My Lords, in moving Amendment 5 I shall speak also to Amendment 42. Here I shall begin to put some flesh on to the bones of the discussion we have already been having. The amendment tries to unpick some of the questions about exactly what is going on among the various legs which are being added to this body. We are beginning to recognise that it is no longer going to be called the single financial guidance body for debt but the “signposting to other financial guidance support services”. That may well be where we end up, although I think that that would be sad.
Amendment 5 adds to the list of functions set out in Clause 2(1) what I call the “debt solutions function”. There is no advice, no guidance and no information. It will have none of that airy-fairy stuff because it is about solutions—getting people from the point at which they are unable to manage because their debts are beyond them to the point where they can re-engage with the wider world, take out credit and get back into ordinary living. That is the difference which was alluded to in the last debate; namely, that which can only be advice and that which is regulated to be solutions. It is important to make that point strongly here. Simply using the debt advice function can include these other areas, and indeed the earlier debate showed that, but it would be more helpful if the Bill explained and extended what is available to those who will approach the body and did so by clearly signalling that one of the important functions, one that will be important to them, is a debt solutions process.
The purpose of putting this in Amendment 5 and linking it to Amendment 42 is to be able to take a further step in the discussions which this Bill should engage with in terms of what it will allow, permit, encourage and support. That will lead naturally to the amendments in the fifth group containing Amendments 7, 23 and 41, the first two in the names of the noble Baroness, Lady Kramer, and her colleagues. Those amendments seek to add another function to the way we hope that debt advice can lead to debt solutions by creating what is commonly called a breathing space, to which I will return when we come to that arrangement. They can be seen both as an opening up of more functions and providing more certainty about what
the body will be able to do and to deliver. They are also an example of what action is required in terms of insolvency which would seriously enhance the ability of those who are working in this area to take clients on a journey that allows them to emerge from their current debts.
We had some difficulty with the clerks in getting this amendment in scope. It is not in the form that I would have preferred to see because—I will say this again on the breathing space amendment—what is required now is what was set out in both the Conservative Party and the Labour Party manifestos, which is that England and Wales are a long way behind Scotland in dealing with debt solutions. One of the great advances made by the Scottish Parliament has been to introduce a statutorily based breathing space and different insolvency regimes which very much have the client at the heart of what they are doing. The regimes are not creditor dominated. I could give noble Lords a brief lecture on the history of credit and creditors in this country but I will not because there are too many experts here who might pick me to pieces. However, we are obsessed by the place of creditors in our society. We ignore the problems that an overly zealous approach leads to: whenever there is a problem, the creditors are always assumed to be in a strong enough position to require 100% repayment of the debts that they have advanced to people. That has led to real difficulties when for reasons which have already been mentioned, people get into problems with their finances, even if it is not always their fault.
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We need to face up to the fact that in the real world, if someone has multiple debts and they confess to those they borrowed the money from, it is obviously a problem for those who advanced the money. But at that point there is a calculation going on in the brains of the creditors to work out what they are going to get back from the person who has come forward with a debt problem. The conventional wisdom is that it will be around 10%. That is historically what happens, it is practically what happens, and it is realistically what creditors will put in their books. Where people have multiple debts, the law and the framework expect that they should return 100% of those debts. Many people would indeed want to do so because they are not feckless, but the reality is that through the discounting and the risk activity that has been built into the algorithms which are used, the debt has already been written down to 10% of what it was.
I am sorry to take us on a slightly long journey through this area, but my argument is that if we are serious about tackling multiple debt problems—we call it unmanageable debt and we define the term in a later amendment—we ought to think about the solutions that are available to those who have to deal with these debts in a constructive way and have the individual in debt at the centre. Amendment 42 would begin the process of looking at the range of existing insolvency systems and regimes which can be brought into play by people who come forward with unmanageable debts. The difficulty is that while we have quite good structures, albeit that, as I have explained, I believe them to be based on a fundamental misconception of what we
should be trying to do in society about dealing with the management of debt—in other words, reducing slightly the deference we pay to the creditor—I still think that we have a long way to go.
Let us take as an example the debt relief order which is specifically designed for those in society who have virtually no assets and very little income. It is meant to be a cheap and cheerful way to go bankrupt. What is good about it is that it is done with very little paperwork, it is administratively quite a simple process and is dealt with efficiently by the Insolvency Service. It can be extremely effective in taking people from a horrendous situation—pursued by multiple creditors with the doorbell being rung by bailiffs and others—in a relatively short period of time. The problem is that the order costs £90, but many clients do not have that sum and therefore they cannot take it up. We had a discussion recently with representatives from Christians Against Poverty who have given us figures which I am happy to share with the Government if they wish to see them. They show that in more than half of the cases, the charity has to provide the funding that will allow the client to access the debt relief order system.
However, it gets worse. Of the £90 which is paid in order to participate in the DRO, £80 goes to the Insolvency Service because it has the responsibility to sort it all out and to issue the legal framework, so the sum is not unreasonable. That leaves £10 for the body that is helping the individual to move forward in this process. That is completely uneconomic. The last time I checked, it is costing StepChange around £2 million to take clients through the DRO system, which we all agree is the right thing to do but for which additional money has to be found because the funds are not available from these clients’ resources. That is a real problem and I give this situation as an example.
I am sorry to have to go into such detail, but there is a need for the single financial guidance body to carry out a review into our current insolvency arrangements which should focus more on what can be done to help those who have a genuine need to make use of them. This has already been done in Scotland. The systems have been changed and now there is a much more realistic approach to how the DRO equivalent works there. The funding is more equitable, it is easier to approach, and the breathing space that we shall be coming on to discuss is part of the package. The Scots have also tackled the issue of the excessive fees being picked up by insolvency practitioners who process the DROs and individual voluntary arrangements; action on this has long been required. That has taken place in Scotland and is something which again I think we should borrow.
These functions relate to the debt advice function, but they represent the other side of the coin and therefore need to be reflected properly in the Bill, as Amendment 5 requires, so that it is explained to the wider world that the SFGB’s core functions are not just about advice and guidance but about moving people away from debt to a different arrangement which restores their ability to cope with credit. I have given in Amendment 42 an example of the work that it could do. I said that we had had trouble getting the amendment into scope. I would like the Government
to commission action of their own to get such an insolvency review carried out. If it required the Minister to take away the Bill and change the Long Title slightly, it would make it easier for us to do it at later stages, and I commend that to her. I beg to move.