 Good morning and welcome to the 10th meeting of the Economy, Jobs and Fair Work Committee. May I ask everyone to turn their electrical devices to silent or turn them off if they are likely to interfere with the sound system? The first decision for the committee is to take item 3 in private. Are we all agreed? Yes. We have with us today, for our consideration of the bankruptcy fees Scotland regulations 27, our first panel of witnesses. Welcome to all three of you. First of all, Mike Daley, who is principal solicitor parliamentary and social policy unit at the Government Law Centre. Next we have David Mingus, director of insolvency at ICAS and Alan McIntosh, who is project manager, personal insolvency law unit at the Government Law Center. Welcome to all three of you. May I first of all ask the committee members if there are any interests to declare? Bill Bowman. I'm a member of the Institute of Chartered Accountants of Scotland to note that. John Mason. Yes, I'm also a member of ICAS. First of all, I think that both Mike Daley and David Mingus have submitted papers to the committee. Perhaps I could just ask just to start us off first, Mike Daley. The principal points that you would like to make about the particular regulations that we're looking at today, and then I'll ask the same of David Mingus. Then we'll move to questions from committee members. No need to operate the buttons in front of you. That will be done by the sound desk. Thank you, convener, and thanks for the committee to invite the Government Law Centre to get out evidence this morning on the draft bankruptcy fees regulations. To briefly summarise the concerns that the Government Law Centre has with respect to those proposed regulations, it's worth noting that the stated policy objective of those proposed regulations is to ensure that the bankruptcy fee structure in Scotland remains appropriate and fair. The notion that fee increases of almost 200 per cent can be appropriate or fair in our respectful view doesn't make any sense. We believe that those proposals are regressive, we think that they're unfair and we think that they're punitive. To take one very quick example, if I may, convener, under the current rules, the AIB would charge a fee of £2,800 on the repossessed sale of a family's home, which had £60,000 of equity. Under the proposed regulations, those fees would rise to £8,000, representing a 183 per cent increase. It's important to remember that that cost of £8,000, which has been proposed in that scenario, is in addition to the cost that a homeowner in Scotland will have to pay in terms of legal expenses during that process, which could be many thousands of pounds, and in addition to the costs of the sequestration itself. I've certainly seen many, many people who've been made bankrupt for £3,000, £4,000 of state council tax, or tax generally, and you will end up possibly with £15,000 to £20,000 in general fees in terms of sequestration. Here's the point. What's the justification for this massive increase? As far as we can see, it's to subsidise primarily the AIB's deficit due to a drop in cases over time, so it's its own costs, and also to cross-subsidise, to a smaller extent, a cap on the fees of insolvency practitioners, the fees that the AIB charges to insolvency practitioners. Our concern is that this isn't fair. At the end of the day, where's the value for money in this process? A process that ultimately is being paid for at the end of the day by Scottish consumers. Here's my final point if I may convener. We think that there will be unintended consequences from this policy, and that is, I fear, the situation whereby somebody has sequestrated, they have equity in the house, they're going to get repossessed. Unless we can defend them, and we do defend many people. Let's say that they get repossessed, those fee hikes go up. The chances of that person, or it could be a family, getting some money back out of their equity is substantially reduced. What that means is that their ability to have some money, for example, to pay for a deposit in a private rented flat, or to have sufficient money that, for example, they might be able to put that money somewhere, get back on their feet and maybe buy a property that's cheaper, all of that is going to be diminished, which has an implication for more applications to local authorities as a homeless person. The public costs in this are going to be something that's never been factored in by the AIB or in the impact assessment. The only thing that's been missing in the impact assessment is the impact that it has on the people of Scotland. That's our concern, and we're calling for a full review of the way that the AIB is funded so that we don't have this piecemeal approach, because it's not sustainable. The committee has already received my letter to the convener, so a lot of my detail is within that. I think that it is important to recognise that the AIB is a public body and that statutory fees are necessary. It's not opposed to statutory fees in total, it's just how that is made up, essentially. The statutory fees are certainly a necessary part of the AIB's operational income. I think that it's important for the committee to understand that statutory fees are ultimately payable by the end recipient of the process. In the main, that is likely to be the creditors, because they will either be the ones that are receiving a dividend or not receiving any dividend at all, but as Mike has already alluded to, there are occasions where there's what we would call a reversion, where all the assets are realised, all the creditors are paid in full and there is still some of the debtors estate left over, and that will go back to the debtor at that point. Ultimately, the fees are payable either by the creditor or the debtor in those circumstances. The Government fees in total or take out of the costs of bankruptcy are substantial. Most personal insolvencies are not VAT registered, they are private individual peoples, so by the time you add on 20 per cent VAT, the 15.5 per