Official Report 738KB pdf
Diligence against Earnings (Variation) (Scotland) Regulations 2024 (SSI 2024/293)
Our next agenda item is?further consideration of? a negative instrument. We discussed the instrument at last week’s meeting and agreed to invite the Minister for Public Finance to attend the committee to answer questions.
The purpose of the instrument is to amend the figures that are contained in part 3 of the Debtors (Scotland) Act 1987, which sets out how much money an individual is allowed to keep before any payment can be taken from wages to recover debts. The regulations increase that amount to £750 a month.
I am pleased to welcome Ivan McKee, the Minister for Public Finance; Richard Dennis, who is the chief executive of the Accountant in Bankruptcy agency; and James Messis, who is the local taxation policy team leader in the Scottish Government. I ask the minister to make a short opening statement.
Good morning, convener and committee, and thanks for asking me to come along to answer questions on the Diligence against Earnings (Variation) (Scotland) Regulations 2024. The regulations update statutory tables that dictate how much money an individual keeps before any payment can be taken from their wages to recover debts, and they set the scale of payments that can taken above that level.
The Scottish Government has reviewed and updated the statutory tables every three years since 2006, and it last updated them in 2023, which was earlier than the anticipated three-yearly uprating due to the cost crisis and high inflation rates at the time. The Scottish Government understands that many people who are subject to an earnings arrestment are the most vulnerable in society, and we know that many more people are struggling with debt due to the cost crisis and high inflation.
During parliamentary scrutiny of the Bankruptcy and Diligence (Scotland) Act 2024, we committed to update the tables again in April 2025 to help people who are struggling due to the continued cost crisis. The regulations fulfil that commitment and also make minor amendments to the tables that will increase protection for the lowest earners while, at the same time, allowing those individuals to repay their debts if their income increases above the protected threshold. It means that, if they are subject to an earnings arrestment, an individual will be able to retain more of their earnings after an earnings arrestment has taken effect, especially if they receive a low income.
I understand from the Official Report that the committee has wider concerns about council tax, mainly because earnings arrestments are most commonly used by local authorities that are seeking to recover council tax arrears. To promote the adoption of best practice on debt collection, the Scottish Government has allocated funding to Citizens Advice Scotland for an expanded council tax debt project, building on last year’s successful pilot, with a total of six local authorities participating. The pilot aims to identify how collection processes can be aligned with recognised best practice.
At present, the council tax reduction scheme is the Scottish Government’s primary means of protecting households from council tax payments that they cannot be expected to afford. The scheme is a sophisticated means of targeting reliefs based on income and need, and it continues to play an important role in helping households whose finances have been impacted by the cost crisis. Just under half a million households—roughly one in five in Scotland—now get some level of reduction through the scheme, which saves households on average more than £850 a year. We will continue to explore ways to ensure that people who are financially vulnerable are protected and that debt collection is handled sensitively and appropriately.
I acknowledge that stakeholders and the committee have recommended increasing the protected minimum amount to £1,000 a month, and reform of the bandings that are used to calculate earnings arrestment deductions. However, I have heard concerns from stakeholders including the Convention of Scottish Local Authorities and the Institute of Revenues, Rating and Valuation about the impact that such an increase to the protected minimum amount would have on local authorities, which are by far the biggest users of this type of diligence. I know that those stakeholders wrote to the committee about their concerns during the debates on the 2024 act.
During those debates, I made it clear that I could not simply ignore those representations, in the same way as I cannot ignore the call that earnings arrestments are too harsh. That is why I have committed to consult on the protected minimum amount and the bandings and to engage all stakeholder views. It is essential that we find a good balance. If we make earnings arrestments ineffective, there is a risk that creditors will simply resort to pursuing bankruptcy or direct deduction from benefits more often, which I would like to avoid. The consultation will be published next year.
I am happy to take any questions, convener.
Thanks very much, minister. You are correct in saying that the committee unanimously recommended in our stage 1 report on the Bankruptcy and Diligence (Scotland) Bill that the amount that is protected from being seized by creditors should rise to £1,000. My colleagues will have questions on why that has not been adopted.
You will recall that I lodged a stage 3 amendment to raise that level, but I did not move it because, during stage 3, you committed to
“shortly launch a consultation to look at the bandings of earnings arrestments.”—[Official Report, 6 June 2024; c 87-88.]
