The Scottish Government's proposed system to calculate the financial situation of people in debt or facing bankruptcy should be delayed until significant reservations are addressed, a Holyrood committee reports today.

Following an inquiry into the Common Financial Tool (Scotland) Regulations, the Economy, Energy & Fair Work Committee has for the second time failed to endorse the new system. This time it recommends that a wider review be carried out, and that the proposed system should be deferred by a year, until March 2020.

The common financial tool attempts to implement the Bankruptcy and Debt Advice (Scotland) Act 2014, which legislates for a standardised system for assessing a debtor’s income when they use one of the three statutory debt solutions in Scotland – bankruptcy, a protected trust deed and the Debt Arrangement Scheme. The proposed standard financial statement (SFS) would replace the common financial statement (CFS) currently in use. Its introduction was planned for March 2019.

The CFS streamlines the process of negotiating informal repayments between money advisers and creditors. Creditors signed up to the scheme will not question expenditure which is below the "trigger figures". The trigger figures help identify levels of monthly household expenditure deemed reasonable.

Regulations were originally laid on 15 June 2018, but withdrawn on 10 August following requests from the advice sector seeking a longer lead-in time ahead of commencement. The regulations were re-laid on 19 September, but were withdrawn a second time, on 9 November, following a letter from the committee to the Minister for Business, Fair Work and Skills outlining members’ significant reservations.

During its most recent inquiry, the committee heard evidence from financial advisers that under the SFS, the "trigger figures", which set the level of repayments to take account of necessary household spending, are less flexible and require more evidence before being approved. This means that those in debt are more likely to struggle with repayments, and it could result in more workload for frontline advisers.

Committee convener Gordon Lindhurst MSP commented: "Following extensive consideration of the regulations, the committee is unconvinced of the adoption of the SFS. We have significant reservations around the rationale for moving to the SFS and the impact its introduction will have on the living standards of those who are paying back debt.

"While a reason for introducing the SFS was for a consistent approach across the UK, the committee recommends a delay until a more in-depth review by the Scottish Government is carried out."

In its report the committee says it "remains unconvinced that the adoption of a UK wide system would be beneficial to Scottish debt advisers and their clients at this time". It recommends that the wider review it calls for should include consideration of:

  • a minimum income standard for debtors;
  • reducing the administrative burden on money advisers;
  • providing more scope for the exercise of professional judgment;
  • evidence from debtors with lived experience of the current income assessment processes.

Click here to access the committee's report.