cent audit fee from the AIB and the other statutory fees, then the costs of that insolvency process are probably increased something in the region of 40 to 45 per cent. That's quite a substantial increase in burden on the estate in the first place. The fee proposals that are being put forward are certainly significant percentage-wise in many instances, although it is recognised that some of that is relatively small in terms of individual monetary value. An increase from £19 to £50 is not a huge amount in pure pounds, but percentage-wise it's a fairly significant increase. It's likely that, certainly in terms of some of the creditor fees, that burden will be felt by other areas of the public purse. It's likely to affect HMRC and local authorities in particular. The fee increases will be paid by them. Approximately two thirds of individual petitions of sequestration are made by HMRC or the local authorities, so predominantly the increase in that petition fee will be felt by the public purse elsewhere. We certainly welcome the cap on the AIB audit fee on practitioners. It's certainly a step in the right direction. However, the cap itself of £5,000 is going to affect very few cases and it certainly does not affect the AIB's income in some ways. I'm happy to provide examples later on if need be in terms of the complete unfairness, if you like, of the audit fee and the lack of value for money that provides. The regulations also provide for interest to be charged on late payment of fees. That particular aspect came to us as a surprise. There was never any mention of that as part of any consultation process. Again, we're not necessarily opposed to interest being charged. It's absolutely right where an insolvency practitioner firm does not pay the amounts that they're due, when they're due, then absolutely there should be interest charged. I think that it's really around the consultation process and also the level of the interest that's charged. The 8 per cent interest has been described by the minister previously as being punitive and I think that that's probably correct. I think that when we look at the lower level of interest rates at the moment, that's not a sustainable level. I think that in terms of the interest, that must certainly not just simply become another source of income for the accountant and bankruptcy. It really should be reserved for the cases where there's a need to take further action against somebody that's not met their obligations. As Mike alluded to, we're now in a new position of historical lows of personal insolvency rates. My expectation is that that low level will be continued for quite some considerable time. I don't think that we're ever likely to get back into the position where we're seeing 22, 24,000 people per year declared bankrupt in Scotland. We're in a position where we've got a potentially never declining circle, which obviously impacts on the fee income, which then circularises to require a further increase in fees as we go on. That's not a sustainable position. I think that I would agree with Mike in terms of saying that probably now is the time for a fundamental review of how the agency is funded, how the fees are set, how that's structured going forward. I think that there's also a level of conflict of interest within the AIB in terms of duplicate functions that are carried out elsewhere that, perhaps, that role in function cannot necessarily be ignored as part of the setting of the fee regime going forward. Thank you very much, Mr Mingus. Mr McIndoch will bring you in as and when, but perhaps we could move on to questions at this stage. If any of you wish to comment or respond to the questions raised by committee members, please simply indicate by raising your hand. I'll start off with a question from Richard Leonard. Can I just pick up, Mr Mingus, on the very last point that you made, which is about the potential conflict of interest between the accountant in bankruptcy, both as a practitioner and as a policy adviser? I wonder whether you could perhaps develop that a little bit more for us. It's a concern that I've had for many years. There are a large number of functions that conflict with each other within the agency. They act as the policy adviser to the Scottish Government. They act as a quasi-regulator to the profession. They have supervisory duties, which conflict with the policy advice situation. They act as the provider of accountancy services. Again, that must conflict with a policy adviser position as well. Beyond that, as well as being the actual carrying out of the case and supervisor of the cases, they also act as decision maker and appeal adjudicator in many instances as well. It's all fine and well, saying that we can put in Chinese walls or separate teams and such. Down and kill winning, the building is not that big. It must not be possible to keep everything completely separate apart down in that building. Those conflicts of interest must exist. Some of the functions are superfluous. The regulatory function really has come in from the Bankruptcy Act of 1913. We've moved a long way in terms of regulation since then. The primary act, as you're probably aware, up until last year, was the 1985 Bankruptcy Act. That was brought in one year before licensing of insolvency practitioners was brought in. We now have a fully robust regulatory regime for insolvency practitioners, which must bring into question what is the purpose of another layer of regulation that the AIB carries out and what does that add to the process. Those additional layers and conflicts of interest bring in the additional costs as part of that overall process. I just asked to the committee members and witnesses to keep your answers and questions as succinct as possible, because we are fairly limited in time. I'll move on to a question from Jackie Baillie. I will try and be very brief, convener. We understand that there are 533 bankruptcy awards made through credit of petitions for HMRC. It represents 38 per cent of the total. How likely do you think that