1. Summary of recommendations

2. Foreword

3. Introduction

4. Membership and origin of the Improving Debt

Recovery Working Group (IDRWG)

5. How debt and poverty occurs

6. Inadequacy of the social security system

7. Early intervention methods

8. Debt enforcement in Scotland

9. A replacement for poinding and warrant sales

- the remedy of disclosure

10. Small businesses and poindings and

warrant sales

11. Debt procedures after court

Appendices

(a) Glossary

(b) Debt recovery procedure chart

(c) Trends in the use of debt enforcement procedures

(d) Debt questionnaire

(e) Contact information

[1] Summary of recommendations

his report is the work of the Improving Debt Recovery Working Group (IDRWG). The IDRWG met monthly from 3 May 2000. The group wanted to show that debt recovery in Scotland could be more humane and would then be improved for debtor, creditor, the courts and society as a whole. It is an inclusive and open forum with an open membership bringing together advisers, community workers, lawyers, politicians, and those with a direct experience of poverty. The group had no independent funding or administrative resources.

The basic principles of any changes should be to protect vulnerable groups, not reintroduce imprisonment for debt, and not undermine the continuation of widespread credit facilities.
People in debt feel shame. They need an adequate income and more advice and information. They feel powerless to stop debts increasing no matter how hard they try to pay them off. They want creditors to actually communicate with them.
Debt experienced by people on low incomes is the debt with the hardest sanctions. It occurs by a sudden disruption of income or a cumulative effect of an inadequate income.
Scotland has among the worst poverty in the industrialised world.
Means tested benefit levels are not calculated on a “basket of goods”. We inherited them. Benefit for a couple with 2 children under 11 falls £39p/w short of a low cost but acceptable budget.
The social fund is wholly inadequate: it is cash limited, discretionary and the bulk of payments are loans.
Our clients experience complex legal rules, restricted assistance with unpredictable costs and variable availability and quality of help.
People who get advice report the access to knowledge, negotiation and representation make a huge difference.
A disclosure order could give the creditor the right to relevant information to carry out further enforcement procedures.
Our debt collection process takes no account of individual needs and does not address multi indebtedness.
A debt adjudication scheme for undisputed debt with informal convenient, local hearings, operating in clear guidelines could supervise repayment of debts, saving expense for debtors, creditors, and the courts.

Disclaimer

The views expressed in this report are those held by particular individuals contributing to report chapters. The author(s) of individual chapters are footnoted. Authors include community activists with direct experience of debt, welfare rights and money advice professionals, solicitors and advisers working in the field of social welfare law, representatives of the small business community, representatives of churches, and politicians. Views expressed are not necessarily endorsed by the contributor’s organisation.

Basic principles

Any system adopted must:

Protect vulnerable groups. Our debt system must not put the debtor in destitution or below the bread line.
Recognise that individuals and families have different needs, and that everything has a greater cost in relative terms for those who are disadvantaged.
Not reintroduce civil imprisonment for failure to comply with any sanctions.
Not undermine continuation of widespread credit facilities. People require credit to get by in their day-to-day lives.

The settled will of the parliament

It is the settled will of the Scottish Parliament that poindings and warrant sales must be abolished. Margaret Curran MSP stated, “We must make sure poindings and warrant sales will not be part of the alternatives that are put before us”.

The abolition of poindings and warrant sales

75% of all poindings proceed by way of a summary warrant – mostly for council tax and community charge arrears against people on low or modest incomes. A progressive and humane solution to the problem of debt recovery will never be found in a diligence against household goods. There is no need for such a system in Scotland.

Poverty and debt

Living on a low income increases the risk of debt. Debt occurs from a sudden disruption of income or through persistent low and inadequate income. The poverty trap of low wages means people live in debt and experience arrears. A “horrendous number” of people in Scotland suffer the damaging and debilitating effect of living in debt.

IDRWG report’s debt questionnaire

Debtors said: Being in debt gives feelings of “shame, guilt, inadequacy, powerlessness and failure”. Most common debts were housing costs, council tax, catalogues, phone bills, and loan companies (e.g. provident). They were in debt because wages and benefits are insufficient for a decent standard of living. Credit is too easily available and difficult to resist when there is not enough money to meet basic needs. Debts were too viciously pursued and no matter how hard you try the debt just gets “bigger and bigger”.

Debtors needs

Identified needs in the questionnaire were: “realistic and decent benefit levels”, “more wages”, “better housing” and more “communication”, “advice” and “information”.

