committee was divided on the issue but, after a vote, we agreed that £100 was the correct figure, because we recognised the need for the AIB to cover its costs.

I am sure that the member will recall that the Accountant in Bankruptcy gave an undertaking to see whether it would be possible to reduce the fee to below £100.

Mr MacKenzie is absolutely right to remind me of that fact. I hope that in time that can be taken forward.

The committee heard some concern about the maximum debt level of £10,000 for the MAP. However, I can now quickly move on from that issue because the minister has already announced that the level will be increased to £17,000. I think that committee members will generally welcome that.

Another important area to cover is the transfer of functions from the courts to the AIB. Strong views were expressed to the committee about whether the AIB has insufficient expertise in the areas of law or insolvency practice to take on some of the roles proposed. Understandably, we heard that from the Law Society and those representing insolvency practitioners. We also heard concerns about potential conflicts of interest. To be fair, there was a robust defence by the Accountant in Bankruptcy, who argued that there would be expertise in her office to deal with those aspects and that there would be internal review. In the end, the committee was content to give its approval in principle to the proposed transfer, although we are inviting the Scottish Government to respond to a number of issues.

Will the member take an intervention?

I am sorry, but the member is over his time.

I thank you for your forbearance, Presiding Officer, and will just say in closing that I look forward to hearing the minister’s responses in winding up the debate and to receiving further responses in writing from the Scottish Government. However, it was the committee’s view that, on balance, we should support the general principles of the bill at stage 1.

15:07

Today’s debate and the bill are about how we treat those who have come forward to access the safety net of the state when in bankruptcy and who in an age of recession, payday lenders, stagnating wages and rising living costs are facing the consequences of bankruptcy: the loss of the family home, possessions and even their job.

In this debate, we have an important choice to make that defines the kind of economy that we want for Scotland. In supporting the bill, we can choose to push those in the greatest need further away from financial inclusion for longer—a choice worth making if we believe that our economy should serve those with the assets and wealth to carry on regardless—or we can choose that economies should and can serve a wider social good when they are built to include and empower every person, especially those who have lost everything.

Labour will vote against the Bankruptcy and Debt Advice (Scotland) Bill tonight because we simply cannot accept a bill that recognises the need to fund our bankruptcy service entirely from the fees of the bankrupt. It is a bill that proposes to hold Scots in bankruptcy for longer than in any other part of the United Kingdom and which restricts access to help for those on the lowest incomes.

If Labour intends to oppose the bill, why were the Labour members of the committee happy to sign up to the bill’s general principles?

After reflecting on the whole bill, we think that there are several problems with it, which I will go on to outline. That will explain our position.

Will the member take an intervention?

No; I would like to make a bit of progress.

Let us contrast for a moment the legislation that we have before us today with the debt arrangement scheme that was introduced in 2002 by the Labour-led Executive. That scheme replaced the punitive poinding and warrant sales and, in doing so, empowered those who were in debt with realistic rights, freed them from the threat of legal action and, by virtue of the state intervening, created workable agreements between debtors and creditors. Why? Because the Executive recognised that helping people and businesses to get out of sequestration as quickly as possible and relieving them of the stigma of bankruptcy was in the interests of our whole society.

The consequences of bankruptcy affect us all, from the mental and physical health of those who are going through it and the toll that it takes on their loved ones, to the loss of small and medium-sized enterprises that form the backbone of the Scottish economy. It is in all our interests to ensure that as many people as possible are financially included.

Will the member take an intervention?

No.

That view has been reiterated by the European Commission as recently as 2011, in its report “A second chance for entrepreneurs”. The report states:

“Fear of bankruptcy and its consequences acts as an effective deterrent to entrepreneurship. An effective second chance policy is fundamental to send a message that entrepreneurship may not end up as a ‘life sentence’ in case things go wrong.”

Will the member take an intervention?

I will take it after I have made this point.

Specifically on systems of discharge, the EC adds:

“A modern system for discharge is paramount to reduce the stigma of bankruptcy. In this system discharge should be as automatic and as reasonably limited in time as possible. In principle one to three years could be a good target to aim for. Contribution beyond the period of discharge is not reasonable and all debts should be discharged after this time.”

I am delighted to hear that the member is concerned about entrepreneurs. Is she aware that creditors are often entrepreneurs and small businesses who, at the end of a bankruptcy process, might get only a very small return on their money, if anything at all? Their interests are also part of the scope of the bill.

I am very well aware of that, but the balance is not right in the bill and that is why we oppose it.

In contradiction of the principles that underpin our current legislation, and against the Commission’s advice, which I have just quoted, the Scottish National Party proposes to end automatic discharge entirely and to extend the payment period for bankruptcies from three years to four years when the economy is growing at just 1 per cent, wages are frozen, and fuel and food bills continue to rise. That is an illogical and iniquitous move, and it has been condemned by the Scottish Trades Union Congress, the Law Society of Scotland, the Church of Scotland and others.

I hesitate to say this but I wonder whether Ms Marra has read section 16 of the bill, which does not provide what she is talking about. It does not provide a fixed period of three years. It talks about a period of 12 months, subject to the application being made by the Accountant in Bankruptcy. Does she understand what the bill proposes?

Yes, and I would like to make a bit of progress.

The Government tells us that it is creating a bankruptcy service for the 21st century, but what could be more Dickensian than dragging out the misery of thousands of Scots while placing an administrative burden on the money sector? It is little wonder that, as the minister and I discussed a little while ago, 75 per cent of those who responded to the Scottish Government did not want Scots to suffer under the longest bankruptcy period of anywhere in the UK.

I am confused about the fees going from £200 to £100. It was only last May in the Justice Committee that John Swinney proposed to raise the fee for bankruptcy under the LILA route from £100 to £200. I do not think that the minister was available to come to the committee that day, so the finance secretary came and the reason that he gave for raising the fee was full cost recovery. I ask the minister whether it costs any less now.

We do not think that the taxpayer should be put to extra expense. If the Labour Party thinks that taxpayers should take responsibility for matters for which they do not pay at the moment, it must bring forward budget amendments to that effect and say where the money will come from.

Ms Marra says that four years is far too long a period for debtors to pay, even when they can pay—and they pay for a longer period in other parts of the UK—so why did the Labour members not oppose the period of four years when it was introduced for protected trust deeds, when they considered the regulations in committee?

Mr Ewing knows that all the evidence that the committee took shows that three years are better than four. I am given no comfort by his answer and I remain confused about why the SNP has flip-flopped on the fee, which was raised just last year.

Will the member give way?

No.

Am I cynical enough to suggest that the SNP raised the fee just so that it could reduce it in the bill? I do not know whether that was the case. Maybe the minister will tell us later.

The message that the bill sends is this: when someone goes to their Government for help with debt, the response is to make them borrow more, to pay for that help. No sooner did the minister perform his U-turn and drop the £200 fee, just one year after introducing it, than he U-turned again today on the £10,000 cap, before the bill had even cleared stage 1. We welcome the enterprise minister’s bowing to pressure and advice from people who work in our money advice sector, but his doing so serves only to prove that the SNP has had the wrong principles and priorities at the heart of the bill from the outset.

Scottish Labour has argued that there should be no barrier to bankruptcy for people with the least assets and lowest incomes. Even the £100 fee that the minister proposed is enough to deter people from seeking the help that they need. I am pleased that Murdo Fraser and Mike MacKenzie mentioned that the Accountant in Bankruptcy gave the committee assurances that the fee might be even lower.

I have set out a few of the issues that we have with the bill, and my Labour colleagues will address several more. We cannot and will not support a bill that contains the regressive measures that this bill contains. It is our ambition to build an economy that empowers every person in Scotland, through financial inclusion, and we will not limit that ambition by voting for the bill today.

15:16

I am pleased to speak in the stage 1 debate on the Bankruptcy and Debt Advice (Scotland) Bill and I thank the Economy, Energy and Tourism Committee for its deliberations.

The bill is complex and has many facets, but it is important to keep in mind the overall object of the game. For me, there is a balance to be struck. Statutory debt solutions should be the means of last resort and should encourage, as much as possible, the payment of debts. That is not simply a point of principle. It is important to bear in mind that not all creditors are faceless multinationals who can easily absorb bad debts. We know that the individuals who seek statutory debt solutions might be entrepreneurs, so we should also be aware that creditors might include small and medium-sized enterprises, for whom default on a debt is not an easy burden to bear.

That said, we must shy away from a punitive system of bankruptcy and debt management. In that context, I was interested in some of the findings in the European Commission’s 2011 report on entrepreneurs, which made key points about rehabilitating people who have been through the bankruptcy process and preventing the fear and stigma attached to the process from being a barrier to future entrepreneurs.

We might be surprised by how many of Scotland’s most successful businesspeople faced a very difficult time, particularly in the start-up phase. Accordingly, we should not lose sight of the fact that the difference between a failed entrepreneur and the next big enterprise success story can be very fine indeed. We have many examples in Scotland, such as Michelle Mone; abroad, examples include Calvin Klein and Ralph Lauren.

On the face of it, the bill appears to strike a balance, and I am minded to support it. However there are details that need clarification and further consideration. An issue that must be reviewed is the extension of the period during which a debtor contribution may be made from 36 to 48 months, which members mentioned. If we want to strike a balance between the interests of debtors and those of creditors, the provision is unusual, because there seems to be little evidence that the change will benefit either group. I would be interested in hearing more about that.