HMRC will withdraw and seek private insolvency practitioners, as they have indicated that they might? As you say, they have indicated that they are looking at it from discussions that I've had with officials within HMRC. That's a real prospect, I would guess. I was quite interested in your figure for local authorities as well, that they represent between HMRC and local authorities two thirds. Do you think that local authorities are likely to follow suit then? There are certainly some local authorities that have already done so. Glasgow City Council, for instance, has a panel, if you like, that they will prefer to put it out to a private trustee rather than to AIB. It's likely, I would imagine, that other local authorities will follow suit as well. Let me state the obvious. What does that do for the future sustainability of that kind of fee structure? It's not sustainable in that simple form. One of my biggest fears is what was going to happen. We've seen that before. I would describe insolvency laws and the free structure as being a complex algorithm. When you start tweaking with one bit, it has unintended consequences. We've seen that as early as 2012, for example, when we raised the cost of low-income, low-income banknobs from £100 to £200, and we've seen a sharp drop-off in the number of people that were able to access low-income, low-income banknobs. That's now being reversed, but we've entered just the minimum asset procedure in April 2014, and the fees now come down to £90. My concern is that this unsustainability in the accounting banknobs is going forward because the reducing caseload in the policy of full-cost recovery is what we eventually come down to eventually. We're going to have to start hunting for other places where we can find fees, so maybe we come back and maybe in a year or two, we're looking at how much it's going to cost the debtor to apply for debt relief, and maybe we're not looking at £200, we're looking at £300 or £400, and I think that then creates barriers and it creates access to justice issues. Previously, prior to 2008, for example, if you were on an income-based benefit, you used to get a fee waiver because it was done through the courts in the legal aid board. We give you a fee waiver. That's no longer possible, so I think there's a danger. One of the reasons we had a big spike in banknobs is in 2008 was because where the Bankruptcy, Indulgence, etc., Scotland Act, we removed one of the legal obstacles and one of the legal barriers, apparent and solvency, for a lot of debtors to be able to go bankn up. That led to a massive spike in the number of banknobs. I think there's a danger going forward that we're going to start replacing legal barriers with financial barriers and financial obstacles to people, and that really does create a big access to justice issues. One tiny question. All in your submissions have said that you think that there should be a full review. Do you, as a starting point, believe that there should be full cost recovery? Can I answer that question, if I may? I think—and this comes back to Richard's point as well in terms of the conflict, the policy—and David has talked about this—the policy of resting with the AIB. Here's the real difficulty. To answer your question, it's no, but here's the real challenge. The rest of our legal system, the courts, even the employment tribunal—although the employment tribunal is not in a great place in terms of fees, but there still is fee remission for employment tribunals, and there are, for courts, based on income. There isn't for the AIB. How can that be right? If you accept that the AIB is undertaking some quasi-judicial functions that used to be in the Sheriff Court but have now been passed to the AIB, ordinarily, if you were on a low income, you would not have to pay fees, but you do have to pay fees. Why is that? The reason for that is the very point about the conflict of interest, because the AIB is setting the policy. That can't be right. The final quick point is that when it comes to accessing justice, which the AIB is doing some of, it goes back to the Magna Carta, goes back to habeas corpus. I was involved in some of the work that led to challenges, because we never had fee remission in Scotland for a very long time. What it leads back to is that there's a constitutional right in Scotland, and indeed the rest of the UK, that when you access justice, you're not accessing a commodity in the sense of buying a tin of beans and you've got a choice. Often you're accessing it because you've got no choice, so there has to be an element of being able to access justice if you're very poor on a low income and not being hit with those charges. Andy Wightman Have any of you done any calculations as to what would be the impact on the accounts in bankruptcy's forecast deficit, which in the policy notice described as £1.3 million in 2017-18, £4.2 million in 2018-19 and £3 million in 2019-20? What would be the impact on that deficit if the fee order did not proceed and we remained with existing fee order? I mean, I think one of the things that's actually said in the business and regulatory impact is that in terms of the actual fees in relation to the commission for recovering herbal property, which is the house issue, the benefits of that will be passed on to the account in bankruptcy's agents. Because account in bankruptcy don't always administer a lot of bankruptcies that have agents instruct to do these things. One of the things that is noted in the business and regulatory impact document is that in relation to herbal property, obviously the audit fees are different, but I think that the benefits are being passed on to other agents. I don't even know if the AIB will benefit directly from those fees or whether it will go to the agents. Certainly, I don't have access to figures that would allow me to do that calculation. I think that a lot of that is very much dependent upon information that only the AIB will currently have, so I'm not able to specifically assess that. Certainly, I would