Poverty in Scotland

Scotland has among the worst poverty in the industrialised world. Figures are shameful. 24% of Scots, 32% of children, 29% of pensioners live below half the average household income, the government’s measure of poverty. 26% of people lacked 2 or more essential items. 34% of children went without 1 and 18% without 2 essential items every day.

Inadequacy of the social security system

Families with children tend to have the highest arrears. Weekly benefit falls £39 short of a low cost but acceptable budget for a couple with 2 children under 11. Benefit levels are not calculated on a “basket of goods”. We inherited them. There has never been an assessment of their adequacy.

Social Fund

The social fund needs radical change: it is discretionary, the bulk of payments are loans with repayments taken from future benefit and the fund is cash limited, claimants have no way of knowing whether they will receive payment and refusal rates are very high.

Barriers to advice

The principle barriers to people seeking advice are: lack of knowledge of where to seek advice from when difficulties first begin through to enforcement action, and no strategic overview of the provision of advice and community legal services.

Early intervention methods

1 in 5 people have arrears of household expenses. The majority seek no advice at all even when the debt proceeds to court. Those that did get advice thought it made a “huge difference”. They welcomed access to knowledge, negotiation and representation. Advice provision creates a balance in the relationship between creditor and debtor.

Legal services in Scotland

Legal services in Scotland need reform. Our client’s experience unpredictable costs, restrictive legal aid rules, complex legal processes, variable availability and quality of services, lack of alternative dispute resolution options and services with persistent funding problems.

Disclosure order: a replacement for poindings and warrant sales

A post-decree disclosure procedure order is an example of how the debt recovery system can be vastly improved. Such a procedure could give the right of the creditor to obtain relevant information and proceed with an arrestment. This would facilitate the efficient use of enforcement methods and overcome the present difficulty of “the ignorance of the creditor”.

Local authorities debt collection

Local authorities must adopt a strategic approach to debt collection. There are huge inconsistencies between practices of local authorities and departments of local authorities. Local authorities may use different sheriff officers for different debts increasing costs, freeze bank accounts for council tax which means rent cannot get paid, or refuse to communicate between different departments of the same local authority.

Debt enforcement in Scotland and multiple debts

Debt enforcement procedures in Scotland take no account of the increasing problem of multiple debts. Each debt is dealt with on an individual basis. Debtors often have earning arrestments that are unmanageably high to meet other creditors.

Debt adjudication scheme

For accepted liability debts under £25,000 the establishment of a debt arrangement scheme with an adjudicator. This would relieve pressure on the sheriff court time for cases of genuine legal dispute and could supervise the repaying of all debts an individual has. It is another example of how the debt collection system in Scotland can be improved to the benefit of creditors and debtors. Hearings could take place in a room at the sheriff court or local building, at convenient times for working people, heard by an debt adjudicator in an informal manner within established published guidelines. The debt adjudicator would decide time to pay order and could supervise the repayment of multiple debts taking into account individual needs. Saving the resources of debtors, creditors and court and, therefore benefiting society as a whole.

Local authority direct benefit deductions

The operation of means tested benefit deductions by local authorities should be reformed to allow deductions from certain non-means tested benefits (e.g. Incapacity Benefit). This would be subject to existing safeguards and restrictions. This would require amendment of the Social Security Acts, outside the competence of the Scottish Parliament. As part of the overview of the debt recovery system in Scotland, however, the Scottish Executive should call upon the UK Government to effect this change.

Summary warrant procedure

The Scottish Executive should review summary warrant procedure generally. As an immediate interim measure, the right to ‘time to pay’ under the Debtors (Scotland) Act 1987 should be extended to summary warrant debts.

Bank arrestment

The Scottish Executive should support the forthcoming private member’s Bank Arrestment Bill. It aims to set limits on creditors’ powers to use arrestment on bank and building society accounts. It proposes protecting a minimum of £63 (in line with the figure protected for earnings arrestment) from arrestment; ensuring that exempt funds (particularly social security benefits) can quickly be released from arrestment; and providing quick, easy and free access to court control of the process.

Improving Debt Recovery

Working Group

4 December 2000

[2] Foreword by Lesley Riddoch

his document marks a turning point in the early history of the Scottish parliament. The first time an intractable social problem has been tackled by a cross party bunch of politicians, community activists and legal experts working informally to get a solution. Which they have done in record time.

There was almost no disagreement within the Scottish Parliament when Tommy Sheridan proposed that Warrant Sales should be abolished in April 2000. Indeed the Bill prompted one of the first backbench rebellions by Labour MSPs some of whom had been on parliament committees to hear evidence on the inhumanity of warrant sales as a debt recovery mechanism. The only serious objection lodged by the Scottish Executive was a procedural one - there is no workable alternative.

