Future of the Common Financial Tool – Consultation 2017
Future of the Common
Financial Tool
Consultation 2017
Consultation Report and Proposals
Table of Contents
1.Purpose
2.Background
3.Summary of Consultation Responses
4.Consultation Conclusions
5.Post Consultation Action
6.Proposals
ANNEX A: Organisations and individuals who responded to the consultation and agreed to their name being published
Introduction
This paper provides a summary of the responses to the Accountant in Bankruptcy’s Consultation on the future of the Common Financial Tool (CFT) and details the actions the Accountant in Bankruptcy (AiB) will now take going forward.
1.Purpose
To provide:
- a summary of the outcome and responses from the consultation on ‘The Future of the Common Financial Tool (CFT) in Scotland’, that ended on 27 October 2017
- a summary of the actions taken by AiB, post consultation
- detail of AiB’s proposals for the introduction of the Standard Financial Statement in Scotland from 1 October 2018
2.Background
The Bankruptcy and Debt Advice (Scotland) Act 2014 and The Common Financial Tool etc. (Scotland) Regulations 2014 (the CFT Regulations) introduced some important changes to the process of personal insolvency administration in Scotland. One of the primary changes was the adoption of a Common Financial Tool (CFT) for the purpose of assessing a debtor’s contribution in all statutory debt solutions. Following widespread consultation, the Common Financial Statement run by the Money Advice Trust was adopted in statute as the Common Financial Tool.
While Scotland was the first part of the United Kingdom to adopt the concept of a CFT in legislation under-pinning statutory debt solutions, further work has since been carried out by the Money Advice Service (MAS) to develop a Standard Financial Statement (SFS) for both statutory and non-statutory solutions. The SFS is intended to provide a single format for assessing a debtor’s income and expenditure for all debt management and relief products across the whole of the UK. This will provide consistency and assurance for both the money advice sector and creditors that the debtor will be paying no more and no less than is appropriate towards their debts. The SFS was launched on 1 March 2017, and over 1,000 users have currently registered their interest in adopting it.
The SFS figures are based on the Living Costs and Food Survey (LCF) conducted by The Office for National Statistics throughout the year. The LCF collects information on spending patterns and the cost of living that reflect household budgets across the UK. The baseline figures used for calculating the CFT and SFS are determined in broadly the same way.
With the advent of SFS as a single tool for use across the UK, the Money Advice Trust (MAT) has announced an intention to withdraw the Common Financial Statement (CFS) – the tools are broadly similar and there is no need for more than one.
Although no timeline has been confirmed for ending support to the CFS, as the CFShas been adopted as the statutory tool for assessing the level of debtor contributions, AiB must now either:
- identify and implement a replacement for the CFS and amend Scottish legislation before support for the CFS is ended
- work with MAT to extend the life of the CFS, pending the amendments
- retain the CFS and agree with MAT how this will be supported and funded
In order to obtain the views of all those individuals and organisations that would in some way be affected by the decision made by Scottish Ministers on the future of the CFS, AiB conducted a public consultation.
3.Summary of Consultation Responses
A total of 63 responses were received to the consultation. Responses were received from seven key business sectors listed in the table below. 31 responses came from organisations and 32 from individuals.
The 32 individual responses came from three business sectors - 22 from the Advice Sector, nine from the Local Authority Advice sector and one from an insolvency practitioner.
Number of respondentsAdvice Sector / 31
Creditors / 8
Government Dept / 1
Independent Public Body / 1
Insolvency Practitioners / 3
Local Authority Advice / 15
Professional Bodies / 3
Question 1. Do you agree that the Standard Financial Statement (SFS) should be adopted in Scotland as the new Common Financial Tool?
Total Responses / Organisations Only / Individuals OnlyYes / 17 / 15 / 2
No / 42 / 14 / 28
Don’t know / 4 / 2 / 2
Total / 63 / 31 / 32
28 Individuals and 14 Organisations did not agree that the SFS should be adopted in Scotland as a replacement for the CFT.
Question 2. If introduced, should the SFS be used in the review of existing contributions which were not originally determined using the SFS?
Total Responses / Organisations Only / Individuals OnlyYes / 14 / 12 / 2
No / 17 / 9 / 8
N/A / 32 / 10 / 22
Total / 63 / 31 / 32
The majority of respondents were not required to answer this question because they did not agree that the SFS should be introduced.
Question 3 - For what reason(s) do you believe the SFS is not the appropriate tool for all Scottish statutory debt management and debt relief solutions?