The technical committee of the Association of Business Recovery Professionals questioned the benefit to creditors, and charities such as StepChange Debt Charity raised the real prospect of broken repayment arrangements and increasing debt defaults. Indeed, a number of bodies pointed out that the only certainty that the change would bring would be the consequential payment of trustee fees, a point that I am sure is unrelated to the Insolvency Practitioners Association’s broad support for the proposal.

Given that the proposal was omitted from the initial consultation, and given that many respondents to the committee commented on the lack of evidence to support the change, the Government must carefully consider its position.

I appreciate that the member did not have the benefit of sitting through all the evidence sessions in the committee. However, will he take it from me that we heard absolutely no evidence to support the proposal that the extension to 48 months was a bad thing?

That is a difficult question for me to answer as I was not on the committee.

On the debt advice aspect, I am sure that many other members will draw attention to the weight of evidence pointing to how the free money advice sector will cope with any extra demand. I am aware that the Government’s position is that we are looking at an estimated 6 to 8 per cent increase in the volume of cases that are dealt with. However, as a number of groups that gave evidence pointed out, many free advice providers are already at capacity and, regardless of how small the added increase may appear, there is no more room at the debt advice inn.

The other feature of our debt solution framework that the bill must ensure is that there is a good deal of flexibility. That issue apparently cropped up in relation to a number of different aspects, the most obvious of which is the proposed common financial tool. As the committee report stated, there must be scope to

“amend, qualify and justify the data around the debtors’ income and expenditure”.

The Law Society of Scotland was among those who warned of the dangers of such a tool becoming too prescriptive. We should heed those warnings. Indeed, it is that same sense of flexibility that would seem to drive the Government to formalise arrangements over payment breaks—another aspect that we broadly welcomed.

Of course, the danger is that in making statutory provision for such breaks we lose the degree of flexibility that is already there in practice. We must therefore have clarity from the Government on how it will ensure that there is sufficient scope with its proposals to adapt to debtors’ changing circumstances.

The one issue in the bill on which there is a clear difference of view between the committee and the Government is the ending of automatic discharge, which will have to be reconsidered at stage 2. We would all agree with the Government’s motive to provide a stronger link between debtor co-operation and discharge. However, there was a great deal of evidence about the difficulties of objectively judging whether someone has been co-operative, particularly when judged against the proposed statement of undertaking. Again, there must be sufficient flexibility in the proposals for those who are affected by changes in circumstances. Any moves to remove automatic discharge should be approached with extreme caution.

While I wait for the Government to clarify its position on a number of those issues, I am content to support the general principles of the bill at stage 1.

We move to the open debate. We are pretty tight for time so I would appreciate it if members could keep to their allotted time, which is six minutes.

15:22

I thank the committee clerks and advisers and all those who gave evidence to the committee and assisted us in a useful examination of the bill. I would particularly like to thank those who gave evidence in private and who shared with us their difficult and painful experiences as they wrestled with their debts and with a system for dealing with those situations that is not always as good as it could be.

It became apparent when taking that evidence that most of the people who fall into debt do so not because they lack ability in balancing their budgets or controlling their finances, but through misfortune and events beyond their control. Like the committee, I welcome the bill because it is necessary to update and improve the processes for dealing with debt and seek ways to be fairer to creditors and debtors. I fully support the bill’s aim to ensure that appropriate and proportionate debt management and debt relief mechanisms that are fit for the 21st century are available to the people of Scotland.

There has been some criticism from Opposition members that the legislative programme for this year is insubstantial, that Scotland is on pause and that bills such as this are unimportant. I was sorry to hear Jenny Marra, for instance, suggest that this afternoon. However, like me, I think that my fellow members on the committee would disagree with that view and would wish to refute it.

The bill amends the Bankruptcy (Scotland) Act 1985. Imagine if we were restricted to running our computers on the software available in 1985. To the extent that legislation is like a society’s software, most members would agree on the need to update and amend legislation when we become aware of faults and where improvements can be found. The bill might seem to be unimportant, but only to someone who is fortunate enough not to be in difficulty with debt or to someone who is not unlucky enough to be a creditor who has not been paid.

During our scrutiny, it became obvious to the committee that this is a complex and technical bill. That means that there is all the more need for advice to be mandatory for those seeking the most appropriate debt solution and not merely the solution that is most convenient for their trustee.

Along with that, there is a necessity for that advice to be consistent, and that is why it is important that there should be only one debt tool. Although I am sure that the other tools have merit, no one was able to explain to the committee what their superior merit was and, therefore, the choice of the money advice tool seems as good as any other choice. I was glad to note that the tool offers flexibility, so that it is capable of responding to individual circumstances or difficulties. That seems to be essential if such a tool is to be successful and to be the basis of calculating debt solutions that are fair and manageable for debtors.

I think that it is worth noting that, in seeking solutions that are fair and manageable for debtors, the best interests of creditors should also be served, since there is no virtue whatsoever in debt solutions that prove to be unmanageable.

I must say a word about creditors, because their interests are sometimes neglected. An important aspect of any debt solution is the need to be fair also to creditors who have provided goods or services in good faith, in the expectation that they will be paid. I do not share Jenny Marra’s view that the status quo is acceptable. The committee heard evidence that returns to creditors are something of the order of 17p in the pound. That does not seem to me to be supportive of entrepreneurship in the way that Jenny Marra described.

We heard from people who had entered into bankruptcy but who earnestly wished to pay any money that was due, for the sake of their self-esteem. Extending the repayment period to 48 months for those who are able to make repayment is, therefore, reasonable. Despite some concerns about the possibility of that leading to defaults in payment, we were not presented with any evidence to back up that concern.

The member suggested that there was no evidence that people were opposing the four-year period. However, many organisations, including Money Advice Scotland, said that, in this economic scene, it did not make sense to increase the period. There was disagreement.

Mr Malik is correct in what he says, but he and I perhaps have a different standard of evidence. I do not think that someone merely saying, “I don’t think that the proposal is good,” constitutes evidence.

I see that Murdo Fraser is shaking his head, so I will try to clarify the issue. If those who opposed the proposal were able to point to studies of situations in other countries where such a proposal had led to an increase in breakages, I would have accepted that as evidence. However, I do not think that just saying, “I don’t like it,” is good enough.

At the heart of this matter is the need to strike a careful balance between the interests of debtors and creditors.

Before I finish, I must pay tribute to the Accountant in Bankruptcy. In my dealings with it, on behalf of constituents, it has been efficient and fair-minded. I am pleased, therefore, that it will play an increased role in the provision of debt solutions that are efficient, fair and reasonable.

15:28

I draw members’ attention to my entry in the register of members’ interests, where I have noted that I am a Co-operative Party MSP and a member of Capital Credit Union. That will become relevant in a second.

I have a particular interest in this debate, due to the campaign that I have been leading on payday lending. It is important to recognise the changing nature of personal debt in Scotland and the degree to which it is becoming a bigger and bigger problem.

Payday loan companies have been booming only since 2008 and it was in 2012 that they reached a £2.2 billion share of the UK economy, with 8 million payday loans being issued that year. That poses new challenges for the bankruptcy and debt advice landscape, because people find themselves spiralling into debt at a far faster rate than previously, and the debt is created over smaller amounts of money, as was mentioned in last week’s debate. The fact is that £5,000 borrowed from a payday loan company is far more significant than £5,000 borrowed in the form of a personal loan. We need to understand the role that differing interest rates play in that process.

I welcomed the Government’s changes to the debt arrangement scheme earlier this year, because I had been campaigning for them alongside the Govan Law Centre. Those changes were important because it used to take three months for people who applied to the debt arrangement scheme to get on it and, during that application period, their debt continued to accrue interest. If they had borrowed from Wonga, their debt would still be subject to a monthly interest rate at horrific annual percentage rates. The step that the minister took to freeze interest rates at the moment that a person applies for a debt arrangement scheme was very important and has made a considerable difference to the lives of people who have that type of debt.

Given that the minister was so willing to listen to campaigners earlier this year, I had high expectations for the bill and I thought that he would come forward with some more progressive ways and means of taking on payday loan companies. I am afraid that I was disappointed to read the detail of the bill and I will go into three aspects of that.

We have already touched on the issues around discharge moving to a 48-month period and I want to try to address some of them. I am afraid that the minister is wrong: there is a distinct difference between an individual voluntary agreement and a statutory bankruptcy process; they are not the same thing. I ask the minister to find a comparable situation in the UK where a bankruptcy measure exists for more than three years. Jenny Marra is right when she says that it is the longest such period anywhere in the UK, yet the minister dances on the head of a pin to deny that.

I am keen to look at who supports the minister’s position. The evidence shows that not many significant organisations support him; in fact, a broad range of opposition, from Lloyds Bank to StepChange Debt Charity, opposes his position on the four-year issue. Uniquely, he has managed to get the Consumer Finance Association, Citizens Advice Scotland and Money Advice Scotland on the same page in their opposition. Who would have thought that the trade association for payday loan companies would agree with Citizens Advice Scotland that what the Government is saying is a bad thing?

I repeat that 32 of the respondents to the consultation wanted a payment period of five years—longer than we proposed. That is a fact and I will write to Kezia Dugdale to list those 32 respondents.

I am still waiting for an answer to what seems to be a mysterious event. If the Labour members are so strongly opposed to a four-year period of repayment—which seems to be the main reason that, contrary to what they did in committee, they will now oppose the bill—why did they agree to a four-year repayment period for protected trust deeds, which is simply another insolvency procedure?

I will be delighted to answer that point, which I will do in two parts. First, we heard new evidence from StepChange that to move from three to four years could increase the default rate by 15 per cent. Far from getting more money paid back into the system, the mechanism of going from three to four years could lead to more people defaulting and less money going back into the system. That is quite a compelling argument.