imagine that the impact of not doing this will be exactly what they've said in the policy statement in terms of where it's likely to impact on their fees and those levels. Just very quickly, if you think about the real world for everybody else, whether it's public bodies, whether it's charities in the third sector, as we've all had to deal with cuts, we've all had to absorb the pain of austerity, the AIB must be one of the few, the only body in the country that seems to be in a bubble. That's why our concern is that who's paying for this? It can't be right that it's coming out of the equity of somebody who's paid their mortgage all their life. They end up going through hard times, going through trauma, and then the AIB come along and take a hundred and eighty-eight percent increase from their house. Can I, of course, point here as well? In the business regulatory impact document, one of the things that it does say is that it identifies that people will be impacted with us, as has been the creditors and solvers and practitioners. I think that that's quite disturbing because I've got two cases here, one from Ross and Cormarty, one from South Lanarkshire, from Citizens Advice Bureau that I've dealt with in the last week, which involve in both cases young women that have actually got homes with young children in them. In one case, the young women, if their house is sold, the difference is going to go from two and a half thousand to six thousand, seven hundred and fifty. In the other case, if the house is sold, it's going to go from three thousand, four hundred to nine thousand, five hundred. These are cases where there would be a reversion of funds back to the debtor. They are losing their home and in terms of vulnerability, I don't think banknotes are getting any more harsh than that, that you will lose your home when you've got children. In these are cases where these people are going to see a dramatic increase and ultimately one of the things that the AIBC and the policy doctrine is that ultimately the cost of banknotes or sequestration is borne by the creditors. That is absolutely not true because in some cases, like these, it is actually borne with the debtor. These are people that are paying £100 in the pound back to their creditors. They are paying for the cost of the administration of their banknotes. They are losing their home and they are also paying the £8 per cent snatch interest in their debts, which the minister himself has described as punitive, and they are going to introduce massive increases. That, to me, seems blatant and unfair. Can I just get some context to that? Very briefly, in terms of figures, that roughly equates to about four per cent of all sequestrations per annum, resulting in a reversion back to debtors. That equates to roughly about 260 individuals per year, just to give it some context there. Gil Paterson, Gordon MacDonald. I want to come back to a point that Mike Dailin made. It's not actually a review that you're looking for, you're looking for a suspension then look to come up with a new system, as I understand it. I think that's right. Obviously, because the draft regulations have been laid in the lead committee, I suppose that we technically have to be rejected. If that's not done, then clearly we're going to have a difficulty here. I think that you're absolutely right. The other point is, in regards to the percentage of those who are not paying or sloping, if it's not eight per cent, what would you suggest to the committee would be a more reasonable figure? I remember discussing this at a round table when Hugh Henry was the justice minister, and he agreed, and as my colleague Alan has said, Paul Wheelhouse, the minister, agrees as well. Eight per cent is, goodness me, nobody's getting eight per cent. If you look at any current account, if you look at a savings account, even an ISA, the banks in the UK have actually reduced the rates on ISAs, you get a better rate on a savings account if it's not an ISA because of the base rate is half a per cent. The idea that you can get eight per cent, and sometimes there's years and years before these cases are ultimately fully wound up, I think that it's got to be something above the base rate. We could look at other jurisdictions. Alan, what's the position on Ireland? The situation on Ireland, the Republic of Ireland, I've also had an insolvency practitioner there, but the situation there is in December. They've always been tied to us and had the same eight per cent rate that we've had in the UK, but in December the Irish Government reduced it to, I believe, two per cent in terms of judicial interest and statutory interest. They've reduced it already. There was a law commission report a number of years ago that's looked at the judicial rates of interest and it was suggesting pegging it to base rate and something around one and a half per cent above base rate and pegging it that way so that it fluctuates. My last point was in regards to the notion that insolvencies are going to remain slow. Can you give us any information why that would be? That's what your thoughts are. I think that there's a realisation within the creditor community. Ultimately I guess that the creditor community are in the main commercial businesses. They want to get as much back as they possibly can do. They recognise that in this day and age that it's better to work with the debtor to get something back than to get nothing back out of bankruptcy at the end of the day. The regulatory system around the financial conduct authority about treating customers fairly has a big impact on how creditors will deal with the debtors. There's certainly no rush now to declare somebody bankrupt. You will see from the figures that the majority of bankruptcies are voluntary led so they're led by the debtor rather than by the creditors. Unless there's some sort of social change, I don't expect any change in that. Everyone's really predicting that there might be a small increase in insolvencies over the next few years but certainly nowhere near back