This report is that alternative - and the fact it has been produced in eight months is testimony to the “can do” culture developing within the parliament and beyond.

The basic suggestion here is eminently sensible. For the “can pay, won’t pay” brigade, the report suggests that creditors be allowed to ask independent third parties like banks or the Inland Revenue for bank details so wages can be arrested. This power would of course be heavily subject to checks and usable only when existing court and other procedures had been exhausted.

For those on benefits the report suggests extending direct deductions for local authorities to non-means benefits, such as incapacity benefit. At the moment only those on income support and income-based jobseekers can be targeted. These are not easy or soft options for people living in poverty. And these final options for debt recovery may come as a surprise to those who expected a left wing cross party group of MSPs to pull their punches.

Making the existing systems work better and consistently is a fair solution everyone can back - and arriving at these conclusions consensually is a landmark for our growing sense of inclusive democracy.

Lesley Riddoch

28 November 2000

Glasgow

[3] Introduction

his report is unique. Never before has such a broad range of individuals and organisations in Scotland come together to look at ways to improve our debt recovery system.

In the space of only eight months and without any (paid) staff or resources, the Improving Debt Recovery Working Group (IDRWG) has developed a document with real substance. We offer real solutions, which if given the chance, could play a significant part in improving social justice for the many and not the few.

A remarkable consensus for change has emerged within the IDRWG. The solutions which this report offers for consideration are both fair to the debtor and creditor. A balance must be struck – but for too long poor people in this country have been made to feel guilty, and forgotten.

No-one should be made to feel second-class or worthless in the new Scotland. Where the debt recovery system does this – it must be challenged. Of course people have to pay their debts, but where the system traps people in a cycle of poverty – as this report clearly demonstrates - it is the system that must be pursued and not the human being.

This report would not be possible without the Scottish Parliament. The Parliament has created a new focus for change, and for the first time, a democratic access point for ordinary people in Scotland to influence the legislative process. The Scottish Parliament is not like Westminster. It is fundamentally much more inclusive in its structure and committee system.

Before this shift in culture if anyone in Scotland had wanted a report on debt they would probably have commissioned some boffins. But why not ask those in debt and poverty to participate? And why not ask those with personal experience of debt and poverty to help write the report. The IDRWG has done so. Debtors and people with direct experience of poverty are as much a part of the IDRWG as anyone else.

In editing this document I have been conscious of the time and effort that organisations and individuals have volunteered in the development of initiatives. There is much work even before a workable proposal is put to paper. Hopefully, that effort will be seen as an investment.

Members of the Scottish Parliament have said that poindings and warrant sales must not be part of any alternatives put before them. This report offers acceptable alternatives. It is up to the Scottish Executive and the Scottish Parliament to give the people of Scotland those alternatives – sooner rather than later.

Mike Dailly

Convener, IDRWG

Principal Solicitor

Govan Law Centre

4 December 2000

[4] Membership and origin of the Group [1]

embership of the Improving Debt Recovery Working Group (IDRWG) comprises of the following organisations and individuals:

· Alex Neil MSP (Scottish National Party)

· John McAllion MSP (Scottish Labour Party)

· Tommy Sheridan MSP (Scottish Socialist Party)

· Child Poverty Action Group in Scotland

· Citizens Advice Scotland

· Communities Against Poverty

· Easterhouse CABx

· Glasgow Anti-Poverty Project

· Govan Law Centre

· Lothian Anti-Poverty Alliance

· Money Advice Scotland

· Scottish Association of Law Centres

· Scottish Churches Parliamentary Office

· Scottish Consumer Council

· Scottish Federation of Small Businesses

· Scottish Human Rights Centre

· Sheriff Court Users Group

· The Poverty Alliance

The first meeting of the IDRWG took place in Edinburgh on 3 May 2000. The impetus of the Group was clear. Following a remarkable backbench rebellion at Stage 1 of the Abolition of Poinding and Warrant Sales Bill on 27 April 2000, the settled will of the Scottish Parliament was to send poindings and warrant sales to history’s scrap heap.

Parliament recognised that alternative humane arrangements may have to be put in place following abolition. The difficulty was the Scottish Executive had never imagined it would be over-ruled, and little or no consideration had been given to what ‘alternative arrangements’ required to be put in place following abolition.

There was an urgent need to examine how debt recovery in Scotland could be improved following the abolition of poindings and warrant sales. The impetus being to improve debt recovery for both the debtor and creditor. An inclusive and open forum was required: a forum to represent not only the voice of legal experts and politicians, but community organisations with a direct experience of poverty and debt in Scotland’s communities.