The second point is about supporters of the Government’s position on the issue. I find myself sitting against my credit union colleagues on the issue, because the Association of British Credit Unions Ltd Scotland supports what the Government is doing. I will address why I think that that is. I am a proud member of a credit union and a critical part of our debtbusters campaign is the promotion of credit unions, but I think that their support for the Government on this issue is led by the fact that, very often, they are at the end of the queue in the debtor process. They do not have preferred creditor status, so they are at the end of the queue when people pay back their debts. Further to that, they charge much lower interest rates, so they need people to pay back over a longer period to recoup the cost of lending. In that sense, it is no real surprise that credit unions support the Government’s position.

The other issue that I raise in regard to that is that credit unions constitute only 0.5 per cent of all debts held in bankruptcy. Although I support credit unions and I understand the minister’s point, he is making a change to the system that does not reflect 99.5 per cent of the debtor’s estate. He shakes his head, but I would like to hear why that is not the case and I am happy to take an intervention on that point.

Fergus Ewing rose—

You may well be; but, minister, Ms Dugdale has 30 seconds to end.

Perhaps the minister can come back to that in his closing speech.

I will make a small point about the MAP cap—the minimum asset process cap. Currently 100 per cent of people can access the MAP. There is no cap at the moment, but the minister is introducing a cap that will mean that 75 per cent of people can access that process. An example of somebody who would fall out of it is somebody who becomes ill, has their house repossessed, and finds themselves in a position in which they are on benefits, have no assets but might have mortgage arrears. That type of person will be excluded by what the minister proposes. An insolvency practitioner gave me that case study and I would be delighted to write to the minister about it.

There is a lot more to say about financial education, but my time has run out. There is a multitude of reasons why I cannot support the minister today.

15:35

Later today, my colleague John Wilson will lead a members’ business debate on the 12 days of debtmas, as the minister said. Rather than overlapping, the two debates complement each other. The 12 days of debtmas is a Scottish Government campaign that warns people against payday loans and encourages them to join a credit union instead.

As Kezia Dugdale said, credit unions have given important written and oral evidence that informs the Economy, Energy and Tourism Committee’s report on the bill. I will look more closely at what they said about the bill, given their widely recognised role as responsible lenders whose only interest is the financial wellbeing of their members, as opposed to that of shareholders, investors and highly paid banking executives. Credit unions are also in a position to lend to groups who might otherwise have difficulty in accessing finance.

I was pleased that ABCUL welcomed many key measures in the bill. In its submission to the committee, it singled out a number of measures for praise, including the requirement for anyone who seeks debt management or statutory debt relief to receive advice from an approved money adviser, although it emphasised that that person should be independent, which makes a lot of sense.

ABCUL welcomed the measures on financial education, and the adoption of a single standard financial tool to calculate contributions in debt repayment programmes, protected trust deeds and bankruptcies. Crucially, it welcomed the proposal to extend the repayment period for protected trust deeds from three to four years, as well as the proposed power for the Accountant in Bankruptcy to refuse to discharge a debtor who has not complied with the terms of their bankruptcy and who has not co-operated with their trustee.

As the minister said, debt—particularly unmanaged debt that leads to bankruptcy—is one of the major problems that face the people of Scotland in the 21st century. We must take steps to address it, and the bill will do that. Many people run up debts for all sorts of reasons, not least the financial crisis, unemployment and illness. It is in no one’s interests to keep those people in an extended state of penury—that would be inhumane and bad for the country’s economic confidence, particularly in relation to encouraging entrepreneurship—but the bill will not do that. It makes an effort to balance the needs of debtors and creditors.

I welcome the minister’s announcement, in response to the committee’s concerns about debtors, that he intends to raise the cap on entry into the MAP from £10,000 to £17,000 of debt. That will directly benefit the most needy. However, as my colleague Mike MacKenzie said, we must recognise that debtors are not the only victims of debt. Small creditors are often crippled when their bills are not paid.

As a substitute member of the committee, I raised the case of an arm’s-length organisation in my constituency—dgArts—that collapsed two years ago while owing money to a lot of small businessmen and artists. When the committee took evidence, those creditors had still not been paid. One creditor—one of my constituents—contacted me to say that he was owed £1,200 and that he was being offered 12p in the £1, which is below average and would leave him with considerably less money than the insolvency practitioner charged per hour to administer the scheme over two years.

As ABCUL made clear in evidence, there are too many cases in which the main beneficiary of insolvency is the insolvency practitioner.

What the member says is right. Does she think that credit unions should have preferred creditor status in such a process, so that they would be further up the queue when debts are paid back?

I agree with that.

Frank McKillop of ABCUL made it clear in oral evidence that he feels that creditors are at the back of the queue when there is an insolvency. He pointed to cases in which a debtor entered a trust deed and made no discernible adjustment to his or her lifestyle—to the extent of continuing to enjoy luxury holidays.

There has long been a concern about the transparency of protected trust deeds and the fact that the high costs of fees and outlays can sometimes swallow up any return to creditors. The bill is designed to address that through the standard financial tool. As the minister pointed out to the committee, a third of protected trust deeds pay no dividend whatsoever. In some trust deeds, more than half the moneys that are gathered go on administration costs, which can often rise by as much as a quarter over the lifetime of a case.

It is often said that insolvency practitioners have been the biggest beneficiaries of the crisis that began in 2008. An extreme example of that might be the £40 million in fees accumulated by the administrators of Woolworths after its collapse. We are not dealing with that scale of insolvency here but, on a much smaller scale, abuses do occur. That is why I very much welcome the support that has been given to the bill by the Economy, Energy and Tourism Committee. It is a progressive bill that I am happy to support.

15:40

The Scottish Liberal Democrats welcome the fact that the Scottish Government is taking steps to ensure that people are able to access the debt management that they need. We believe that the policy aim of the bill

“to ensure that appropriate, proportionate, debt management and debt relief mechanisms are available to the people of Scotland”

is fundamentally sound. We will therefore vote for the bill at decision time.

Although the ambition of the bill is laudable, we have a number of concerns—some of which have already been raised by other members—which I hope will be addressed at stage 2. First, we must ensure that there is sufficient support for the financial advice and education sector. We therefore support the committee’s view that more work is needed on the provisions for the advice sector to establish whether the requirement for money advice will place an additional burden on those who offer advice.

We also share the view that a pilot financial education project—or, at the very least, careful monitoring of financial education outcomes—may be helpful before mandatory provision, as set out in the bill, is introduced. It seems to me that there is little point in having an enforced system of financial instruction if it cannot be shown to have a positive impact.

Of course, the debt advice that is given to individuals in what can be very difficult and stressful situations must be the right advice, given in the right manner and in a timely fashion. There should therefore be recourse for people who are given bad advice.

We very much welcome the work of the Accountant in Bankruptcy and Money Advice Scotland on developing a module for a national standard for financial capability education. Learning how to budget and manage money better is an invaluable skill to teach our young people. Education early in life on money management and financial services is essential if we are to ensure that our young people have the life skills that they will need throughout adulthood.

I have listened to the minister’s points. Nevertheless, we continue to have reservations on the extension of debtor contribution orders to 48 months. The four-year bankruptcy would mean that those who are in very difficult financial situations would pay for longer, which may cause additional financial hardship. That could lead to debtors breaking agreed payment schedules, as we heard from Hanzala Malik. I think that Margaret McDougall also raised that as a concern during consideration of the bill.

We agree that those in debt should be made to pay back what they can but there is a fine line between ensuring that people pay creditors what they can and pushing people into further financial hardship and misery.

Does Alison McInnes accept that under the debt arrangement scheme, the average period is in excess of six years and that therefore debtors who can pay are paying for six years, which is two years longer than those who enter into debt relief options, either bankruptcy—under these proposals once they are implemented—or protected trust deeds, for which the period will be four years.

I can give Alison McInnes a wee bit of extra time for taking that intervention.

Thank you very much.

I note what the minister says and of course he is correct and I must correct myself—it was not Hanzala Malik who made that comment. It was Kezia Dugdale who pointed to the increase in the debtor default over the longer period. I think that we do need to consider carefully where we are going with that four-year period.

On the removal of judicial involvement and the increased role of the AIB, we share the concerns that were raised by the Law Society of Scotland. The Law Society argues that judicial determination is a fundamental right in cases of sequestration and that conflicts of interest arise with the proposed increased scope of the AIB.

Others have raised concerns about conflicts of interest. For example, the Royal Faculty of Procurators in Glasgow stated in its submission:

“from the point of view of natural justice it would be inherently unfair that the party who decides to seek a bankruptcy restriction order is also the party which considers counter representations by the debtor and is the party who ultimately decides whether or not to grant the restriction order.”

Is Alison McInnes aware that the Government states in its own policy memorandum on the bill that one of the reasons for transferring functions from the courts to the Accountant in Bankruptcy is the pressure that our courts are under from the increasing amount of business, which the Government is not helping by closing our local sheriff courts?

Of course, Jenny Marra knows that I entirely agree with her on that.

We must be sure that the bill is true to its policy aim of providing appropriate and proportionate debt management and debt relief mechanisms for our citizens. We should not muddy the waters with changes that are aimed at producing something that is no more than simply administratively comfortable or easy.

We support the committee’s view that a cautious approach must be taken to the proposal for a six-month discharge period under the minimal assets process. We hope that the Scottish Government will undertake to publish a report on the impact of early discharge after a year, with a view to making improvements if necessary.