There was also a commitment to reduce by half the amount that a person pays on the first £1,000 of earnings. You have not yet carried out that consultation, but you are making proposals today. Why did the Government not carry out the consultation? I appreciate that time was tight after the passing of the bill, but when the commitment was made you were aware of the timing to bring in regulations by 1 April, so I am curious as to why there was not a more formal consultation before we got to these proposals.
There are two things going on in parallel. As I said, we were keen to bring forward the uprating by two years from 2023 to 2025. We recognise the impact of inflation and the high cost of living, so I thought that it was important to do that. Of course, that can run in parallel with the consultation, which will collect information, evidence and views on where we proceed beyond that, with further uprating of the tables and the bandings.
You obviously intend to ensure that the uprating comes in at the beginning of April each year, and the regulations will come in at the beginning of April 2025. Does that mean that any further consultation will not result in changes being made until April 2026 at the very earliest?
I think that that is right—unless officials have any further comment on that. We do it at the start of April, at the start of the financial year.
We do it at the start of April to fit in with how payroll software providers build the changes into the software that they provide to employers. That is also why, ideally, we need to get upratings through before Christmas every year to give people time to make adjustments to their software before April.
So, a consultation would be carried out in time to ensure that any future regulations come before the Parliament before the end of 2025 to ensure that any changes are implemented in 2026.
That is correct.
Thanks for coming in at short notice, minister. I have not lodged a motion to annul because I am glad that the threshold is being raised. It is an urgent thing that we need to resolve; we all understand that we need to reduce the impacts of significant deprivation due to earnings arrestment.
However, I am very disappointed that the threshold was not raised to £1,000 as recommended, and I would like to hear a bit more from the minister on the thinking about that. I hear what he says about needing to balance the needs of creditors, which, in this case, are primarily councils, which also pay the costs of poverty. We need to understand the impact of someone having their wages garnished when they earn only £750 a month does not account for different circumstances such as whether the person is already being paid less than the living wage. Does that drive people into deeper poverty?
I want to understand why the threshold was chosen, particularly since there are delays in the system and it will not come in until next April. That is several months away and inflation is still a concern. It feels like we are behind the curve in that. By putting in a threshold of £1,000, we could have created a bit of space while we did the further consultation.
As I have said, it is a balance. You could choose to set the number anywhere, but we think that the threshold is set at the right place. The cost to councils of increasing it to £1,000 would be significant—the number that was quoted is more than £20 million, I think. Frankly, there is also a balance to be struck between those vulnerable people who cannot pay and need to be protected and those who choose not to pay. That is an important point to bear in mind. We need to pitch it at the right level.
The changes that we have made mean that the amount that somebody who is earning £1,000 pays has been reduced to £37, which is down from the £65 that they would have paid previously. It is a significant reduction at that level. That is on earnings from an employer; they could also be earning through benefits, which are not impacted by the changes.
It is a question of getting the right balance. We need to set the threshold at the right place that ensures that councils can continue to collect council tax where that is the right thing to do.
We have heard that the consultation cannot be started until April. What will be considered as part of the consultation? An equality impact assessment was not conducted for the instrument, but we have just discussed equalities matters whereby the poorest people are those who are most impacted by the change.
As far as I can see, there is no assessment around the minimum threshold for people’s need to spend for disability, illness and care needs. What are the minister’s thoughts on the disincentive to work that is created by garnishing wages in such a way for very low income people? How quickly will the consultation get going and be wrapped up, and what will be considered during the process?
I defer to officials on specific timing, but we plan to get the consultation launched early in the new year. It is important to remember that this is all in connection with debts that have not been paid.
09:45It was assessed that an equality impact assessment was not required. The impact is on people who earn less—that goes without saying. It is about getting the balance right between how much they can afford and then, coming to councils, ensuring that there is not a disincentive for payment if debts are not pursued below that level. It is important to get that right.
Perhaps Richard Dennis can comment on the timing of the consultation.
The committee will be aware that we struggle with proper evidence for policy making in this area. You will be aware that the bank arrestments protected minimum threshold was put up to £1,000 in November 2022, which I think is why the committee thinks that £1,000 is the right number for this, too.