to the level of 22,000, 24,000 that we were seeing six, seven years ago. I mean, just to add to that, when we did see that 24,000 or so, maybe 10 years ago, one of the reasons for that was because there were legal obstacles that were removed that allowed people to actually go bankrupt with their bankrupts and diligence etc. So there was a build-up of people plus also there was actually a build-up of historic debt and we've actually dealt with a lot of that historic debt very well in Scotland. In actual fact, I think there's probably been a bit excess of 160,000 insolvencies since 2008 and when you compare Scotland with other jurisdictions like Ireland who had a very antiquated insolvency system, they're still trying to deal with that historic debt from the pre-credit boom sort of, the sort of pre-credit crowd sort of era. Scotland, we've been actually very effective and very successful and now people have other remedies as well like the debt arrangement scheme which allows them to avoid using insolvency. So I would agree with David on that. I could come to a question from Gordon MacDonald now please. Thanks very much, convener. Mike, I wanted to ask you about the information you had in your paper. You said that there had been no significant reduction in staff costs or AIB costs over all over the last nine years. But would you not accept that they don't reflect any inflationary increase? Looking at the Bank of England's inflationary calculator, 2008-09 AIB expenditure was £12.4 million. To reflect that, in 2015-16, we would have suggested that the figure should have been at £15 million and it actually came in at £12.2 million. Would you not accept that there has been a cut in the operating costs of the AIB over that period? I accept what you say and that's correct but what I would argue is that that applies across the board for all public bodies. It applies actually across the board and I think that the point that Colin Gallin was making is that because at the end of the day this is ultimately real people that are paying for this. Typically, people have not had wage increases or it may be a 1 per cent wage increase. People that then end up in social security benefits have had them frozen. The volunteers in the third sector, the public sector have all experienced that real cut. Of course, the Scottish Government has experienced massively big cuts in its budget and that has been passed on and local government too, of course. The point is that why should the AIB be different to any other council, a non-departmental, public body, a charity or indeed a business? If somebody was running a private business and their case numbers dropped and their income dropped, if you tried to just simply double your fees, you would discover that in a competitive open market people would say, well actually I'm not going to use your business, I'll use somebody else. This comes back again to Richard's point about the conflicts here. You can't get anybody else, that's the problem. We've created this creature, if you like, that is doing a lot of good work. We're not saying that it's not doing good work but what we're saying is that because of all the conflicts it's ended up in this mess of a situation. I mean, I'm not disagreeing with what you're saying, I'm just trying to get to the background to your figures, that's all. Sure. Again, AIB staff numbers, you've got at the very high peak of 22,410 insolvencies of 140 staff and they're currently round about that 140, 145 staff. But before that peak, back to 2006, 2007, immediately before that large peak when the cases were run about 6,000, they were still at 140 staff. So are you saying there's too much slack in the system or how did they cope with that peak when the staff levels seem to have been more or less consistent although it did go up a wee bit during 2008 and 2009 etc? I mean, one of the things that we also have to factor in here when we're comparing figures with 2006 is that there's always the system in Scotland that's dramatically changed. We've seen massive improvements in terms of software with basis, Astra, the DASH system, we're moving away from clerical applications to online applications. We've actually seen with the bankrubs in Dead Advice Scotland that a lot of additional roles and administrative roles have actually been placed on the free sector and the advisers. When we are making comparisons we need to realise that there has been a lot of moving in the furniture, there has been a lot of technological advancement, which would also suggest that you would expect to see a reduction in terms of the time required to administer cases and also the cost involved as well, which I think has to be taken into consideration. Very quickly, in terms of the rest of the public sector in Scotland, what's really happened, although there's a Scottish Government no redundancy policy, what you find happens in practice is that when people retire or when people move out into a different sector or move completely, posts are not filled. So there's lots of organisations that are having to operate with unfilled posts because normally your staff costs are your biggest outlay, so they've had to do that in order to cope with their settlement deal in terms of their budget, but the AIB's not doing that. Again, not to labour the point, but our concern is that it's quite perverse, that it's able to do that at the expense of very vulnerable people. My final point is that, with a vast reduction in the number of cases, has there been any change in the complexity of the cases? I wouldn't say that there's been any substantial change, no. Okay, thanks. Bill Bowman. Thank you, convener. I think that David Meng has said at the beginning that there were conflicts of interest within the AIB. If you were to resolve those, would that add extra cost or are there other bodies that could take over some of these functions of regulation or whatever you were thinking about? Certainly, when you look purely at the regulatory system, as I think I already mentioned, we now have a very