Finally, we are cautious about the ending of automatic discharge, and we would like the Government to reconsider its position on the matter. If necessary, grounds for deferral under current arrangements could be widened to include debtor co-operation, which we feel would be a better way forward.

We will support the bill at decision time, but there is still a lot of work to do. Our future support for the bill will depend on whether the concerns that I and others have raised are properly addressed at stage 2.

We have a little time in hand, so if members take interventions I will compensate them.

15:46

To go back to basic principles, I think that we are clear that we need to get these Scottish folk back into economic society. Those who have finished up by not being able to pay their debts should regard bankruptcy as a last resort that is designed to provide rehabilitation and to enable them to make a fresh start. Those who have serious and unmanageable debts need to be relieved of them in such a way that they can get back into life.

I like the idea of a financial health service, which is why I will begin by reflecting on what we teach in our schools. Do we teach our children at home and at school to look after themselves, their bodies and their minds? I think that we do, because it reduces the demands on the national health service later on. Undoubtedly we should, in our schools and our homes, encourage our youngsters to understand how to manage money in such a way that they will do so safely later in life.

Those who do not manage their money carefully and therefore finish up in a financial mess, should, as debtors, be forced to rethink their financial activities and to repay what they reasonably can. They should then be discharged, which is what bankruptcy is all about.

I do not have the answer to every question that has been raised in the debate so far—I will leave that to the minister—but some members have referred to payday loans and credit unions. Perhaps we should consider whether those are actually business suppliers. Let me put it this way: they are suppliers of credit to businesses that are going bankrupt. It seems that most people in business who go bankrupt do so once they have squeezed their suppliers’ credit as far as it can go. I am not convinced that payday loans or credit unions have much to do with that entrepreneurial problem. They undoubtedly have much to do with individual people finishing up bankrupt, but I doubt that that has much to do with entrepreneurship, so I ask members to consider that in their further discussions.

I noted Mike MacKenzie’s comment that most people who go bankrupt do so due to events that are totally outside their control. That suggests that one of the things that we need to teach, and not just at Harvard business school, is that people have to be able not only to add up the pounds, shillings and pence on each side of the balance sheet—I am betraying my age there—but to understand that prudence is a pretty useful thing and that if their business has one big debtor, they are considerably at risk.

I will pick up one or two issues that other members have not addressed. I like the idea of a common financial tool, as consistency has a lot of a merit, and I note the minister’s suggestion that it is more sustainable, which seems to fit the basic purpose.

I note the proposal that money should be deductible from wages, which seems pretty reasonable. There were objections to that from members who pointed out that some folk would lose their jobs in those circumstances. I express a lot of sympathy for that position, but if someone puts themselves in such circumstances, they have to live with the consequences. Generally, if someone does not keep up with payments, the idea of deducting them from their wages seems to have some merit.

Will the member clarify whether I heard him correctly? Does he think that it is appropriate for creditors to be able to go to an individual’s employer and try to seek payment of the debt from them rather than from the individual?

Only in circumstances in which it is claimed that the individual is employed, could be paying the sums and has failed to make the agreed payments on two successive occasions. That is where we are. I will leave it there. The question has been asked.

We propose to replace the low income, low assets scheme with a minimal asset process. The minister has already answered most of the questions about that proposal that were raised at the committee. The restrictions on the LILA scheme are clearly not adequate because people have been trying to get into it when that would be inappropriate. I get the impression that only 75 per cent of those who are currently trying to get into the LILA scheme may be in the right place. The minister is to be commended for his approach.

I will briefly address the further changes that have been proposed so that the courts will no longer have to consider a case when someone goes to the Accountant in Bankruptcy.

Reducing the load on our courts is a good thing—full stop. It reduces the total costs left, right and centre. I would expect sheriffs and lawyers not to think that the proposal was a good idea and, in their shoes, I would say the same thing. I ask that, as we go through stage 2, everybody reflects on where the balance might sensibly lie. If there is a genuine conflict of interest, it might—and probably would—be appropriate to go to the court. If it is necessary to value contingent debts, the courts might well be better placed to do that, although I suggest that there might be others who are also well placed to value contingent debts.

A little bit more thought might need to be given to some of the details in the bill. It is clearly heading in the right direction, but I would commend our giving a little bit more thought as to how some people finish up in the situations that it addresses.

I call Hanzala Malik, to be followed by Christian Allard. I understand that we have some time in hand to compensate for interventions.

15:52

I am honoured to be given the opportunity to speak on the Bankruptcy and Debt Advice (Scotland) Bill. We recognise that it needs to strike a fine balance between helping people who are in financial difficulty to manage their money and helping creditors to get the money that is owed to them.

Mandatory money advice might be a good idea in theory, as that would mean making advice compulsory before someone enters any form of debt solution, but I have doubts about its practical application, as the free advice sector is shrinking and does not have the resources to deal with increased demand. A shortage of good-quality advisers might cause delays in people accessing proper solutions or lead to people taking poor advice. I suggest that money advice should not be compulsory for first-time applicants.

There are other components of the bill with which I do not agree, not even in theory. One major stumbling block is in section 4. The proposed debtor contribution order, which will require the debtor to make payments to his or her creditors over four years rather than the current three years, is unhelpful.

During the evidence sessions, no one gave any explanation of why the period should be increased. There was a lot of opposition to the proposal, however, and a range of organisations suggested that we retain the current three-year period. Money Advice Scotland went so far as to say that

“it does not make economic sense to increase the period of bankruptcy”

from three to four years.

People may say that we need evidence. I stress to the minister that, as an elected representative, I may get three or four people coming to me for bankruptcy advice in a month, but the people who work at the coalface are getting three or four people a day coming to them for advice. I cannot imagine anybody more expert in the issue than them. They understand and take on the responsibility, and they understand people’s wishes. They understand the difficulty that vulnerable people go through and see the hardship at first hand. So, when they say that three years is appropriate, I take that seriously—I do not dismiss it out of hand.

I understand the point that the member is making. However, I do not understand why, if he thinks that the period of four years is wrong, he supported a period of four years for protected trust deeds, which is the other type of insolvency, when the matter came before him. Why did he support four years for one type of insolvency but does not for another insolvency process?

All that I can say to the minister is that, when I listened to the evidence that was given to the committee by the experts, who explained to me the difference that one year would make to a family, that made sense to me. It made me understand the real plight of vulnerable people in our society. Although he and I are fortunate not to face those difficulties and hardships, with sleepless nights and children going without, those people do—they face those things day in, day out—and when the experts explain that to me, I listen, understand and take on board what they say. I hope that the minister will do the same.

An open letter has been released that highlights the deep concerns of those who work at the coalface, who say that the bill is unhelpful. A number of signatories to the letter have suggested that it is not right. Money advisers from across Scotland, led by Govan Law Centre, have said so, and those are the people who work in the field day in, day out. [Interruption.] I have to take that on board, and I have to recognise the voices of people who are concerned and the voices of those who are going through hardship. There is no point in representing people if we are not going to take on board the needs of our communities.

Reducing the bankruptcy fee from £200 is £100 is going in the right direction, but I genuinely feel that some people cannot afford even that. Perhaps we can reconsider the fee and possibly do away with it altogether. There are still people out there who cannot afford it, and because of that they will not enter voluntary bankruptcy. As a result, they have to endure more hardship.

I am not convinced that the bill is balanced as it should be or that through it we are going to represent those in our community who need support and help. I make a plea, for them, that we consider the issue seriously, taking on board their concerns. [Interruption.] We must represent their needs by looking again at flexibility and—[Interruption.]

The increase in the threshold from £10,000 to £17,000 is a good idea, although the Government may want to index link that so that we do not need to amend the legislation later on. However, the period of four years is unfair and unreasonable.

Thank you, Mr Malik. I am sorry that your speech was interrupted by a mobile device. I remind all members that such devices are allowed in the chamber for the purpose of delivering speeches and nothing else. I ask members to check that their mobile devices are switched to silent if they are using them for that purpose.

15:59

Listening to Jenny Marra, I was reminded of a quote attributed to the United States President George W Bush:

“The problem with the French is that they don’t have a word for entrepreneur.”

It seems that the problem with Scottish Labour is that it does not know the meaning of the French word “entrepreneur”.

I should explain that I joined the Economy, Energy and Tourism Committee only recently. As a substitute member of the committee, Joan McAlpine, who has already spoken in the debate, will have attended more meetings than me. Nevertheless, I was delighted to hear that our committee supported the Bankruptcy and Debt Advice (Scotland) Bill at stage 1. I am particularly impressed with the wide support from stakeholders that the Scottish Government has received on the bill. The bill is needed and I, too, welcome it.

Many years ago, like many other working single parents, I experienced a level of personal debt that I found difficult to manage at the time, although I made sure to keep all my creditors informed of my financial situation and sent them regular updates. The reason for that was simple: I managed a seafood export business and spent a lot of my time chasing slow payers in order to avoid bad debts. I therefore saw both sides of the problem. The Scottish Government does, too, and I congratulate it on its balanced and responsible approach to improving the debt management mechanism while respecting the rights of both the creditor and the individual caught in a spiral of debts.

Irresponsible banking practices have brought to many countries debt levels that their Governments are struggling to cope with. The same banks have been pushing businesses into factoring arrangements that protect only the bank, thereby failing the struggling businesses and their creditors, who end up paying for another form of irresponsible lending.

Banks who pushed their customers to take on more loans in the UK did so because of competition. We have all seen the television adverts, and we have all answered unsolicited phone calls telling us how easy it is to borrow money whatever our financial situation.