Even before April 27, the Abolition of Poindings and Warrant Sales Bill was acting as a catalyst in a shake-up of Scotland debt recovery system. On 2 February the first meeting of the Bank Arrestment Action Group took place at Govan Law Centre. Many of the members of the IDRWG were at that meeting.[2]

Over 101,000 bank arrestments take place in Scotland each year [3] – over 90% carried out by local authorities to recover council tax or community charge debts. Very often banks cannot prevent creditors from arresting a debtor’s entire account, even where a debtor’s only income is social security payments. This can cause extreme hardship for those on welfare benefits.

The Bank Arrestment Action Group acted swiftly to develop a simple, yet practical solution to fill the void of protection for debtors subject to bank arrestment. Indeed, the Group had assisted in the development of MSP Alex Neil’s Bank Arrestment (Scotland) Bill by 27 March 2000 (co-supported by John McAllion MSP and Tommy Sheridan MSP). The Bill’s formal proposal is as follows:

“To provide safeguards for debtors with bank accounts by restricting the extent to which an arrestment attaches to monies in bank accounts; and by providing a new sheriff court procedure, to be known as an arrestment restriction order, whereby a debtor may apply to the sheriff for an order releasing monies from arrestment”[4]

The IDRWG was founded upon the successful inter-agency co-operation which emerged over the issue of bank arrestment – and a rejection of the ‘major review’ culture. Scotland should not have to wait five or ten years for a major review to (perhaps) improve its debt recovery system.

The Group accepts that major change can take time to implement, however, there are many changes, which can be made now with significant impact.

Time and effort are the only constraints to change – and where principled commitment exists, the constraint of time and effort becomes the investment and energy, which underpins a solution.

[5] How debt and poverty occurs [5]

Margo Kirkwood, member of Communities Against Poverty, has personal experience of debt. In this Chapter, Margo provides an insight into how debt and poverty can occur.

s a working class family, we have struggled with debt throughout our lives. The poverty trap of low wages means there is not enough money to meet the basic cost of living. In arrears for council tax as a consequence of the devastating effect of anti-social neighbours, I tried to negotiate affordable payments, but to no avail.

This seemed unjust and unreasonable to me, so I became a member of Communities Against Poverty to do something about it. I gave evidence to the Social Inclusion Committee of the Scottish Parliament in support of the abolition of poindings and warrant sales and was proud to play my part in persuading the Committee and the Parliament to support the Bill.

Meeting with CAP members from all over Scotland and hearing the horrendous statistics made me realise the scale of the debt problems that thousands of us face; struggling to survive the damaging and debilitating effects of living in debt.

This oppressive state of affairs must change, which is why I was glad to become part of this Improving Debt Recovery Working Group. My part has included working with the Poverty Alliance and Lothian Anti-Poverty Alliance to compile a debt questionnaire. The questionnaires were sent to CAP members asking people who had experience of debt to respond.

Here are the key findings of the debt questionnaire:

1. What are the reasons you got into debt?

Three categories were identified.

(a) Unsustainable Incomes

In almost every response, either inadequate benefit levels or low wages were cited as causes of debt. It is impossible to avoid debt on either benefits or low wages, as they are simply insufficient to afford people a proper and decent standard of living.

(b) Credit too readily available

Credit - from agents knocking doors offering “cash for Christmas”, to catalogue representatives stopping you in the street, to the flood of offers of credit from banks and finance companies. The current T.V. advertising campaigns for loans to consolidate debts are far too easily available and difficult to resist when there is not enough money to meet basic needs.

(c) Changes in circumstances

Debt also occurs through changes in circumstances, e.g. unemployment, illness, redundancy, divorce or separation. Another factor identified was poverty through employment.

2. Who have you been in debt to?

Almost all questionnaires identified the following: rent, mortgage, council tax, gas, electricity, catalogues, phone bills, loan companies (e.g. Provident).

3. What could have helped you most to avoid getting into debt?

Responses received included:

· “Getting more wages, more help while on family credit”.

· “Having a decent amount of social security benefit to afford a proper standard of living”.

· “More information on managing my affairs when I became ill and spent a long time in a psychiatric hospital and care in the community”.

· “Less availability to loans – as a working couple it is only to easy to get loans”.

· “Interest rates explained better”.

· “More money”.

· “Better housing”.

· “We shouldn’t have given in to getting a loan”.

· “Realistic benefit levels”.

· “Financial advice at the time would have helped me”.

