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Improving Debt Recovery Working Group - Report (December 2000) |
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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.
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 contributors organisation.
Basic principles
Any system adopted must:
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
reports 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
governments 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 clients 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 members 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, wont 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 historys 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 Scotlands 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 debtors entire account, even where a
debtors 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 Neils Bank
Arrestment (Scotland) Bill by 27 March 2000 (co-supported by
John McAllion MSP and Tommy Sheridan MSP). The Bills 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 shouldnt 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. Dont 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 Id be working. The sum was £60 per
week. But what everyone forgot to include was the fact that the
kids dont 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
Executives 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
Executives 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
Governments 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.
Other
problems with the Social Fund
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 its 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 clients 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 clients 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 individuals
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 |