My Lords, I promised when I introduced the last amendment that I would have no truck with any mention of my noble friend Lord Mendelsohn other than the fact that he has put his name to this amendment. Unfortunately, I have received a message from him, or at least I think it is from him because it is not signed and his writing looks suspiciously unlike that which I am used to. If the Committee is as worried about him as I am, he says that he wishes to thank the Committee for the references made to him today and assures the Committee that he is in excellent health and looks forward to speaking to me later.
In moving Amendment 61AH I should declare my interest as the retiring chair of the StepChange Debt Charity. Debt relief orders were introduced in 2009 to help some of the most vulnerable people and make sure that they got relief from their debts. It is a key tool for people with few assets, a low income and a relatively small amount of debt, to obtain what has now become known as debt forgiveness. Unlike bankruptcy, the DRO is an administrative rather than a court-based procedure. Under the Tribunals, Courts and Enforcement Act 2007, people could apply for a DRO only through a debt advice intermediary authorised by an authority whose competence has been verified
by the Secretary of State for Business, Innovation and Skills. At present there are 12 competent authorities, many of whom are charities like the StepChange Debt Charity, but also Citizens Advice. One or two commercial organisations do provide DROs to people who need them, but the overwhelming majority—over 80% last year, according to the Insolvency Service—are provided by charitable debt advice agencies.
However, it costs the StepChange Debt Charity more than £2 million a year to support clients through this process. Given the numbers that we have as compared with others, I suspect that the total cost in the charitable sector is probably between £8 million and £10 million, so it is quite a high-cost operation. At the moment, out of the £90 fee that clients must pay to the official receiver to obtain a DRO, the Government via the Insolvency Service remits just £10 to the competent authorities. This comes nowhere near the actual cost of advising and processing a DRO application, which we estimate to be around £250. Clearly, this funding situation is not sustainable in the long term. With the pressure on charitable bodies, it is not possible for us to raise funds to do this because it is not an area which attracts much funding. We are therefore worried about how we will be able to sustain the service in the future. Indeed, it gets worse because the Government have now laid instruments to widen access to DROs and they predict that approximately 3,600 more people each year will now enter into a DRO. We welcome the extension of the reach because it is a good system at its heart, but it is clear that the effect will be to place an even greater strain on the resources of the charitable debt advice sector.
The StepChange Debt Charity would not wish to see an increase in the DRO application fee because that would defeat the central purpose of these orders, which seek to provide an alternative route to debt relief for those who are unable to afford the relatively high bankruptcy fee costs. Clients recommended a DRO by our advisers have on average just £6 a month surplus to save towards the existing fee. Even if they can make it up, it will be about 15 months before they can access the debt solution that they desperately need. Increasing the fee is not the solution. We have argued that the responsibility is on the Government to make a greater commitment to covering the costs of the competent authorities when these are charities delivering their statutory duties. We have suggested that one way of doing that is by looking at the balance of the fee between the Insolvency Service and the competent authorities. We have had a private discussion about this at one of the informal meetings that have already been referred to by the Minister. The point was made and I take it fully that it would be quite wrong not to expect the Government to act on anything other than a cost-recovery basis. However, what is appropriate for these hard-pressed charities? Why can we not also recover our costs in preparing what is an important avenue for a certain group of people?
This amendment signals the urgency with which we think this issue needs to be addressed, but we do not go into the specific details. The amendment would require the Government to review the adequacy of the funding arrangements for DROs to ensure sufficient funding for charities acting as a competent authority
in carrying out their function as authorised intermediaries. If the Committee would like my view to feed into this, it is that there is a parallel here with what happens in Scotland. In Scotland, the Accountant in Bankruptcy operates a similar system, but it is conducted increasingly at arm’s length from the AIB, which encourages other bodies to take on the responsibility of preparing and proposing to the authority—in this case the Accountant in Bankruptcy—that a DRO should be ordered. In other words, the burden of responsibilities and the costs come across to the competent authorities, but so does the fee. That is the essence of it.
A broader look at this could involve some engagement with creditors because although there are very small creditors in this system, deliberately, there are always some. There may be a way in which a body such as Citizens Advice or our charity could have a convening power to allow for creditors to make more of a contribution to this area. There are solutions here. I do not think that we are stuck in a cul-de-sac from which there is no escape. It is worth trying to do a little work on it and I offer StepChange Debt Charity as a specialist agency willing to have negotiations with the Insolvency Service, if it would like that, to see if we can come up with a solution. I beg to move.
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