· “As the minimum wage is an insult to a working person, I would suggest that this is the first thing to be changed”.

· “Communication with people is very important as well as negotiation. Don’t threaten people, understand them”.

· “Having more help for people in debt. Not making it so easy for people to get into debt in the first place. More money for people on benefits. A fairer system for paying back any money due. Stop warrant sales as well.”

A response received from Carolann Ross illustrates how moving from welfare benefits to low paid employment can result in a ‘poverty-trap’:

“I am a single mother of 3 kids aged 16,15 and 19. I had my first child aged 16, missed exams etc., Through this I found it hard to find a job because of various things, such as no confidence or self-esteem, no qualifications, no childcare”.

“I decided to give myself and the kids a better chance by re-educating myself through various bodies: Community Education, One Plus, local school and colleges. In March this year I successfully gained a place on an ILM Play-work Course, The Waged Option, 6 months later I am about £1,500 (estimated) in the red - that is just between rent and council tax”.

“The reality hit home that having a job is not all that it seems. The adviser at the job centre worked out the difference on my weekly money regarding how much better off I’d be working. The sum was £60 per week. But what everyone forgot to include was the fact that the kids don’t get free school meals, and that they still need to eat as I do too, as well as travelling expenses adding up to between £50-£55 per week. Is it worth all the strain for an extra couple of pounds per week - you tell me because I am beginning to wonder”.

What could be done to make the debt recovery system better for debtors?

It was generally felt that debt collection is too viciously pursued, especially by sheriff officers in respect of council tax. Adding 10% charges to the existing debt compounds the debt and makes you feel like giving up, as no matter how hard you try the debt just keeps getting bigger and bigger. Additional sheriff officer charges for poindings and warrant sales simply compounds the problem further.

Being in debt is bad enough without harassment and intimidation from debt collectors making you feel even worse - we are still human beings, entitled to fair and just treatment. Attitudes among debt collectors should reflect this rather than feeling they have the right to belittle and humiliate people. This is particularly true in relation to council-tax and sheriffs officers, and is all the more difficult to accept as council-tax rates are imposed upon us.

Conclusion

It is abundantly clear from the responses to the questionnaire that people find themselves in debt due to circumstances out-with their control. Debt is not incurred through choice for frivolous reasons, but to provide the most basic needs - rent, food, clothing, fuel.

One respondent, who ticked every reason for getting into debt on the questionnaire, included the “other” category – “Overspending on family needs i.e. Christmas, birthday etc.” That single sentence eloquently expresses what living in inescapable debt does to your self-esteem.

We found ourselves in debt through circumstances over which we had no control and I felt it must somehow be my fault that we could not make ends meet. I felt guilty, ashamed, inadequate, a failure as a wife, a mother, a human being and absolutely powerless to do anything about it.

Depressed and agoraphobic because of this, I learned to cope with my permanent state of anxiety by worrying only during office hours. A strategy, which worked. Then I received abusive, intimidating phone calls from sheriffs officers in the evening and at weekends and it was the “last straw” and turning point for me.

Giving evidence to the Social Inclusion Committee in support for the abolition of warrant sales was a leap of faith for me. Was our Scottish Parliament really going to be what it claimed to be? The committee recommended support for the Bill and that leap of faith felt justified. When Parliament voted for the Bill, in such a spectacular style, my spirits soared and hope, for the first time in many years, crept into my heart.

It was short lived. The Justice Committee, ironically enough, has voted to support the Executive’s line that poindings and warrant sales should remain with us for a further two years.[6] Unless Parliament again votes with its conscience, thousands of vulnerable people will be condemned to the intimidation and humiliation of this shameful practice.

From my own point of view, if the Executive’s party line is toed, my faith in, and hope for our Parliament will have come to nothing. All the rhetoric about social inclusion, equal rights and eradicating child poverty will be nothing but empty words. I believe this issue to be the single biggest test our politicians face. In the eyes of the majority of the Scottish People, the credibility of our Parliament stands or falls on how it acts now.

[6] Inadequacy of the social security system [7]

ebt in Scotland is still frequently regarded as a personal failure, which adds to the stress, anxiety and stigma, which accompany debt.

The link between poverty and debt

It is our experience that there is a strong link between the levels of debt and arrears and the level of poverty in Scotland. Only if there is a decrease in the levels of poverty in Scotland will there be a decrease in debt and arrears in Scotland. If individuals cannot take part in “normal life” because of low wages, inadequate benefits, with no access to grants or cheap loans to help with bulk expenditure then budgeting will continue to involve high interest loans, credit and unpaid liabilities, and therefore, the consequences of the debt collection process in Scotland.