As shown in the answer to question one, there were a large number of respondents opposed to the introduction of the SFS in Scotland – in the main, opposition came from Scottish third sector money advisers. The main arguments given against adopting the SFS by consultees were:
- it would push debtors into poverty
- it would generate more trigger figure breaches, that will result in higher contribution payments for debtors that will not be sustainable
- it would create more work for the money advice sector, having to evidence more trigger breaches
- the SFS figures don’t reflect the cost of living in Scotland - they are too low
- the SFS figures are based on minimum standards of living and therefore do not reflect actual required spending needs
- introduction of the SFS would deter debtors from entering into statutory debt management/relief processes relative to non-statutory ones
There are also a large number of respondents supporting the adoption of the SFS – in the main, support came from: creditors; Government Departments and local bodies who use and promote the SFS; and a number of money advice organisations who are already using the SFS in England. The main arguments from those in favour of the SFS were:
- all debtors would be treated the same across the UK, when determining a contribution amount they should be able to pay
- consistency for creditors. They would be confident that the figure presented in contributions is the correct amount the debtor can pay
- money advice sector organisations working across the UKwould have only one tool to use to calculate the contribution, that would be accepted by all creditors
- the figures used in the SFS have been independently determined and are based on The Living Costs and Food Survey
- an allowance can be given for savings/emergencies, so the SFS is flexible to debtors’ future needs
Question 4.What do you consider an appropriate method for determining a debtor’s contribution for a Scottish statutory debt management and debt relief solution?
The consultation asked those respondents who did not support the introduction of the SFS to explain what process they would like introduced in Scotland to calculate
a debtor’s contribution, and who should manage and fund this.
Where a comment was made for a separate Scottish process, the majority would like the CFT to continue to be used in Scotland – with a couple of respondents saying AiB should manage this process.
Only one respondent explained how they would like the alternative to the SFS funded in Scotland – their suggestion being that it would be funded from the contributions paid.
Respondents proposed a number of alternatives going beyond the choice of tool to act as the CFT, suggesting more radical changes to the way debtors’ contributions were calculated including:
- taking a fixed percentage of a debtor’s income above a defined threshold
- using the Minimum Income Standards based on the Joseph Rowntree Foundation figures on essential expenditure, and only taking a contribution from income above these levels
- adoption of the Irish system, whereby independent parties determine what reasonable living expenditures are
These suggestions are seen as outside the scope of the current exercise, and will be taken forward into the Accountant in Bankruptcy’s forthcoming review of bankruptcy legislation more generally. There were equally a number of comments to the effect that the CFT was working, hence the recommendation that it is maintained in Scotland.
Question 5. If the SFS is to be introduced from 1 April 2018, will you be able to make any required changes to your IT and other operating systems, in time to use the SFS from this date?
Total Responses / Up to 3 months / 3 to 6 monthsYes / 27
No / 24 / 3 / 17
Don’t know / 1
N/A / 11
Total / 63
Half of the respondents who answered said that their IT and operating systems would be ready if the SFS were to be introduced on 1st April 2018. The majority of other respondents indicated that their systems could be ready within six months of a decision to move to the SFS (or any alternative tool).
4.Consultation Conclusions
There were significant differences of opinion regarding introducing the SFS in Scotland between the Scottish money advice sector on the one hand, and creditors, practitioners and those who have already introduced and are using the SFS on the other.
It is clear from the responses received that:
- the Scottish money advice sector was concerned the introduction of the SFS would have a negative impact on debtors, potentially increasing the burden of justifying trigger breaches, and where justification was not possible, increasing contribution amounts
- creditors want a consistent process to be used across the UK, both for administrative efficiency and to give them reassurance of fairness when asked to approve a debtor’s contribution amount
- those organisations who are currently using the SFS were not reporting any issues
Seven respondents who opposed the introduction of the SFS indicated that they would support it if the trigger figures were revised to better reflect expenditure in Scotland.
Even though money advisors raised concerns over the level at which the trigger figures in the SFS had been set, there was general support for the principle of a UK wide process for determining debtor contributions. At this time the process can only be the SFS - England, Wales and Northern Ireland are continuing to move forward with the SFS, with no plans to develop a further alternative.
5.Post Consultation Action
It was clear from the consultation that there were widespread concerns about the potential impact of moving to the SFS – and as a result, AiB decided it was not appropriate to seek to introduce the SFS in Scotland from the original proposed date of 1 April 2018.
