Hansard

I am pleased to speak on behalf of the Economy and Fair Work Committee in the role of convener in this stage 1 debate on the Bankruptcy and Diligence (Scotland) Bill. I take this opportunity to thank everyone who responded to our call for views and the witnesses who gave evidence during our stage 1 scrutiny of the bill.

I also thank One Parent Families Scotland and the Poverty Alliance for engaging with the committee. Hearing about the issues faced by those with lived experience of debt and mental health issues was valuable for my appreciation of the complexity of the issue and of the reality of people who are struggling with their finances and debt. We recognise that it would not have been easy for them to share their experiences, and I sincerely thank those involved for being honest and open about their challenges. Although the introduction of a mental health moratorium is widely supported, the committee has to be satisfied that it will support those who need to access the mechanism.

Finally, I thank the Social Justice and Social Security Committee for highlighting relevant points from its report “Robbing Peter to pay Paul: Low income and the debt trap”. The report has been recognised as an important piece of work, and all of us, in all committees, should consider how we can give effect to its recommendations if the opportunity arises.

As members can see from our stage 1 report, the committee is supportive of the bill’s aims. The introduction of a mental health moratorium would be beneficial to those who need it, and we welcome the minor and technical reforms and modifications to both the Bankruptcy (Scotland) Act 2016 and the law of diligence—Scotland’s formal debt recovery mechanism.

However, we were disappointed by the lack of detail on the mental health moratorium that was made available to us during our stage 1 scrutiny, which meant that we could not discuss proposals in detail with stakeholders. More information on the Scottish Government’s proposed policy direction was provided when the mental health moratorium consultation was published in November 2023, but, unfortunately, that came far too late for us to discuss it in depth with our witnesses.

We acknowledge that most of the detail that pertains to the mental health moratorium will be in regulations, and we welcome the minister’s undertaking to produce draft regulations ahead of stage 3 and to share them with the committee. We look forward to scrutinising them in detail. I recognise that the Government intends to run a further full consultation on the draft regulations, which will provide the committee with additional time for scrutiny.

A key area for discussion this afternoon will be the criteria for qualifying for a mental health moratorium. The committee supports the moratorium’s introduction, but we are concerned that only a very small percentage of Scotland’s population stands to benefit from the proposals.

The mental health moratorium working group agreed that only those who are subject to a compulsory treatment order or who are receiving compulsory treatment under the Criminal Procedure (Scotland) Act 1995 should be eligible. We heard evidence from some witnesses that it is preferable to start with a small cohort to ensure that the scheme works properly before possible expansion.

However, One Parent Families Scotland and the Poverty Alliance said that the compulsory treatment order criteria would help only a very small number of people. The policy memorandum contains an estimate of between 112 and 500 people, but that is based on the more open entry criteria of the breathing space scheme, so uptake is likely to be at the lower end of the scale. The memorandum also reports:

“one in two adults with debt has a mental health problem and one in four people with a mental health problem is also in debt”.

We heard from South Lanarkshire Council that, for the mental health moratorium to have the biggest impact, it should be accessible to people who are receiving treatment in the community, not just in hospitals or other institutions.

It was suggested that Scotland’s standard moratorium of six months could provide sufficient respite for people who are struggling with mental health challenges, and it was even suggested that that would be preferable, as following its application process is easier than providing the information and following the processes that would be required for a mental health moratorium.

That raised the question of the significance of introducing a mental health moratorium. It will be valuable to the small number of people who can access it, but we should recognise that the system that we have in place already provides a degree of respite. In his response to the committee, the minister argued that the current standard moratorium will be sufficient for many.

During the pandemic, the standard moratorium rose from six weeks to six months. The committee welcomes the minister’s assurance that there are no immediate plans to reduce it, but we are aware of a previous commitment that the increase would be temporary. The committee is concerned that, if the criteria for the mental health moratorium remained narrow and if the standard moratorium returned to six weeks, many debtors would be left in a vulnerable situation.

The committee therefore concluded that widening the entry criteria would enable more people to qualify for support and avoid the unnecessary distress that might exacerbate someone’s mental health issues. From its response, the Government does not appear to have been convinced by our argument so far, but there is to be further analysis of consultation responses, and the committee will scrutinise them once they are available. The committee recognises that a mental health moratorium would not apply to everyone who had a mental health condition and debt challenges, but we believe that the right balance has not been struck and that the policy risks being insufficiently effective.

The committee has identified three alternatives to the proposed entry criteria that we encourage the minister to consider, the first of which is using the criterion of being “severely mentally impaired” under council tax legislation. The term is recognised in the Local Government Finance Act 1992, but we strongly suggest that it is stigmatising and outdated, and we draw that to the Scottish Government’s attention in the hope that the legislation will be updated. We welcome the fact that the Government has said that it will look for an opportunity to amend the term in primary legislation. Notwithstanding the term itself, the criteria that local authorities use for assessing council tax should be considered.

The second alternative is to use the debt and mental health evidence form used by the money advice sector to evaluate the impact of someone’s mental health on their ability to manage their finances. That recognises the role of the professions that support people who are in financial difficulties and supports their judgment about a person’s capacity to manage their situation.

