Stage Three Review – Final Report

Core recommendation 3.1

Scottish Government led working groups should be established with focus on:

• Establishing the number of advisers required to meet demand, and a plan to put them in place
• Considering how existing technology can be used to enhance services in the sector, and establishing a plan to put the technology in place
• Delivering and ensuring consistently good income maximisation provision when people seek advice

Rationale

The insolvency regime cannot function without adequate services to deliver it. There is strong evidence of insufficient provision in the free-to-client sector and doubts over the ongoing sustainability and competitiveness of the commercial sector. Provision of advice and support for small business owners is particularly lacking.

There are clear opportunities to use technology more across the debt advice sector overall including making ‘back-office’ processes more streamlined and greater use of digital advice for people who are digitally able. Relevant technology, such as automated case note software and Application Programming Interfaces (APIs) to avoid ‘double keying’ of information between systems, are already proven to work. If rolled out consistently and effectively across the sector, this will drive significant efficiencies.

It is currently a matter of chance whether people receive income maximisation support when getting advice, with huge variation in the depth of support offered. Income maximisation should be core within advice giving. This is particularly important, and potentially impactful, given the high frequency of clients with deficit budgets.

Core recommendation 3.2

Scottish Government should work with the UK Government to deliver amendments to the existing debt advice levy to bring additional creditor sectors into scope. This change could enable significant additional funding to be generated for the system, without overburdening existing funders.

Rationale

The statutory levy is a reliable way to fund greater provision to enable the system. The make-up of people’s creditors has shifted markedly since the levy was established, making a strong case for expanding the number of creditors required to contribute.

Core recommendation 3.3

Increased partnership working between the ‘free’ and commercial sectors should be enabled, including more forums for the two sectors to liaise, identify partnership opportunities and share good practice. Specifically, Scottish Government should introduce an initiative to support new Insolvency Practitioners (IPs) being trained within the charitable sector, with support and mentorship from the commercial sector.

Rationale

Relationships between the free and commercial sector are poor in the main, resulting in missed opportunities for enhancing provision. Meanwhile the number of IPs is in decline, with few new entrants to the profession. Training new IPs in the free sector offers career development opportunities, should bring greater free sector involvement in repayment solutions and provides commercial firms with a larger pool to recruit from.

Recommendation 3.4

Scottish Government should make it mandatory that people have received independent debt advice prior to being able to enter any formal insolvency solution. This should be advice provided by a FCA authorised provider, or one otherwise exempted from FCA regulation by law. The Scottish Government should require that the advice provided has all available solutions in scope of it, so people in debt are fully informed on the best possible solution(s) available to them.

Rationale

Entering an insolvency solution is a vital life decision, with significant and markedly different consequences for people based on the particular solution they enter. Therefore, receiving impartial advice, covering all solutions, supports people in making well informed decisions. We received conflicting views in the review about how widespread the issue is of advice being given only covering a narrow set of solutions, however introducing this rule mitigates any perceived or actual issues.