robust regulatory system for insolvency practitioners within the UK. That licensing system has been there since 1986 now and works pretty well. The regulatory function that the AIB currently has is really historic from the 1913 Bankruptcy Act when we didn't have that regulatory system there. There doesn't seem to be any real function now for the AIB to be duplicating that regulatory function. Certainly, if that was taken out, I would imagine there would be elements of cost to go out with that. I have no idea how much that is. The public accounts don't disclose that in terms of a divisional reporting basis, if you like. The logic of that is that there must be an element of cost that could be removed. The conflicts could be resolved without putting in place yet more cost? John Mason. I was really to follow on from Gordon MacDonald's line of questioning. Are you clear how much of the AIB's costs are fixed costs, so whether they have 10 cases or 5 cases, that cost base is inevitably the same, and how much of it is linked to the actual number of cases they have? Do we know that at all? What we do know is that we have talked about the numbers of staff remaining the same. We have provided evidence on an annual basis that their cases have dropped quite substantially. That must mean that, if you did a cost-by-case analysis, the cost of their cases has shot up, which is perhaps no surprise that the costs of the fees are going up because that's what's happened. The ability for that to happen in that way, we say, is very unfair, because if you look at other public bodies, they are not in a position to do that. We do have other public bodies that can charge fees, but we certainly don't see fees even looking at local authorities in terms of registration processes and so on and so forth. We don't see that massive hike in the public sector in the country, so it's a very peculiar thing. We think that it's because of these issues of conflicts and because you're effectively operating within this bubble, and that's why we're saying that it needs to be looked at in the round. I can get that by. I'll put them up a bit fairer to ask them. The other side would be—we're saying that there is a £30,000 equity—this is your figures' Government Law Centre—the fee would be £4,500 double, but £60,000 would be £8,000 so it's roughly double. Presumably, the actual cost to the accounting bankruptcy is not double because the estate is double, is it? Can I give you an example of that? You could have two people living next door to each other, somebody in their 30s and somebody in their 60s. There is exactly the same house. The first person in their 30s is because—that raises an issue about equality, which I don't think has really been dealt with either in this business in regular impact, because it doesn't identify the debt. There's somebody who's been potentially impacted by this, and therefore I think we've maybe missed equality issues, but you can have somebody who gets one house sold. They've only got £10,000 equity because they've got a £10,000 mortgage, and the AIB takes £1,500 because that's the 15 per cent of £10,000 equity. The person next door, they've got 100 per cent equity, so they've got £100,000 equity because they've no mortgage because they've worked all their life, they've paid their debts, they've actually paid their mortgage off, and that person, they have to pay us £10,000. It's disproportionate, obviously, because it's based on equity. The cost to actual selling in both houses is the same. The work involved in doing administration in the bankruptcy is the same, but the person who's actually got the equity, possibly an elderly person, I would expect that would be more likely to be the case. No, they disproportionately pay a bigger cost to actual, for the system, because ultimately, you know, it's on a sliding scale. The argument will be its ability to pay, but we can take that up with the minister and so on. I mean, the £1,500, which is the minimum one, do I take it that that would not cover the accountant and bankruptcy's costs that they're at? That's a commission, so that's, I would imagine, maybe David can confirm this, but that would be in addition to the cost to actual selling of the property, I would imagine. That's correct, so the basic fee, which is, I think, the very first one that's listed in the schedule, that is just a fixed cost, no matter whether a case has assets or no assets, essentially. I would be thinking, if I did an audit, it would be so many hours at so many pounds an hour. Is there any relationship in with that? I think within the policy paper, the AIB set out how they actually came up with that figure, which was basically their fixed cost divided by the number of cases multiplied by the four years. So we're back to fixed costs again? Yes. It's not the case. Yes. Right, okay. So that's a basic fixed cost fee. Okay, well I'll pursue that with them later, thanks. Cheers. Are there any other questions from committee members? Dean Lockhart. Just a very quick one. The fees that we were discussing related to the bankruptcy of individuals, soul traders and partnerships, I understand. Can you give me, don't need the detailed numbers, a rough breakdown of, if we're looking at 4,000 cases this year or last year, what would be the breakdown between individual bankruptcies, partnerships and soul traders? I'm not sure. I certainly don't have access to that information. The Continent Bankruptcy would be able to provide that. Okay, just a quick supplemental then. Most bankruptcies are voluntary in terms of the debtor volunteering to, after advice from a money advisor. Do you have a rough idea of when it comes to individual bankruptcies, what proportion are voluntary versus being forced into bankruptcy? I think it may be as much as 80 to 90 per cent. High 80s are actual voluntary in less than 10 per cent of actual debt. It was about 86 per cent a couple of years ago. I don't know if David's got more up-to-date figure with actual voluntary. That's a complete reversal for what it