Thirdly, the committee proposes using similar criteria to that of the debt respite scheme in England and Wales, which is also known as breathing space. The mental health breathing space is open to anyone receiving mental health crisis treatment, as well as those receiving emergency or acute treatment. Entry to the scheme must be certified by an approved medical health practitioner.

The advantage of replicating the scheme is that it already exists and is in operation. Indeed, the most recent figures show that, in 2023, just under 1,500 people accessed a mental health breathing space. The committee recognises that the comparison is not a straightforward one—the standard moratorium in England is shorter than that in Scotland—but the system in England and Wales is tested and appears more realistic about who will need to access it.

The breathing space moratorium goes further in other respects than the proposal set out in the mental health moratorium consultation by the Scottish Government. The committee heard from Alan McIntosh of Advice Talks that breathing space prevents the repossession of cars, prevents evictions and home repossessions and prevents the forcible installation of prepayment meters. The minister might want to reflect on those differences, although I appreciate that he referred to that in his opening statement. His reply to the committee described the protections as “quite significant”, but they do not offer as much protection as the UK’s breathing space moratorium.

Although the committee understands that the regulation of the energy sector, including the use of prepayment meters, is reserved, and although we welcome the Scottish Government’s commitment to liaising with the UK Government on the issue, we urge the Government to look at other areas around evictions, repossession and joint and several liability. That said, we welcome the fact that further views are being sought.

The committee has been made aware of an issue regarding mental health capacity. Potentially, a small number of people who meet the entry criteria for the mental health moratorium might be unable to consent to it, as they do not have the capacity or a legally recognised representative to do that for them. Academics from the University of Aberdeen agreed that further consideration of debtor capacity is needed. That is another area on which, in the minister’s response to the committee, he reports that “further views” are being sought through more consultation.

Others raised the point that the bill contains enabling powers only, with much reliance on details following in regulations. That has made scrutiny by the committee difficult, and mental capacity is likely to be one of the many areas that we will return to in our scrutiny of the draft regulations, which we expect to see prior to stage 3.

Consideration of the mental health moratorium revealed the possible development of a public register of people who access it. That is of great concern to the committee. During the evidence session with the Minister for Community Wealth and Public Finance, we explored the risks of stigmatising people in need of a moratorium. The committee is concerned that exposure on a public register might prevent individuals from accessing the support that they need. We have asked for more clarity from the Scottish Government on the proposal, and we look forward to receiving an update on potential areas of contention, such as how long someone’s information would be stored on the register and who would be able to view or access that data.

Sections 2 to 5 of the bill cover minor or technical fixes that have been identified by the Scottish Government as necessary for the Bankruptcy (Scotland) Act 2016, and we welcome those changes.

In our evidence taking, we heard that additional reform to bankruptcy legislation would be welcomed by stakeholders. One area that requires reform is that of minimal asset process bankruptcy, which is a route into bankruptcy for individual debtors on low income and with few assets. It is a simpler and cheaper process that is appropriate to such circumstances. Currently, though, it is possible to apply for a MAP bankruptcy only once every 10 years, and the Social Justice and Social Security Committee has argued that people should be able to apply for a MAP bankruptcy every five years to bring the measure in line with full administration bankruptcy. The committee is in agreement with that proposal, and we await the outcome of the Scottish Government’s discussions with stakeholders.

Sections 6 to 10 of the bill make reforms to the current law on formal debt enforcement, as recommended by the diligence working group. The committee is broadly supportive of the reforms, and we draw the Scottish Government’s attention to the proposals outlined in our report.

I also want to draw the minister’s attention to the protected minimum amount seized in diligence against earnings, such as wage arrestments. That form of diligence requires the employer of a debtor to make a deduction from a debtor’s net earnings, and the amount that is taken from earnings depends on how much someone earns, with the percentage of money seized increasing as earnings increase.

Currently, the amount that is protected from creditor action is £655.83; the minister will be aware of calls for the protected minimum amount to be increased to £1,000, which would bring earnings arrestment in line with bank arrestment. The “Robbing Peter to pay Paul” report recommended such an increase. While we are in a cost of living crisis, with individuals and families on the lowest incomes feeling the impact of inflation and rising prices most sharply, we should take the opportunity to increase that allowance.

Most debt in that category is council tax debt: in 2021-22, 83 per cent of charged-for payments were for council tax debt. A survey carried out for Advice Scotland by Alan McIntosh found that 59 per cent of wage arrestments were for council tax debt, with 94 per cent of respondents saying that wage arrestments left them unable to pay essential bills each month and 76 per cent falling into arrears and being unable to pay other debts. Creditors are entitled to seek repayment of debt, but any actions should not be unduly harsh. The committee supports increasing the protected minimum amount, sees that as reasonable and urges the Scottish Government to consider how the bill can be used to deliver that change.

I have not been able to cover every aspect of our consideration of the Bankruptcy and Diligence (Scotland) Bill, although members might think that I have made a good effort. I anticipate other points being covered by my committee colleagues, and I conclude by confirming that the Economy and Fair Work Committee supports the general principles of the bill and looks forward to receiving more detailed information from the Scottish Government in advance of stages 2 and 3, should Parliament approve the general principles of the bill at decision time today.