I am delighted that the minister came to Aberdeen to launch the 12 days of debtmas campaign with one of the organisations that are involved in responding to that level of unsolicited loans. In my North East Scotland region, a number of organisations provide help to those who are struggling with debt. In Aberdeenshire, Gordon Rural Action covers the towns of Ellon, Huntly and Inverurie and their substantial rural heartlands. Its money advice service aims to help people gain control of their financial affairs and achieve the best possible outcome. It has a number of advice centres, and home visits can be arranged for those who are less able to travel. In 2012-13, Gordon Rural Action dealt with 14,718 issues. It is currently handling more than £13 million of debt on behalf of its money advice clients—it uses the Citizens Advice Scotland advice system to do that.

Dundee City Council welfare rights team gives advice about debts and helps, in various ways, people who owe money and are having problems paying it back. It does not make any judgments about why the people who come for advice are in debt; its job is to help sort out the problem, regardless of how the debts arose. It also conducts outreach clinics across Dundee.

Citizens Advice Scotland also provides invaluable advice and support for those in debt, with bureaux in a number of locations across the north-east, including one in my home town of Westhill. Its website also provides useful information on how to stay out of debt over the Christmas period. The point is valid. Unemployment in Westhill is at 0.6 per cent. It is a very rich town and I am very proud to live in such a fantastic place, but it has debt problems, too, and receives the same amount of unsolicited phone calls as the rest of Scotland.

I recognise the progress made in tackling the level of personal insolvencies, with more debtors opting for the debt arrangement scheme. The Scottish Government’s efforts and actions to raise awareness of the scheme have brought a decrease of more than 10 per cent compared with last year, which is a positive outcome, despite the financial climate in the UK. How much more can we do?

The culture of payday loans must be challenged, and we, across the chamber, should make it very clear that a cap on payday loans must come sooner rather than later. As we heard, the minister has called on the UK Government to put the cap in place as early as April 2014.

The political parties in the better together coalition are invited to make a positive contribution to discourage irresponsible credit before the referendum in September 2014. By failing to act, Westminster is sending a strong message to people who live in Scotland: it is only by having the powers of independence that we can bring payday lending under control.

On page 400, in response to question 74, the white paper states:

“With independence, the Scottish Government will be able to act on issues that are of particular concern for Scottish consumers, such as pay day lending and nuisance calls. For example, this Government would introduce a cap on short-term interest rates, similar to those in place in many countries in Europe, Japan, Canada and some US states. The current Scottish Government plans to regulate the advertising of pay day lenders and place restrictions on the ‘rolling over’ of loans.”

The white paper offers a vision for Scotland’s future. It is not only a guide to an independent Scotland; it will also make a great Christmas present—debt free!

16:05

I certainly hope that I do not get the white paper in my Christmas stocking; I am sure that I will not.

As a member of the Economy, Energy and Tourism Committee, I look forward to taking part in the debate. The bill is designed to ensure that the people of Scotland have access to fair and just processes of debt advice, debt relief and debt management but, as it stands, it does not go far enough to protect people who are in debt and it could be seen to favour creditors. That is why I believe that it needs to be amended at stage 2 before I could consider supporting it.

There is much that I could talk about in relation to the bill, such as including access to bank accounts for bankrupts—on which I am glad that the minister has written to ask for advice—and the provision of money advice and how it could be resourced. The minister said that it is anticipated that around 500 more people would seek money advice, but money advice agencies are already under a great deal of pressure. I think that further resources need to be provided to help with the provision of such advice.

The point to bear in mind is that the bill will make it mandatory for people to take advice before they enter sequestration. The evidence shows that 92 per cent of those people who enter sequestration already receive such advice. I am anxious to establish the fact that, because only a relatively small number of people do not presently receive advice, the additional burden that will arise as a result of making it mandatory for people to take advice will be proportionate and relatively manageable.

I will reimburse the member with the time for that intervention.

Thank you, Presiding Officer.

“Relatively manageable” does not mean that the agencies concerned will have the resources to provide such advice.

We received evidence to the effect that clarification is needed of what the bill means by “financial education”. Does that mean education in school or education that would be undertaken when someone enters a debt arrangement? Mention was made of the fact that such education could be provided electronically. As Mr Fraser said, that might throw up difficulties for some people in Scotland, particularly in rural areas that have slow broadband.

Although I welcome the common financial tool, it would be better if provision for it were made on the face of the bill. That would future proof the measure and would mean—as Citizens Advice Scotland stated—that it could not be changed without full scrutiny.

Having made those points, I would like to develop my argument on the extension of the period for debt repayments from 36 to 48 months and the proposals for the minimal asset process, which will replace the low-income, low-assets process.

The proposal to increase the debt repayment period to 48 months is ill advised. Instead of offering debt relief, it will extend the period of hardship. Rather than meaning that people who are in debt will have more time to pay, it will mean another 12 months of payments to creditors and another 12 months of struggle, and it will increase the likelihood of their defaulting on the arrangement.

The change would mean that Scots would have to pay back more to creditors than debtors in any other part of the UK. The majority of respondents to the consultation felt that it was not required and, indeed, that view was supported by a wide range of organisations throughout Scotland such as StepChange Debt Charity Scotland, Money Advice Scotland, Glasgow Central Citizens Advice Bureau and the Govan Law Centre. I heard the minister’s comments about what happens in England but, as my colleague Kezia Dugdale pointed out, he was comparing apples with oranges. Ms Dugdale also gave a very clear explanation of the difference between the two situations.

Will the member give way?

I do not think that I have time to take another intervention.

I simply ask the minister to reconsider at stage 2 the proposed change from the current 36 to 48 months.

I will move on to the minimal asset process—or MAP, as it will be known—which will replace the low income, low assets route. As the committee heard in evidence and as we have heard many times this afternoon, the maximum fee level of £100 will still be prohibitive for many people. However, it is an improvement on the misguided increase to £200 for LILA, a move that Labour and Citizens Advice Scotland did not support.

Citizens Advice Scotland said that having a fee will leave some debtors struggling to afford it, because it is very difficult for people to save up any money when they are in debt. Although I understand that the Accountant in Bankruptcy is to be self-financing, I would like the bill to be amended to allow the fee to be waived. The Accountant in Bankruptcy should have the powers to introduce a full exemption for individuals who meet certain criteria with regard to the ability to pay.

Ideally there should be no fee but, if it is to remain in place, I believe that a fee waiver would go some way towards removing the barriers for those who genuinely cannot afford the £100. Let us remember that MAP is for people who are on benefits or have no assets and that, while they try to save for the fee, the interest on their debts will be increasing.

I was also concerned about the proposal for a maximum debt level of £10,000 for MAP, given that there was no limit for LILA. I am pleased that the minister has reconsidered the matter and will raise the limit to £17,000, but I have to say that I heard no valid reason for making this particular proposal in the first place. StepChange estimated that in 2012 the average debt level of its clients was around £14,500, which means that 50 per cent of its clients would not have been eligible for MAP. Moreover, according to the Accountant in Bankruptcy’s own data, almost 65 per cent of current LILA clients would not be eligible.

You must draw to a conclusion, please.

The Carrington Dean Group, which offers financial advice, stated that the figure is too low and should be more in line with the average level of the debts of those who use the low income, low assets process, which is around £17,000. I am therefore very pleased that the minister has taken those comments on board.

16:13

I welcome this stage 1 debate on the Bankruptcy and Debt Advice (Scotland) Bill. Every member will have their own experiences of dealing with constituents with debt problems. Some might be having trouble maintaining their home or paying their bills, while others might be suffering financially from the present financial situation or as a result of, say, relationship breakdown.

The bill builds on existing statutory debt solutions and previous legislation. It is worth observing that the trend in pursuing one statutory debt solution—namely the debt arrangement scheme—has been growing. Demand for the scheme has clearly increased between 2005 and 2012, with more debtors taking it up, and it is now becoming a common feature of society. I am sure that all of us will have heard the radio and seen the television advertisements for it, and I have no doubt that it has contributed to the 14.7 per cent decrease in personal insolvencies.

Many people would like to pay what they owe, but the situation gets ahead of them. It would perhaps surprise a lot of people that those who fall into debt are not always the type of people who our normal prejudices would suggest. I know people who can run the finances of firms and their work extremely well, but when it comes to personal finance, it is another matter—there can be a bit of a blind spot.

There is no doubt that, as a result of recent tough economic times, people who could once service and manage debt are finding it increasingly difficult to do so. In many respects, we are dealing with a society that is changing over the years and experiencing structural changes, but it is important to recognise that the Scottish Government is attempting to tackle these matters head on.

I am reassured that the desire to provide compulsory money advice and the requirement for financial education are at the heart of the bill. Such support is invaluable for those who find themselves floundering in a sea of financial troubles. Nigel Don referred to the fact that financial education is a requirement for a modern Scotland if we are to progress as a nation. I also support Nigel Don in saying that the Scottish Government’s description of the bill as a financial health service should be considered apt.

The trend for credit card companies to consistently take minimum payments from customers creates a situation in which overall debt takes significantly longer to reduce. The home-owning democracy and credit boom that have been promoted in Scotland since the 1980s have come at a price, especially in times of financial downturn. As I have stated, debt levels have increased. That can be attributed to rising demands, whether from finance agreements or energy costs. Real wages have not increased correspondingly in recent times.

In many instances, there has been real concern that the processes involved in bankruptcy have been unnecessarily bureaucratic and that, although those in the know will have a good idea of how to protect themselves, the ordinary debtor can be at a loss and may not always know who to turn to.

