REPORT TO: POLICY AND RESOURCES COMMITTEE ON 29TH MAY, 2002 DEBT ARRANGEMENT AND ATTACHMENT (SCOTLAND) BILL

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1 PAGE: 1 REPORT TO: POLICY AND RESOURCES COMMITTEE ON 29TH MAY, 2002 SUBJECT: BY: DEBT ARRANGEMENT AND ATTACHMENT (SCOTLAND) BILL CHIEF FINANCIAL OFFICER 1. Reason for Report 1.1 The purpose of this Report is to inform the Committee of the publication of the Debt Arrangement and Attachment (Scotland) Bill and outline the implications of this Bill for the Council. 2. Background 2.1 The Committee may recall that the Scottish Parliament previously passed the Abolition of Poindings and Warrant Sales Act. It received Royal Assent on 17th January, 2001 and its provisions will become law no later than 31st December, Prior to the provisions of this Act coming into effect, the Scottish Executive sought to bring forward its proposals to replace these diligences. To identify the most appropriate replacement, it conducted a consultation Striking the Balance A New Approach to Debt Management. The Council s response to this document was agreed by a Special Council Meeting on 10th October. 2.3 While the manner in which poindings and warrant sales have been used elsewhere in Scotland to enforce payment of unpaid local taxes may have caused hostility, the partnership that exists between the Council and its firm of Sheriff Officers has ensured that none of these perceived abuses have occurred in Moray. 2.4 Members may recall that the Sheriff Officer s activity in the collection of Council Tax in the last financial year, , was summarised in the Council Tax, Non-Domestic Rates and Community Charges Collection Statistics Report, which was presented to this Committee on 8 th May It was confirmed that 116 poindings were executed and that no warrant sales had been performed. The revenue-stream generated by the Sheriff Officer s activities was over 1.5m (5.4% of Council Tax income). This report also drew Members attention to the fact that no warrant sale has been executed on behalf of the Moray Council to enforce payment of Council Tax. 2.5 The Debt Arrangement and Attachment (Scotland) Bill contains the Scottish Executive s proposed replacement for poindings and warrant sales and has begun the parliamentary process.

2 PAGE: 2 3. The Debt Arrangement and Attachment (Scotland) Bill 3.1 Provisions of the Bill There are three principal parts to the Debt Arrangement and Attachment (Scotland) Bill: i. a Statutory National Debt Arrangement Scheme, which permits debtors to make repayments in a structured manner and protects them from creditors; ii. an Attachment scheme allowing creditors to exercise diligence over moveable goods; iii. an Auction scheme, which allows creditors to remove and sell attached goods In addition to these specific proposals, the Bill also outlines an enhanced supervisory rôle for Sheriffs. 3.2 Statutory National Debt Arrangement Scheme The Debt Arrangement Scheme enables debtors to repay creditors in a structured manner and over an extended period by means of agreed repayments. The maximum length of the repayment period has not been specified, but it may last for up to five years A Debt Arrangement Scheme will be arranged by a qualified money advisor, whose rôle will be to review the debtor s income and liabilities to draw up a manageable repayment program. There is provision for this program to be agreed in consultation with creditors Participation in the Debt Arrangement Scheme will only be available to personal debtors and sole traders with multiple debts Once a debtor enters into a Debt Arrangement Scheme, it will be illegal for any creditor to seek to enforce payment of any debt against him A debtor participating in a Debt Arrangement Scheme may wish to make payment by means of deductions from earnings. The Bill makes it clear that employers will have a statutory duty to make such deductions The Executive proposes to set up an independent organisation to be known as the Scottish Civil Enforcement Commission to administer applications to participate in the Debt Arrangement Scheme Much of the operational detail of the Debt Arrangement Scheme has yet to be finalised. This is one of the items under consultation in the Enforcement of Civil Obligations in Scotland. The result of this consultation exercise, to which the Council has been invited to contribute as a consultee, will influence the manner in which the Debt Arrangement Scheme functions. A draft response to the consultation document will be provided to Members for consideration in due course. 3.3 Attachment of Moveable Goods