Since the end of the consultation, AiB has worked with the Money Advice Trust to ensure that that CFS can continue to be used in Scottish statutory debt solutions for 2018-19 – and AiB is grateful for the Money Advice Trust’s agreement to this.
AiB has also worked with the Money Advice Service and SFS Interim Governance Group to assess how the concerns raised about the SFS could be addressed.
Since the consultation ended, the revised 2018SFS and CFS trigger figures have been determined and published. The SFS trigger figures are based on a revised methodology approved by the SFS Governance Board in January 2018.
AiB has now repeated the case analysis completed pre-consultation, using the same sample of 1,511 cases and the new revised 2018CFS and SFS trigger figure amounts. The findings of this analysis are published on the AiB website.
The new analysis shows that there would now be fewer trigger figure breaches using the new SFS figures, than the new CFS figures. AiB has also obtained assurance from SFS Governance Group that, going forward, the methodology underpinning the SFS will not be further changed unless on-going monitoring suggests the tool is not producing the intended results – so AiB does not anticipate there will be further significant changes to the relative level of trigger figures vis à vis the CFS.
The Accountant has also considered the revised case analysis completed by Money Advice Scotland, using the 2018 SFS and CFS trigger figures. This analysis does show that, in terms of number of trigger breaches, the CFS 2018 figures are comparable to those using the SFS 2018 figures, but the average breach amount was higher using the SFS 2018 trigger figures.
If evidence, or a satisfactory explanation, is provided to support a trigger figure breach, there will be no difference in the contribution amount calculated using either the SFS or CFS trigger figures.
AiB has engagedfurther with representatives from the money advice sector in Scotland, creditor organisations and current users of the SFS, to discuss both the consultation results and the impact of the revised SFS trigger figures.
On the basis of these discussions, AiB believes that the main concerns expressed in the consultation about adoption of the SFS leading to significant increases in potential trigger figures breaches and subsequent potential higher contributions have effectively been removedwith the revised 2018 SFS and CFStrigger figures.
AiBalso agrees there is scope to review the degree of evidence that AiB requires when considering the CFT information presented with a debtor application for bankruptcy. AiB will therefore work with the money advice sector to address the issuesraised in the consultation responses to agree a process that removes unnecessary duplication of work and reduce the administration burden for both parties.
6.Proposals
After careful consideration of the impact of the revised CFS and SFS trigger figures,AiB believes that the SFS is the most appropriate process to use in Scotland to assess a debtor’s income and expenditure and determine any contribution amount they can pay. Therefore, AiB will now recommend to Scottish Ministers that the SFS is adopted in Scotland as the CFT.
From the consultation responses, AiB has assessed that, in order to provide organisations with the time to prepare for the introduction of the SFS and to update IT software, the commencement date for the change over from the CFT to the SFS should be 1 October 2018.
AiB will now present these proposals to Scottish Ministers for their consideration and will keep its stakeholders updated on key issues and dates as matters progress.
Report compiled:19 March 2018
ANNEX A: Organisations and individuals who responded to the consultation and agreed to their name being published
Organisations
1. Albyn Housing Association
2. West Lothian Council
3. Musselburgh and District Citizens Advice Bureau
4. Moray Council Financial Inclusion Service
5. ICAS
6. Gilson Gray LLP
7. 180 Advisory Solutions Ltd
8. HMRC
9. Stirling Council Advisory Services
10. Money Advice Trust
11. City of Edinburgh Council Advice Shop
12. East Renfrewshire Council – Money Advice & Rights Team
13. Chartered Institute of Credit Management
14. R3 Scottish Technical Committee
15. Money Advice Scotland
16. One Parent Families Scotland
17. Campbell Dallas
18. Money Advice Service
19. StepChange
20. Citizens Advice Scotland
21. Association of British Credit Unions Ltd
21. Renfrewshire Council Advice Works
22. The Wheatley Group
23. Nationwide Building Society
24. UK Finance
25. Advice Services, Inverclyde Council
Individuals
1. Kenny Bowie – Falkirk Council
2. Robert Griffith – Falkirk Council
3. Paula Callaghan
4. Nicola Birrell – East Renfrewshire Council
5. Audrey Gallacher – West Lothian Council
6. Anne Stevenson – West Lothian Council
7. Alan McIntosh
8. Stacey Mitchell - Inverclyde HSCP Advice Services
9. Tony Quinn – GEMAP Scotland Ltd
10. Lynn McAvoy
11. Michelle Lovett – Renfrewshire Citizens Advice Bureau
12. Fiona Neilson
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