As I have stated, we all know about constituents who are, frankly, at their wits’ end and have resorted to ignoring phone calls or not opening mail when debts have been passed to enforcement companies. Being confronted by correspondence from enforcement companies or phone calls to employers, which a Labour colleague mentioned earlier, can be very intimidating, particularly for vulnerable people, and can lead to further health and social problems.

Lenders need to be aware of the demands from those in the wider community, who own many of the financial institutions as taxpayers. Those same institutions want action to pursue their debts.

The Economy, Energy and Tourism Committee stage 1 report quite rightly invites the prospect of both the UK and Scottish Governments having discussions with the financial sector on increasing contributions from the industry for debt advice. It is important that, in that report, the committee supported the idea of completeness across debt solutions. That is an important principle. People who are in debt are not stupid, but they need to make informed decisions. The need to find the right solution that tackles the debt management issue should be enshrined in legislation.

On capacity issues for those who offer advice to people, including money advisers, it is important that minimum standards are maintained for the consumer. I am reassured that the bill’s intention is to support people in paying their debts while recognising the events that lead to financial difficulty. A balance has to be struck that protects creditors with respect to debtors acquiring additional assets, with a procedure put in place to make it easier for the case to be reopened.

The bill has received broad support from practitioners such as Money Advice Scotland and the Association of British Credit Unions Ltd. I welcome the minister’s commitment to the issue, and it is worth highlighting that the Accountant in Bankruptcy expects to be able to meet the associated costs from within its existing budget.

I ask Labour members to reconsider their opposition to the bill at stage 1 and to use the opportunity at stage 2 to lodge amendments that they feel would be relevant to the bill’s progress.

I welcome the stage 1 debate and the broad principles that are contained in the bill, and I look forward to the bill making the necessary progress through the Parliament and affording the necessary protection to those who are genuinely trying to tackle debt issues.

16:19

I, too, thank the Economy, Energy and Tourism Committee’s dedicated team of clerks, our adviser and the witnesses who contributed evidence.

I welcome the fact that the Government and Parliament have given attention to bankruptcy law. Bankruptcy is one of those things in life that we hope we will never experience or need, but it is important to get it right for those who do end up needing help to get back on their feet and to sort out fairly who can and should be paid.

A quick search of bankruptcy history reveals that it was not always that way. The practice of debt slaves in ancient Greece saw wives, children and servants forced into debt slavery to pay for the husband’s debts, and Genghis Khan’s laws apparently included the death penalty if people went bankrupt three times. I am therefore glad that we now see bankruptcy as a financial health service and a way to reform and reorder people’s finances to allow individuals, businesses and the economy to move on without unnecessary punishment. That said, there are some things in this bill that I would like to see changed, and I will come on to them in a moment.

Debt, including consumer debt, has become a larger part of our lives, which the bill’s policy memorandum recognises. For example, payday lenders, which were largely on the periphery of most people’s lives until the financial crisis, have seen massive growth and now offer eye-watering rates on the high street and on television. If we do not tackle that issue, I fear that our new bankruptcy legislation will be accessed by more and more people in Scotland.

People’s access to bank accounts while they are undischarged from bankruptcy was an issue raised in evidence. There is no point in having a financial health service if people cannot hold a bank account to help them carry out normal everyday chores such as paying bills. The minister has indicated that he is working on what can be done on that, so I look forward to revisiting the bank account issue at stage 2.

I raised the issue of the proposed increase in the debtor contribution period from 36 to 48 months with the minister after we heard evidence in committee that a broad spectrum of organisations was against the move. The minister said that he would continue to

“look closely at all those issues during the bill process.”—[Official Report, Economy, Energy and Tourism Committee, 6 November 2013; c 3543].

I hope that, following this debate on the issue, we can continue to do that and that we find a position in which the risk of payment breakages is reduced.

Citizens Advice Scotland made it clear in its briefing for today’s debate that it thinks that the current balance of three years is the right one for creditors and debtors. Payment failure helps no one, and I hope that the minister will comment in his closing speech on Citizens Advice Scotland’s view and other advice organisations’ position that the three-year period should stay. Their expert comment should not be lightly dismissed.

I am also concerned about the proposals to remove automatic discharge. The minister suggested that he will look further at that issue. The Law Society told us in committee that the introduction of automatic discharge by the Bankruptcy (Scotland) Act 1985

“was seen as a huge step forward that would stop people ending up in bankruptcy in perpetuity”.—[Official Report, Economy, Energy and Tourism Committee, 30 October 2013; c 3489.]

ICAS believed that automatic discharge should be retained to minimise the bureaucracy involved. The Economy, Energy and Tourism Committee shared those concerns: we accepted the principle that

“discharge should be linked to the debtor’s co-operation”

but we were

“not persuaded by the case for the ending of automatic discharge as proposed in the Bill.”

We heard that measures already exist to deal with unco-operative debtors. Debtors can be retained under restrictions of bankruptcy for two to 15 years by a court bankruptcy restriction order, and discharge can also be deferred past the normal sequestration period if that will benefit the creditor. Those appear to be sensible existing measures to address unco-operative debtors. I would need to hear arguments about how they were not working before I could be convinced about the current proposals. The Law Society made it clear that the existing system is effective and that the proposals as they stand are unnecessarily complicated.

Citizens Advice Scotland raised concerns in committee and in briefings for today’s debate that requiring a six-point declaration from the trustee before discharge is unnecessary bureaucracy that will add to trustee fees. As we have heard, there is also concern over how the co-operation of debtors will be interpreted; insufficient detail on that is available, as far as I can see, and the committee has requested some clarity from the Government. The minister addressed that in his opening speech, but I would be grateful if he could confirm that he agrees that the case for removing automatic discharge, as proposed in the bill, has not been made. I look forward to his addressing the concerns raised by members in the chamber this afternoon.

I am minded to support the bill’s policy aims at stage 1, but I certainly believe that amendments are required for stage 2.

16:24

This was a very long process for the Economy, Energy and Tourism Committee, during which I, for one, was particularly grateful for the help that we got from the clerks, from SPICe, and from our excellent adviser, Nicholas Grier. Before most of us were elected, our only experience of bankruptcy was through playing Monopoly, so the wisdom that was imparted helped with the committee’s deliberations.

I must also say—perhaps unwisely for him—that it was our adviser who first referred to the Bankruptcy and Debt Advice (Scotland) Bill by the acronym that is derived from its title. I looked up the definition of that word on urbandictionary.com and it would definitely have constituted unparliamentary language so I will not repeat it. However, I can report that it is a compliment of a sort.

The bill will change an important part of Scots law that, as the policy memorandum helpfully highlights, dates back to the Bankruptcy Act of 1621. Since that act endured for 364 years before being repealed, we can only hope that this bill can reach a similar level of timeless appeal.

This is the right time to be reopening this area of law. Citizens Advice Scotland reports that, in 2012-13, its bureaux took on 15,800 debt cases, with a total debt of more than £186 million. Changes to bankruptcy law and the debt relief model could therefore have a significant positive impact on the advice and support that are available to those clients. I am sure that we have all seen the situation in our surgeries. When the Government consulted, 129 responses were received, which is three times the typical number of responses to bankruptcy consultations.

The Government has already updated the debt arrangement scheme, as Kezia Dugdale highlighted. That system falls short of bankruptcy, but it freezes interest and charges, and prevents further legal recovery in exchange for a full repayment plan. With better access to money advisers under the changes, the number of people who are able to access DAS has been increasing significantly. In the previous parliamentary session, the Home Owner and Debtor Protection (Scotland) Act 2010 was a rapid response to the recession that passed a limited but valuable set of amendments to protect home owners and debtors, and particularly to reduce the risk of homelessness as a result of insolvency.

Today we are debating the Bankruptcy and Debt Advice (Scotland) Bill. I was going to talk about the Chinese walls at the Accountant in Bankruptcy, which I asked about during the committee process. However, I have been impressed by a demonstration of parliamentary pirouetting that is worthy of a Commonwealth gold. It began with the Government being accused of flip-flopping by a party that had just promised to vote against in the chamber what it had voted for earlier in committee. I remember when the Bain principle reared its ugly head—the desire to vote against anything suggested by the Scottish Government or the SNP, and to find and cling to some reason, however tenuous, for doing so. Is that what is inflating what should be a stage 2 objection to detail and drafting into a stage 1 objection to the general principles of the bill? It is certainly not an approach that is shared by other parties that also have concerns about the detail of the bill.

Perhaps the Labour Party members simply did not notice and choked on their cornflakes this morning when they read the article by the Govan Law Centre in The Herald.

It is the principles of the bill that we cannot agree with, because it is regressive. As Mike Dailly points out, it will take us back 30 years. In my opening speech, I talked about the principles of an inclusive economy, and that is why we cannot agree with the principles of the bill.

When I read Mike Dailly’s article, I saw that his argument is against one particular section of the bill that he wishes to see changed. Such an approach could be pursued at stage 2.

When the minister drew attention to the IVA, there were screams about apples and oranges, but apples and oranges have more in common than apples and Challenger tanks. In this case, because IVAs and debt relief orders are statutorily regulated methods for people to get out of uncontrollable debt, I suggest that they have a bit more in common than that. The IVA takes five years, and I remind the Labour Party that an IVA’s most direct Scottish equivalent—the protected trust deed—takes only four.

There are other differences, and IVAs, DROs or PTDs cannot be reduced just to their duration. When the PTD period was increased to four years, the Labour Party did not oppose that.