I can tell you nothing whatsoever about the impact that that increase has had on the debt that has since been collected through bank arrestments; we simply do not have the data. I can tell you that there are more arrestments than there were in 2022, but I cannot tell you whether that is more arrestments being served on the same person to try to find funds or whether it is more individuals being served bank arrestments—we simply do not have that data.
A lot of the things that we will do in the consultation are really about calling for evidence. The Bankruptcy and Diligence (Scotland) Act 2024, which has just been passed and has not yet commenced, gives us power to collect more of that data so that we can get into a better position.
I know that the regulations are only a first step and do not go as far as the committee and others would like, but the percentage changes, as well, are very significant. They impact all the way up the scale. Somebody who is earning £3,400 a month will pay less under the regulations, so we are not just protecting those at the very bottom. Somebody who earns £1,500 currently pays £160 and will only pay £112 under the regulations.
The regulations take a first step in a direction that we expect to be continued after the consultation. We are trying to balance it so that people who earn significant amounts pay more, but we are trying not to have too serious an impact on council finances. Currently, we do not know how the money that councils collect splits across the bands, so I cannot tell you whether we have the balance right in the regulations, which is one of the reasons why it is important not to push them too far.
I have a final question, which is a larger question. I note again that councils are the significant creditor here. The minister has described the system of reductions in council tax as sophisticated—I would perhaps say that it is complicated—and we have talked about a lack of data and evidence and how complicated the whole space is. I feel that some of that is a consequence of the failure to reform council tax properly and that all the add-ons and accommodations have had to be made to deal with the fact that council tax is currently not a progressive tax and weighs heavier on people with less means. Would a full reform of council tax help to resolve these problems, is there an appetite to continue that work and how does it fit in with the larger question of ensuring that councils are properly funded but in a fair way?
The joint working group with COSLA is working on proposals for reform and collecting evidence, opinions and views on that. It is also looking at data collection and best practice and is, as I said, working with Citizens Advice Scotland on how we manage best practice for the collections process.
The formal process itself depends on what kind of council tax reform proposal comes forward, but if it was any kind of property-based scheme, you would still need to assess whether people were due relief or should be considered for relief as part of the process. By definition, the fact that you own or are liable for the tax on a property does not necessarily have a relationship to your ability to be able to pay that tax from your earnings. Whatever property-based system is in place, we would still need a system to assess people’s ability to pay based on other factors. I do not think that that kind of system would necessarily take us to a place where we would not need some kind of relief scheme in place, as well.
I want to circle back to how the level was arrived at and the evidence. I very much appreciate the insight about the lack of data, but I have always been taught to be suspicious of round numbers. Although £1,000 is a nice round number, £750 seems like a very nice round number. I appreciate that there is a lack of data, but what methodology was used to arrive at £750 or was that just a judgment? The flipside of the question is: what would have been the consequence or potential cost of going with £1,000 rather than £750?
If you express it in weekly amounts, it is not a round number, but I take your point. I will defer to Richard Dennis on the specifics of that.
You are right to a certain extent—you need to pick a number, and a round number is as good as any other number, plus it makes it easier to communicate and understand. We are making the increase from the previous amount to the lower level of £750, which seemed to be the right place to pitch it. However, you are absolutely right about the lack of data in this space, which, as Richard Dennis said, makes it difficult to be able to understand the impact of a threshold and to do a more evidence-based calculation on where we should pitch it.
I am afraid that I like round numbers. We did a lot of estimates looking at the maximum of average earnings, different measures of inflation and household income. We came up with a calculation that was something like £732.11, and I decided to err on the side of making the figure a bit bigger and rounder.
I think that the point is that the committee prefers our round number of £1,000 to the one that the Government has chosen. It is important to say that, because of the changes in the banding, people who are on lower incomes will pay less per month, but, overall, they will pay the same because, ultimately, the debt will be pursued. To be clear, will the consultation specifically include consultation on raising the figure to £1,000?
It will ask for opinions on where the bands and levels should be and for the evidence to support that.
Okay, and will the consultation start early in the new year?
Yes.
As there are no other questions, I am happy to ask the committee to note the Diligence against Earnings (Variation) (Scotland) Regulations 2024 at this stage, and I thank the minister and the panel for attending.
09:52 Meeting suspended.