The extensive experience of all organisations contributing to this document is that debt cannot be blamed on the individual action of borrowers. Individuals are led into borrowing by low wages or low benefit rates. They are forced into debt by structural factors like unemployment, ill health that are beyond the control of the individual and statistically more likely to effect those living in poverty. It is our experience that debt results from “a sudden disruption to income (unemployment, relationship breakdown or illness) where previous commitments are difficult to sustain or from a slower cumulative effect of a persistently low and inadequate income”.[8]

While the causes may not be individual the consequences certainly are, imprisonment, poindings and warrant sales, fuel disconnections, evictions, earnings and bank arrestment have all increased dramatically over recent years. A whole industry exists who have a vested interest in retaining the status quo of poverty, credit, debt and debt collection: debt collectors, tracers, credit controllers, solicitors and sheriff officers all of whom charge for their services.

It is these personal effects of debt and poverty that the organisations represented in this document deal with on a daily basis. The individual experience of debt magnifies and reinforces the experience of poverty i.e. the anxiety over money and the moving around of limited funds. Research has shown debt and arrears increase depression, sleeplessness, stress and stress on relationships and decrease the ability to cope.

Families with children are a group that tend to have the highest arrears. They are often under considerable stress trying to cope with juggling payments. Research Credit and Debt in Britain, PSI Report by Richard and Elaine Kempson gives three factors that would increase your likely hood of being in debt: old or young age, children and low income. Any two of these and you were more likely to be in debt.

Living on a low income increases the risk of debt. Research indicates that the type of debt generally incurred by people on low incomes is the debt with the hardest sanctions: rent arrears, mortgage arrears, council tax arrears, fuel debt payments.[9] In 1980 20% of those on the lowest incomes used credit. By 1990 that had risen 69%. Aggressive pursuing of debts can also inhibit people making a successful transition from benefits into work. Creditors often pursue people, who move from benefits to work, much more vigorously.

Levels of poverty

The government adopted the commonly used Households Living Below Half the Average Household Income as its measure of poverty levels in UK. This is a measure of poverty but it not a measure of the adequacy of incomes. The government have not adopted an income adequacy standard. However, whatever measurement we adopt poverty in Scotland is at wholly unacceptable levels.

Scotland has among the worst poverty levels in Europe and other industrialised countries as measured by half the average household income.[10] The Scottish Affairs Committee report "Poverty in Scotland", published 11 July 2000, took evidence from across Scotland. The report makes “shameful reading”.[11] 1:4 adults, 2:3 lone parents, 29% of pensioners 1:3 children (350,000 children), to quote just a few figures, all live in poverty in Scotland.[12] There is for example, very clear evidence that child poverty has increased considerably in the last 20 years, and has increased more in Britain than in most other industrialised countries.[13]

On 11 September 2000 the Joseph Rowntree Foundation carried out research concerning deprivation amongst adults and children using researchers from 4 universities and statistics form the Office of National Statistics [14]. It is the most “comprehensive and rigorous survey of its type ever conducted”[15]. It set out a checklist of household items and activities that the majority of people considered to be necessities people should not have to do without. The research found that 26% of people lacked two or more essential items. This applied to 71% of unemployed people, 61% of long-term sick and disabled people and 62% of lone parents. 18% of children went without two or more essential items and 34% went without one essential item.

A larger percentage of the income of Scottish people comes from benefits and wages than it does in the UK as a whole.[16] In 1997, 674,000 people where living on income support in Scotland.

The inadequacy of benefit levels

It is the experience of all organisations represented in this document and considerable independent evidence that benefit levels fall far short of an acceptable standard of living. The Family Budget Unit estimated in 1995 that Income Support currently falls £39 short of the ‘low cost but acceptable’ budget for a couple with two children under 11. Or that income support only met 32% of an “adequate to moderate” family budget for a couple with two children under 11 or 27% for a lone parent in the same circumstances.

Many Income Support claimants are living below the basic benefit level because they have direct deductions for arrears of: rent, fuel, council tax mortgages and other accommodation charges. Housing benefit no longer covers the full amount of rent for all private tenants.[17]Up to 25% of benefits can be deducted from the claimant for fuel, rent, water and mortgage interest without the permission of the claimant. The average deductions are £10.78 for electricity, £10.88 for gas, and £6.49 for water.

Means tested benefits have not been calculated on a “basket of goods”. They are largely based on the Beverage Report, which in turn was based on a Rowntree report in 1936. The amounts actually adopted were less than the recommendations by both Rowntree and Beverage reports. Adjustments have been made since but at no time, has there been an assessment of their actual adequacy.