3 PAGE: This diligence permits creditors to exercise diligence over moveable goods. Different procedures are proposed for attaching goods held in a debtor s dwellinghouse to those held outwith the dwellinghouse A creditor may only attach non-essential goods held in a debtor s dwellinghouse following the grant of an Exceptional Attachment Order by a Sheriff The Bill seeks to ensure that non-essential moveable goods held in a dwellinghouse are attached only as a last resort. This is achieved by setting out the following preconditions prior to the grant of an Exceptional Attachment Order : (i) (ii) (iii) (iv) the creditor must have provided the debtor with an information pack; the creditor must have taken reasonable steps to negotiate repayment of the debt: the creditor must have taken reasonable steps to enforce payment of the debt by a bank arrestment; the creditor must have taken reasonable steps to enforce payment of the debt by an earnings arrestment As an alternative to the grant of an Exceptional Attachment Order, the Sheriff also has the power to instruct a qualified money adviser to visit a debtor in his/her home, with a view to providing money advice, and thus a negotiated settlement. 3.4 Auction of Attached Goods Creditors will have the right to remove attached goods and sell them in order to repay the debt. This process is tightly-regulated, and the Bill places a duty on the creditor to maintain a detailed record of the removal and auction of goods. 3.5 The Scottish Executive s Policy The Scottish Executive has brought forward this Bill to encourage settlement of cases of domestic debt by agreement between debtors and creditors, without the need for legal action The Executive hopes that this Bill will afford meaningful opportunities for debtors to obtain help in order to achieve settlement. And in those domestic cases hopefully a tiny minority where there is really no alternative to enforcement action, it wants to guarantee that the necessary decisions are taken on the basis of the individual circumstances of the case, and that enforcement is tightly controlled The Executive is keen to ensure that formal enforcement is a last resort and this Bill seeks to direct creditors and debtors toward negotiated settlements and, in particular, towards the debt arrangement scheme, the Bill makes provision for incorporation of money advice as an integral part of the enforcement process In summary, the Executive has indicated that this Bill represents a new approach to debt management in domestic cases, based on negotiation and voluntary agreement without the need for enforcement action; while introducing a humane and workable alternative to poinding and warrant sale within the context of easily acceptable advice

4 PAGE: 4 and assistance and greater protection for domestic debtors. This will provide maximum protection to vulnerable debtors while maintaining a comprehensive system for enforcement of legally constituted debts against those who can but refuse to pay. 3.6 Implications for the Council It is difficult to outline with certainty the implications of this Bill for the Council, as there is no way of accurately calculating the consequences of its introduction. Even the Scottish Executive has conceded that it is unable to estimate with certainty take-up of the Debt Arrangement Scheme. Notwithstanding this caveat, some general conclusions can be drawn It will be clear from this summary of the provisions of the Bill that enforcement of payment of local taxes will become a more complex process and time consuming. Since the Council has to make frequent use of enforcement procedures for the collection of Council Tax, the Bill will certainly have significant implications for it Although Councils have to enforce payment of a large volume of debts, the Scottish Executive has signalled that it has no intention of varying for the benefit of Councils the strict conditions to be met prior to the grant of an Exceptional Attachment Order The Executive expects Councils to issue information and money advice packs to debtors at an early stage in the recovery process and it estimates that these will be up to 30 pages in length. The issue of such packs and the administration involved in Debt Arrangement Schemes will have a cost implication for the Council. 3.7 The Future of the Bill It should be borne in mind when considering the points outlined in this report, that this Bill is currently being considered by the Scottish Parliament. Once the parliamentary process is complete, there may have been major changes to its content which may mean that the Act which receives Royal Assent may be significantly different from the published Bill. 4. Financial, Staffing and Environmental Implications 4.1 Financial Implications The consequences for the Council of the new enforcement environment introduced by this Bill are likely to be twofold. Firstly, it is likely that the Bill will have consequences for the Council s revenue-stream and, secondly, it is likely it will increase the Council s administrative costs.

5 PAGE: In point 2.3 it was highlighted that the Sheriff Officer collected over 1.5m in unpaid Council Taxes alone in The increased protections for debtors will undoubtedly slow the enforcement process, and may even provide a temporary shelter for unscrupulous debtors keen to avoid taking responsibility for payment of legally-incurred debts, and this will mean that this revenue-stream will be diminished once the Bill passes into Statute The Bill may also have implications for the Council s ability to collect other debts due to it The Council s administrative costs are likely to increase in a number of areas. (i) (ii) (iii) A more complex enforcement environment will inevitably require an enhanced staffing complement to cope with the revised statutory requirements placed creditors. The Bill places an obligation on creditors to provide an extensive information pack to debtors and the cost of its production may fall to the Council. The manner in which the Debt Arrangement Scheme and the Scottish Civil Enforcement Commission will be financed has not been finalised. It seems likely, however, that this cost will fall on creditors, which will further increase the costs borne by the Council as a result of the introduction of this Bill. 4.2 Staffing Implications In a previous report, Striking the Balance Consultation Response, Members may recall it was estimated that any change to the manner in which enforcement of local taxes is administered would result in an increase in the Revenues Section complement. In that report it was estimated that it might be necessary to set up an Enforcement Team of, around, five full-time staff to meet the requirements of a more complex enforcement environment. At this time, this estimate seems to be a reasonable assessment of the additional requirement While it is difficult to make any firm statement at this stage, such is the nature of a Bill, it is reasonable to believe that the increased workload that this Bill will place on the Revenues Section will require its staffing structure to be expanded to meet these obligations. The most advantageous way forward is currently being investigated, and once this process has been completed, a revised staffing structure for the Revenues Section will be brought to this Committee for its consideration. 4.3 There are no environmental implications to this report. 5. Consultation 5.1 No consultation has been carried out in the preparation of this report. 6. Recommendations 6.1 It is recommended that the Committee note the content of this report.

6 PAGE: 6 Author of Report: James Taylor, Taxation Manager - Ext Background Papers: Debt Arrangement and Attachment (Scotland) Bill Debt Arrangement and Attachment (Scotland) Bill Policy Memorandum Debt Arrangement and Attachment (Scotland) Bill Explanatory Notes Ref.: JGT/LJC/