was about 30 years ago. Certainly in the last fiscal year there were only 3,765 creditor-led actions in that year. It's certainly in the minority here. Just when it comes to voluntary bankruptcies, what would be the main cause, what would be the main trigger, encouraging someone to seek voluntary bankruptcy? Usually they would go to a money advisor. I think that obviously people who have financial difficulties would go to a money advisor. One of the things that I brought in with the bankruptcy and debt advisor, Scotland, is that you now need to receive advice before you can go bankrupt. I think that most people would go to a money advisor. The money advisor would look at all the options including the debt arrangement scheme, and it would be on the advice of the money advisor or the insolvency practitioner that a debtor may apply for their own bankruptcies, being the best option for them. Creditor petitions tend to be, and usually these would not be the cases that I would imagine would be affected by these big fee hikes and realising that assets, because most money advisors wouldn't advise somebody to go bankrupt if it meant losing your home. They would look at another option like the debt arrangement scheme. Those cases really impact primarily on credit petitions, where it is a creditor that takes a court action to force somebody into bankruptcy. Thank you very much to our witnesses. That concludes this part of our session. I will suspend the meeting. Thank you very much to all three of you for coming in today. Welcome back to the second half of this morning's session. I would just like to welcome Paul Wheelhouse, Minister for Business, Innovation and Energy, and Graham Fisher, who is head of branch legal directorate, constitutional and civil law for the Scottish Government. Richard Dennis, who is the chief executive accountant in bankruptcy, has been unfortunately delayed in traffic, so we will commence without him having discussed that with the minister. I think that he is happy to commence. I think that there is a representative from the AIB present in the room who should feel free to pass notes to the minister if there is any issue that is felt could be assisted with during this session. Minister, first of all, have you seen the papers from ICAS and from the Govern Laws Act? I have, yes. There are a number of issues raised in those, which will be no doubt covered by members of the committee. You will be given an opportunity to respond and comment on matters as they develop. I just wanted to raise, first of all, perhaps not the first issue, but it is an issue that has been raised about the rate of interest that is proposed to be introduced by the regulations. The rate of interest at 8 per cent, and I think that you will have seen the quote from yourself in the ICAS submission, referring to 8 per cent as seemingly punitive. I think that Graham Fisher may also be aware of the current state about the judicial rate of interest, which is 8 per cent, which seems to have been the basis for this. In a courtroom situation, a judge can modify that interest. I do not think that there will be any similar provision for modification in the regulations that we are considering today. Of course, the issue of that rate of interest was considered by the Court of Session in the case of far-stud supply AS in the 20th of February 2013, so over four years ago. What was said in that case in the Court of Session upheld a decision by a lower court judge to reduce the rate to 4 per cent was that it is plain that the mismatch between the judicial rate and interest rates prevailing in the financial world, which has existed following the crisis of 2008, is a matter of concern. That was at paragraph 31 of the judgment. I am just wondering why one would think of introducing in terms of these regulations a rate of 8 per cent or what your views are on that, considering that it has been raised as a matter of concern that it should be that high by the courts themselves, which seems to be the basis of this rate of interest. It is an important point, convener. I was going to address a number of things in open remarks, but that would be very helpful. I will start with that in the sequence that is easier to address. I have, correctly, been cited that I have put on view my view that the judicial rate of interest is too high in the current context. We are anticipating that the UK Government is going to be undertaking a consultation, UK-wide consultation on the judicial rate of interest. We hope to learn from that and be able to adapt the rate that applies in Scotland accordingly. If that does not come forward, it is taking longer to get started than we had originally anticipated. We will obviously have to review our position and perhaps do something unique to Scotland to take a lead on that issue, but we are still of the view that consultation will take place UK-wide. We will be able to benefit from the input from stakeholders about the appropriateness of using an eight per cent judicial rate of interest as the basis for those kinds of decisions in due course. I acknowledge that it is a high rate. It is worth stating that the rate that is applied is not applied across a large number of cases. For example, two debtors account for 59 per cent of the aged debt that we have. That is due for more than 30 days, and that totals more than £230,000. Of that, around 80 per cent of the aged debt relates to protected trust deeds. Given funds are un-gallered, one from one month of the trust deed being protected, the argument that those should be paid from an insolvency firm's own funds should not really hold true, we believe. There is an issue around if there were sort of court fees or if there were statutory fees that were applied, there would not be a question about the need to pay quickly. I will go through my opening remarks, convener, and perhaps Mr Fisher, who has got some knowledge of the case that you outlined earlier. Thank you for the opportunity to address the committee this morning, convener. These regulations