Let us also remember that bankruptcy is just one of three routes, and that it is a route that we do not want many people to take. Since 2008-09, the DAS rate has sharply increased and bankruptcy has fallen, largely as a result of the changes. I commend the graph on page 8 of the SPICe briefing, which illustrates that well—if this were the United States Congress I might show members the graph on a big whiteboard, but perhaps we have already stretched the Presiding Officers’ permissiveness with regard to technology in the chamber today.

As I said, the bill is timely. Last week, the Parliament had a special visitor, Santa, who told us that payday lenders have been naughty this year, and tonight we will have a debate on the 12 days of debtmas campaign. We have to avoid a situation in which unsecured loans are for life and not just for Christmas—I am here all week.

I remind members that the Association of British Credit Unions welcomed the bill’s principles and said that the bill

“could deliver a debt advice, debt management and debt relief service fit for the modern era and fairer to creditors and debtors alike.”

Members might and do have differences over the detail, but the stage 1 report refers to divisions in only three out of 293 paragraphs. Members who vote against the bill in its entirety will be voting against money advice and education; the standardisation of what is expected of debtors, for clarity and consistency; the minimal asset process’s more flexible income requirements and shorter discharge period; a freeze on the expansion of enforcement beyond DAS; simplification of functions that move to the AIB; and the possibility of payment breaks for undischarged bankrupts.

I urge all members, perhaps more in hope than in expectation, to unite and endorse the general principles of the bill in the stage 1 vote tonight.

16:31

I can see that the minister is seriously in his comfort zone, given that he used to be a legal specialist in debt and bankruptcy. I will refrain from picking arguments with him, particularly on legal and technical aspects of the bill.

This debate has been fairly consensual compared with recent ones. As other members have done, I thank and commend the committee for its excellent work on what appears to me, as an onlooker, to be a complex bill. The report contains many recommendations and there were several divisions. I always look at divisions to see where people ended up, and I was surprised to see from paragraphs 41 and 44 that the Conservative convener, Murdo Fraser, voted with the SNP against Labour and the Greens. That is so unusual that it is worth a mention.

We support the bill. We also support the gist of the committee’s recommendations. The committee wanted further information and more clarity, which is a perfectly normal request in a stage 1 report. That is what the committee is there for and that is what we are here for. I welcome the further information and clarity that the minister provided today on several issues.

When, after reading the report—all 77 pages of it—I printed out the Government response, I thought that the printer had broken down when only two and a quarter pages appeared. I now understand that the response referred only to one section of the bill. That is unusual, particularly given the bill’s complexity. However, I commend the minister for giving us more information today.

Serious concerns have been expressed, which we must respect. The Law Society’s response to the stage 1 report set out significant concerns about 16 sections of the bill, which indicates the scale of the committee’s task at stage 2. I appreciate the Law Society’s concern, given the proposed shift of activity from the courts to the Accountant in Bankruptcy. The removal of the safeguard of judicial involvement in areas in which debtors’ and creditors’ legal rights are directly affected is a bold move.

On sections 36 to 40, the Law Society—rightly or wrongly—talked about an

“unnecessarily cumbersome and lengthy appeal process”.

Other issues that it raised related to conflict of interest, access to sequestration, a lack of clarity in many areas and a

“Failure to deal with the debtor’s home”,

which it described as

“frequently the most problematic issue in personal bankruptcy.”

I have no doubt that further information will come forward after stage 1.

The underlying goal, though, must be that the Bankruptcy and Debt Advice (Scotland) Bill is an improvement on what is in place at present. It is only right and proper that people have access to fair and just processes of debt advice, debt relief and debt management.

I am pleased to say that we whole-heartedly agree with the minister that those who can pay their debts should pay their debts. As Mike MacKenzie, Joan McAlpine and others mentioned, creditors should get the best return possible. That should be possible by balancing the rights and needs of those in debt with the rights and needs of creditors and business.

Paragraphs 40 to 46 of the report relate to the minimal assets process and LILA, as it is being called. That has the potential for an individual to be free of bankruptcy within six months—which I think should be welcome—with a more streamlined procedure. I trust that the concerns raised by the committee and several members today will be addressed at stage 2.

With money advice

“mandatory for one debt solution but not another”,

there is a clear need for a consistent approach. The report said:

“there should be a requirement for debtors to obtain mandatory money advice from an approved money adviser prior to entering bankruptcy.”

Whether or not debtors wish to take that advice, it is a reasonable option. It is hoped that the provision of mandatory advice would increase the opportunity for the right debt solutions to be offered to suit the unique circumstances of the individual.

I have scored out my next three paragraphs, given the minister’s announcement of £200,000 for ring-fenced funding. Like Murdo Fraser, I, too, ask whether it will be recurrent. I am sure that the minister can address that when summing up.

A 6 to 8 per cent increase in cases for Citizens Advice Scotland and others would undoubtedly require additional funding, not to mention training. The committee has rightly sought clarity on the increased workload for money advice services, the monitoring and quality of advice and the performance of money advisers.

Given my age, I can cast myself back to my past life as a volunteer with Citizens Advice Scotland. We all had some debt cases. To ensure continuity, one person would deal with one debtor and meet them regularly. Sometimes, we would find that the debtor would choose to spend money on other things rather than repaying the debt. Many cases continued for several years. That was more than 20 years ago and significant progress has been made since then, including the debt arrangement scheme, whose success was stated by the minister.

There is no denying that the issue is complex and sensitive and requires professional training and handling.

I support the bill. I would say that I fully support it, but there is a bit more work to be done. I wish the committee all success in its future deliberations on the bill, which is critical to the lives of many individuals and families in Scotland.

16:38

I would not entirely agree with Mary Scanlon that this has been a consensual debate, although I agree that it has been a good-humoured debate on what I think is a very important topic.

If you will allow me, I will turn first to clause 4. You may not believe it, but I have been in political debates on clause 4 before—that was many years ago—although that clause 4 was not as pernicious as the clause 4 that is before us today. We have disagreed this afternoon on the number of people who gave evidence who agreed with your recommendation to take the repayment period from three to four years. Minister, I would like to clarify that more people who responded said that they would like to leave it the same, at three years. The figures that you quoted earlier—the 32 respondents who said five years as opposed to the 27 respondents who said three years—were for the respondents who agreed with the period being extended. However, 75 per cent of respondents disagreed with the period being extended. I think that you have been slightly disingenuous with your interpretation of the figures in this table. It is clear from the evidence—the Accountant in Bankruptcy’s analysis of the consultation—that 75 per cent of respondents disagreed with the extension that you propose in section 4 of your bill.

Ms Marra, could you address your remarks through the chair, rather than directly to the front bench?

Sorry, Presiding Officer.

Perhaps the minister can address that point in his closing speech.

In the policy memorandum, the Government draws attention to the fact that our courts are under increasing pressure from civil and criminal business and uses that as a justification for transferring business from courts to the Accountant in Bankruptcy. Given that the Scottish Government is pursuing court closures across the country, the Government needs to stand up today and say whether those closures are having a detrimental effect. The transfer of the business to the Accountant in Bankruptcy leaves us with serious concerns. If those issues have arisen because of the Government’s cuts and its closure of courts, the Government needs to address that.

Let us examine the roles and responsibilities of the Accountant in Bankruptcy. It used to be in receipt of Government funding, but Fergus Ewing reformed the arrangements, saying that the body had to be self-funded, and should exist within the ethos of full cost recovery. However, the bill gives the Accountant in Bankruptcy substantial quasi-judicial functions. That move is riven with potential conflicts of interest. What is more important: the situation and circumstances of the debtor or the Accountant in Bankruptcy’s bottom line? The Accountant in Bankruptcy could become judge, jury and executioner, which leaves us feeling very uncomfortable. If this situation has arisen as a result of court closures across the country that have been instigated by the Cabinet Secretary for Justice, the Government needs to face up to that, and the minister should do so in his closing remarks.

I will turn to other issues that were raised in the debate. Nigel Don raised an issue about creditors taking money directly from people’s wages and directly from the employees. I do not know whether it was a passing remark, but it was certainly concerning.

The member is probably too young to remember the anti-poll tax campaign, but I was a proud member of the no-pay campaign, and my wages were arrested by a Labour council. I know that the member was too young to be involved at that time, but would she like to comment on that rather shameful aspect of her party’s history?

The member is going back many, many years. We are not in favour of anyone’s wages being arrested, now or in the past. I hope that no amendments will be forthcoming at stage 2 to reflect the remarks that were made.

I am seriously wondering whether I heard the member correctly. Is she saying that it is the policy of the Labour Party not to support earnings arrestments for creditors in any circumstances?

Not directly from employers, I tell the member.

The case for removing automatic discharge was made eloquently by Alison Johnstone, and I ask the minister to reflect on that. [Interruption.]

Order. Members should not be speaking to one another across the chamber.

Earlier, Marco Biagi raised a point about the principles of the bill. As I said in my opening remarks, we need to ensure that as many people as possible are participating in our economy. This bill does not facilitate that. Now is not the time to ask ourselves how to get the most from those who have the least. In our post-recession economy, in which wages have stagnated and food prices and fuel bills continue to soar, now is the time to ask how we empower, include and extend the hand of the state to those who need it the most. That is the test that we must apply to the bill, and it is the test that I think the Government has failed at stage 1. I hope that we will see a much-improved bill at stage 2.

I call Fergus Ewing to wind up the debate. You have until 4.59 to do so, minister, so there is time for interventions.

16:45

Thank you, Presiding Officer. I have rather a lot to say, so I am confident that I will be able to fill the time that is available to me—and much more, if more were available.