There is still a lot of work to be done to explore modern family needs but many other countries such as Australia, Finland, Norway and the USA (to name a few) have adopted a minimum income standard and the European Union asked member states in 1992 to set minimum income standards “considered sufficient to cover essential needs with regard to respect for human dignity”. So far, the UK has not done so.

We need a minimum income standard sufficient to keep people out of poverty, which would establish a target for governments to set benefit rates. The Scottish Affairs Committee recommended:

“We consider it time for the UK to have a proper measurement of income adequacy and accordingly recommend that the government commissions an immediate study, utilising research already carried out by the Family Budget Unit at Kings College, London and the Scottish Poverty Information Unit, designed to develop a minimum incomes yardstick which is sensitive to local conditions. The introduction of such a measure would demonstrate both a sense of fairness and the Government’s commitment to overcoming poverty”[paragraph 152].

The inadequacy of the Social Fund[18]

The social fund was introduced in 1987/88 as part of the Social Security Act 1986. The system of single payments was replaced by the social fund. The regulated social fund provided grants for certain expenses if the qualifying conditions were met. Any other needs were to be met through the discretionary social fund, the budget for which was cash limited. In contrast to single payments, which did not need to be repaid, the majority of social fund payments are in the form of loans

The social fund is flawed in three main ways: payments are discretionary, the bulk of payments are loans and deductions are made from future weekly benefit and the fund operates within a budget and a cash limit. It is a wholly inadequate system and should be a priority for reform.

61% of claims to the social fund were concerned with meeting expenses for basic items such as clothing, household goods, bedding, cookers and food. In our view, it is not acceptable that claimants should be in a position where they are forced to live without beds, cooking and heating facilities, bedding and many other essentials that most people in our society at the end of the twentieth century take for granted. 362,000 applications for budgeting loans were refused in the year 1999-2000 [19]. This is an extraordinary increase on the previous years, which were 4,865 applications refused in 1997-98 and 11,102 in the year 1998-99.

Claimants have no way of knowing whether they will receive a payment, which is a deterrent to take up. There is a very high refusal rate for grants only 1 in 5 succeed. And of the grants that are paid a very high proportion are paid to those who are coming out of institutional care. For example, families who need help for basic furniture and household equipment are often refused.

Where payments are refused, six months after the refusal, 40% of applicants were still trying the find the money to meet the need. From 1988 to 1992 the numbers refused loans on the basis of the inability to repay increased by 203%. In August 1998, just under 600,000 income support claimants had a deduction for a social fund repayment. The average deduction was £8.58 p/w. 54% of claimants with social fund deductions were lone parents, 30% are disabled people.

Research commissioned by the DSS [20] and carried out by York University showed that people who were repaying loans suffered considerable hardship. 70% said it left them with insufficient money to live on, over third said that they had to cut back on food, clothing or paying bills, a fifth borrowed money had to live on reduced incomes

A new system of grants for bulk payments

What we need:

· Furniture and household equipment grant to be paid when a family is allocated housing or moves home;

· A pregnancy grant paid to the mother to meet additional dietary requirements and maternity clothing costs during pregnancy;

· A household safety grant paid every 6 months to help with replacing electrical and gas equipment; and

· Child development grants, these could be paid when the child reaches 1yr, 3 yrs, and 11yrs and when they start or change schools.

These should be seen as part of a necessary cash safety net and paid on top of benefits. They should be easy to administer, should be paid by right through regulations to people who fit certain conditions and have a proper right of appeal against unfavourable decisions.

There is a lot of support for reforming the social fund. CPAG, anecdotally understand, that the DSS may be carrying out an initial review of the social fund at present. The recent Scottish Affairs Committee report “Poverty in Scotland” published in 19 July 2000 recommended “It is clear that an in-depth review of the working of the Social Fund and it’s impact on some of the most vulnerable sections of the community is long overdue. We therefore recommend that the Government undertakes such action now.” [Paragraph 103]

This would be consistent with the Family Budget Units Report (mentioned above) and the conclusions of other reports e.g. the Independent Inquiry into Inequalities and Health by Sir Donald Acheson (1998).

The Herald stated, “Reform of social fund is long overdue” and went on describe it as a “ &ldots;generally discredited hangover from the last conservative government, &ldots;which often had the effect of forcing the really poor into the arms of the loan sharks” [21] (31.7.00 Opinion).