Mary Scanlon kindly alluded to the fact that there was a time when I knew a bit about bankruptcy law. For some reason, I was accredited as a specialist in insolvency law by the Law Society of Scotland for many years. I once made the mistake of pointing that out in Kilmarnock sheriff court to the great Sheriff David Smith, who is still with us although he is not on the bench. He rubbed his hands and said, “Ah, Mr Ewing—an expert.” At that point, I knew that I had made a big mistake.

I am not an expert in bankruptcy law, but I know enough to know that the technical detail is extremely important and complex, as Mary Scanlon rightly said. In bankruptcy law, it is essential to master the detail and make the best efforts to ensure that we get it right, because the risks are serious. Those risks were manifested back in the Bankruptcy (Scotland) Act 1985, when, without any malign intention, the Scottish Law Commission grossly underestimated the number of people whose bankruptcies would end up being paid for by the public purse and carried out by insolvency practitioners. The bill for that rose to more than £20 million a year.

As a result, Michael Forsyth introduced the Bankruptcy (Scotland) Act 1993. At that time, he was generous enough to give me some credit for campaigning on the issue, together with Tom Shields of The Herald newspaper. My point is that that happened because of unintended consequences. No one ever intended that it would cost the taxpayer £20 million to process bankruptcies of people who had no assets and, very often, modest debts. In some cases, the debts were less than the fees—it was ridiculous. The law was amended, but the point is that we have to study the detail, and we have to master it—I say that to all members who are participating in the debate.

I want to answer a specific question that Mr Fraser and Mrs Scanlon asked about how we compiled the figure of £200,000 in respect of the education responsibilities. That was done after considering representations from the advice sector at a meeting that I held fairly recently involving Money Advice Scotland, citizens advice bureaux and local authorities. We had that meeting to discuss the details of the bill, to ascertain what changes—technical and other—they felt should be made and to consider generally how the education function and a financial national health service in Scotland will operate.

The money is a one-off payment, not an annual payment, because we recognise that for the money advice sector and the individuals who will be required to implement and provide the education, there will be an initial requirement to prepare things such as modules and instruction manuals. Assistance, information and guidance will be required for those who will have to discharge the new functions, and £200,000 is a reasonable estimate of the sum that is involved. It will be allocated to Money Advice Scotland and monitored by the AIB.

Many members have asked about the level of fees for the process. The Accountant in Bankruptcy indicated her view at committee. Plainly, we want to ensure that we keep fees to a minimum. I was pleased to hear Mike MacKenzie pay tribute to the work of the Accountant in Bankruptcy. Of course, when he says that, he means her staff, who actually do the work under her leadership and with the excellent support of the senior staff, many of whom are at the back of the chamber. They do a terrific job and carry out the processes with a high degree of professionalism.

I have met the staff at the Accountant in Bankruptcy office in Kilwinning and discussed their views on how bankruptcy law should be changed. I will always remember that, when they were asked what one thing they would like to be changed in the way in which we handle debt in Scotland, they said that they would like better education, especially for young people.

In the long term, the vision of a financial NHS must encompass and encapsulate parents, teachers, schools, debt advisers, people in business and people in the voluntary sector all playing a part to ensure that we live in a society in which we inculcate in children and explain to them good financial management from an early age. We should do that to counteract what has become the malign scourge of payday loans—a form of venal usury that few people of my age, when we were at university, could have contemplated would be a feature of the system in Scotland.

I am grateful to the minister for providing clarity on the £200,000 sum, which I now understand is to fund a financial education package. That is clear and welcome. Is the Scottish Government planning to do anything to assist the money advice sector, which told us in evidence that it expects a 6 to 8 per cent increase in cases as a result of the bill? Will that sector get any additional resource?

We have worked carefully with CABx and we have an analysis—I have it in my papers somewhere and I will send it to the member—that estimates the current debt case load of CABx. From memory, I think that the figure is about 15,000 debt cases per annum. If that is wrong, I will correct it. I understand that the additional burden will be of the order of 3 to 5 per cent, but we will look carefully at the figures.

We want to continue to work closely with CABx, as we have always done. As Mr Malik said, CAB officers work at the coalface. I was pleased recently to meet Nairn CAB members, who are working with and sponsoring Nairn County Football Club. The CAB is advertising its services at the football club; payday lenders have bought advertising rights at football clubs that are perhaps more successful than Nairn County.

I turn to the bill’s principles. The bill aims to ensure that appropriate and proportionate debt management and debt relief mechanisms that are fit for the 21st century are available to the people of Scotland. As many members said, including Mr Don, there is a balance to strike between the interests of the creditor and those of the debtor. That has not changed since Goudy’s textbook, Meston and the 1985 act, or in more recent legislation.

That balance must be struck. A framework must provide for debt management to allow people to pay their debts and for debt relief for people who cannot pay their debts. Scotland has two debt relief mechanisms—protected trust deeds and sequestration. The bill deals with sequestration, and its proposals have been broadly welcomed by most respondents, including citizens advice bureaux.

The debt arrangement scheme has been an enormous success story. We have gone from just over 400 cases per annum when it was introduced to more than 4,000 cases, which is a tenfold increase. Ten times as many people use the scheme now as when it was introduced. We were grateful when a previous Executive introduced it, before we became the Scottish Government in 2007.

Since then, we have made a number of changes to the scheme. We have introduced payment breaks and frozen interest and charges. We have now backdated the application of the freezing of charges, to avoid additional misery. We have made the scheme more and more effective and more and more people are using it.

It is interesting that the overwhelming majority of people who enter the debt arrangement scheme continue to pay their debts and pay them almost in full—at a rate of 90 per cent. That tells a good story about the people of Scotland. They want in large part to pay their debts. We therefore do not want to do things in the law that would introduce a lack of consistency and transparency and which would discourage people from entering the debt arrangement scheme.

I am told that the average period in which people pay their debts under the scheme is about six and a half years. If we made the period in which those who can pay must pay only three years, they would pay for only half the period for which those who wish to pay their debts in full are on average required to pay. That creates the possibility of the unintended consequence: that some people who are able to pay off their debts in full will instead opt for the debt relief solution, because—

Will the minister take an intervention?

Hang on a second.

Those people will have to pay only for a very much shorter period. That is why at the beginning of the debate I introduced the story of unintended consequences, which we have to be very careful we do not end up with.

Nobody is suggesting that people who can pay should not pay. The suggestion that is being made is about people who cannot pay: people who are vulnerable, need our support and need a leg up to start afresh. For those people, we are saying, “Do not change the law.”

I find it strange that the point does not seem to have been grasped, because it is set out in the bill: those who are on benefits pay zero, and those who are on modest earnings may well pay zero—those who are most vulnerable will pay zero. By and large, we are not talking about those who are most vulnerable, because they are required to pay zero. Indeed, the Government clarified that in the recent trust deed regulations. We are talking about a relatively small proportion of people across bankruptcy who pay a contribution: a contribution is paid in one third of bankruptcy cases. It is totally wrong—it is a misunderstanding of the process, I am afraid—to suggest that what we are doing will result in those who cannot pay having to pay. That is a false assertion.

Marco Biagi hit the nail on the head in his contribution. I will not repeat his remarks, which had a certain force. It is extremely difficult to understand why the chief Opposition party supported the bill at committee but now appears, because its members have concerns about a few of the sections, to be opposed to a bill that is supported by the vast majority of the money advice sector, including Citizens Advice Scotland.

Yes; we can have debates at stage 2 about the detail of the bill—that is what stage 2 is for. However, it is very disappointing that, instead of supporting all the good measures in the bill that Mr Biagi read out, the Labour Party is choosing to adopt—

Will the minister take an intervention?

Ms Marra and I have exchanged a lot of views and I already have on the record all the answers to the questions that she repeated in her closing remarks.

The minister is not giving way, Ms Marra.

Incidentally, as far as I know, the arrestment of earnings process can be carried out only against an employer. That was part of the law of Scotland during all the periods in which the Labour Party and Liberal Democrat Party were in power. Had they wanted to scrap the diligence of arrestment of earnings in Scotland, they had ample time to do so. I am not sure whether that is their policy now and neither, after Jenny Marra’s contribution this afternoon, is anyone else.

I turn to the functions of the sheriff and the AIB, because those are serious matters. In response to Nigel Don’s remarks, I say that we will of course consider the issue extremely seriously. However, it was wrong to suggest, as Jenny Marra seemed to do in her closing speech, that the process began with the bill. That is untrue; it is factually incorrect. The process was begun a long time ago, and was hastened by the Bankruptcy and Diligence etc (Scotland) Act 2007, in which many processes were referred to the Accountant in Bankruptcy that hitherto had been carried out in court. At one point, one had to go to the Court of Session to recall sequestration, at ludicrous expense to private or public funds. It is absolutely sensible that relatively routine matters are carried out by the AIB.

Please begin to wind up.

That will provide greater consistency and clarity and is supported by the Scottish courts administration. The AIB is most certainly not “judge, jury and executioner”, to use Jenny Marra’s phrase. We did not have executions in Scotland the last time I looked, but we are in favour of the effective transfer of process.

The requirement for advice was supported by 93 out of 129 respondents. I am disappointed that Hanzala Malik is opposed to it and is with the minority that thinks that people should not get that advice.

The main issue is the question of what contribution debtors should make, and the Scottish Government’s view is that we are striking the right balance. The proposals that we have set out are designed to ensure that the creditor gets a reasonable turn; that the debtor is treated fairly; that there is provision for payment breaks and variations so that people’s changing circumstances can be taken into account; and that, once the bill becomes law, people in Scotland will receive a system of managing debt that is second to none.