[7] Early intervention methods [22]

n 1977 the National Consumer council produced the Fourth Right of Citizenship: a review of local advice services in which it argued that the right to information and advice was as much an irrevocable right of citizenship as was the right to education. In the start of the twenty-first century, this right is as fundamental and crucial as ever before.

The Need for Advice

Debt is a feature of our society. In the mid 1970s under half of all households had a current account, yet in 1999 this had increased to eight in every ten households with various extra options such as debit, credit and ATM cards, and telephone or Internet banking facilities [23]. In 1970 one quarter of households had credit facilities (mainly HP or mail order) compared with seven in every ten now (Kempson & Whyley, August 1998). Research has shown that most consumers know little about financial issues, and even those who believe they do know about them do not fully understand them (Evolution Project PIA Board, 1998).

In 1992 [24], research showed that many households were in debt: -

1 in 5 households had been in arrears in the course of the previous year with payments on either a regular household expense, like rent, mortgage or gas bill or a consumer credit commitment – many reported that they had been in arrears with more than one item. One in 8 households had one or more problem debts.

Moreover, the experience of organisations contributing to this document is that many of the most vulnerable groups in our society, the most socially excluded groups (i.e. households dependent on benefits) are forced into debt because of inadequate benefit levels. The need for everyday items such as clothing can only be met by incurring debt.

In addition, the 1992 research revealed:

· Six out of 10 people with problem debts had sought no help or advice, not even from family or friends.

· Only one third of those with problem debts had consulted a formal adviser, most often an independent advice agency or bank manager.

· Only one in every five debtors had made contact with the creditor

Recently published research into the workings of the Debtors (Scotland) Act 1987 [25] shows that even when debt proceeds to the court stages, still the majority of debtors do not seek advice. Debtors provided the following reasons why: -

· Cost – this was seen as a barrier to representation by a solicitor, but some were unaware that free advice services were available.

· Rural areas – the cost of having to travel to an adviser was a barrier to seeking representation.

· Rural areas – the debtor knew local advisors personally and was worried about being seen to enter a advice agency.

· Some did not know where to get advice.

· Many felt that nothing could be done about it.

· Some preferred to sort things out themselves.

· Debtors wanted to maintain privacy over their own affairs.

There was some concern about the amount of time wasted before seeing anybody. Of those that did seek advice, the debtors themselves felt the benefits.

· Clients thought that access to advice had made a huge difference – there was an access to knowledge, which debtors did not have.

· In dealing with creditors and others, money advisers could negotiate an agreement where the client had failed.

· By using an adviser to negotiation, a welcome barrier was placed between the debtor/creditor.

· Representation at court was also welcome.

Similarly, research has shown that accessing money advice services can be extremely beneficial [26]: -

· Rent arrears of tenants who did not seek advice increased on average by over 100% over 18 months compared to an average 25% increase in arrears of those who sought advice.

· Debt counsellors can help their clients avoid eviction or repossession of their home – this has savings to local authorities which have a duty to rehouse certain categories of homeless people.

· The detailed picture of a client’s financial position provided by money advisers enables creditors to be in a better position to pursue the most cost effective means of recovering a debt.

· Debtors receiving money advice do not repay less than other defaulters, nor do they create additional administration costs for creditors.

· Money advice can considerably improve client’s financial, social and psychological well being, especially for the first few months.

Barriers to seeking advice

There are a number of barriers to seeking advice. Debtors themselves have identified some of the difficulties that can arise when seeking advice. It should also be recognised that poverty, particularly long term poverty is in itself a barrier for many of the most excluded households. The ongoing stress and hardship suffered by those living in poverty imposes their priorities based on the crisis of a particular day. Realistically, this will mean that for some households, early intervention will not be possible. We will require local advice agencies to be equipped and skilled to meet the high level of support and assistance required to address these complex problems.

That said, there are two principal barriers to seeking advice. The lack of knowledge of the debtor to seek advice at all levels of the debt process, from when difficulties first begin to arise, right through to enforcement action. The second problem is that there is no strategic overview in the provision of advice, which could make access to advice services easier.

Strategic Overview - Local authorities

As long ago as 1993, Citizens Advice Scotland campaigned for a new clause to be inserted into the Local Government (Scotland) Act 1994. The aim of the clause was to ensure that a local authority would have a statutory duty to prepare and implement a strategy for their area regarding the provision of advice and information concerning an individual’s rights and obligations. The clause was rejected, however the need remains.

In 1988, a report by the Scottish Consumer Council on advice services in Scotland [27] concluded that there was no evidence of any common policy or attitude shared by government departments concerned with funding advice and information. Additionally there was a lack of any common approach by local authorities on what constitutes a proper role for information and advice services, bot