clearly update and replace the bankruptcy fees Scotland regulations of 2014. For the most part, they apply to bankruptcies arising from debtor applications made or creditor petitions received on or after the third of April of this year and protected trust deeds granted on or after this date as well. Previous fees will continue to apply to pre-existing cases, and that is important to make that point. I believe that there is a clear case for the regulations to come into force in their current form. Ensuring that people of Scotland have access to fair and just process of debt relief is a key priority for the Scottish Government, and I believe that we have a strong track record in this regard. The accounting bankruptcy or AIB is the office holder responsible for these processes and oversight of the AIB's role and performance as a ministerial responsibility for my portfolio. I am, of course, accountable to Parliament for ensuring that the funding and administration of insolvency strikes the right balance between drawing upon public funding and generating fee income for helping with cost recovery. I believe that it can be shown that AIB achieves this balance and, in my view, we have a personal insolvency regime that stands favourable comparison with any other in the UK. By way of context, in 2016-17, AIB's parliamentary approved budget was £2 million after the spring budget revision. Forecast reductions in operational income due to changes in the number and composition of cases will see this public funding requirement increase to £4.2 million in 2018-19. In that context, it is worth stressing that the measures introduced in these regulations will only provide an estimated £207,000 of additional income to help offset further requirement for additional public funding. The question is whether the balance between extra funding from the taxpayer and extra income from creditors is the correct one. Clearly, continued efficiencies by the AIB will play a vital part in minimising the impact on the taxpayer. AIB's staff figures show that, in 2009-10, there were 173 full-time equivalent staff. In 2015-16, that has dropped to 139, a drop of 20 per cent. I am aware that the committee has seen papers from other witnesses, but I would stress that they do not accurately, in our view, represent the change in personnel numbers in recent years. Over the equivalent period, AIB's funding requirement from the Scottish Government has reduced from over £4 million to the current position. Furthermore, it is important to note that, in the last three years, AIB has introduced three major public-facing IT systems all within time and budget. Each of those systems has a specific aim of simplifying procedures, reducing administrative effort and increasing efficiency in processes, not only for AIB but for money advisors, debtors and insolvency practitioners. AIB has also taken on additional tasks following legislation passed by the Scottish Parliament. Reforms introduced in 2015, implementing the Bankruptcy and Debt Advice Scotland Act 2014, resulted in new functions conferred on and transferring to the AIB. The aim was partly to reduce burdens elsewhere in the system, not least in the Scottish courts. AIB now considers applications for recall of bankruptcy, the award of short-term bankruptcy restriction orders and applications to cure defects in procedure. Those were all previously preserved to the court and there has been no increase in resource or staffing to support this increased workload. Hence, not only have staff numbers been falling, this is in the context of new responsibilities and IT investment having been successfully deployed. Turning to the cost of administering bankruptcy procedures, I am aware of some of the concerns that are being raised by witnesses relating to the fees charged and the realisation of assets. I note those concerns. However, as the committee may already be aware, the administration costs charged by AIB for insolvency cases in Scotland are significantly lower than those that apply elsewhere in the UK and will remain considerably lower even after the proposed changes. I will now set out the relevant differences from the approach taken in England and Wales and, in Northern Ireland, two separate jurisdictions for this purpose. Where assets are realised, the sums potentially available to creditors in Scotland far exceed the equivalent figures in England and Wales and I would be more than happy to provide further information to the committee to support this. I believe that a table may have been provided this morning but I hope that that will be helpful in our later debate. At the outset, I should state that AIB has made a firm commitment to ensuring that debt relief mechanisms in Scotland are accessible and that financial barriers to entry are minimised. That recognises that it is often the most vulnerable within society for whom debt relief and insolvency present the only option to provide a fresh start. In April 2015, AIB introduced the minimal asset process, a low-cost mechanism to access bankruptcy for those with few assets and no disposable income. The fee charged in Scotland for this scenario is £90. The general upfront fee to access bankruptcy in Scotland is £200. By comparison, in England Wales' upfront fees to be met by debtors are £680, i.e. 240 per cent higher than in Scotland, and in Northern Ireland the fee is £640, 220 per cent higher than in Scotland. The upfront costs for petitioning creditors are very considerably lower in Scotland, too. Those costs are £563 here, as opposed to £1,270, or 126 per cent higher in England and Wales, and £850 in Northern Ireland, 51 per cent higher. It's worth stating that, when looking at realisation of assets, the overall costs of administration, including commissions, are very considerably lower. In Scotland, that might amount to £3,936, or 39 per cent for realising £10,000 of heritable assets, where it would amount to £8,292, or 83 per cent cost for an equivalent process under the insolvency service in England and Wales. There is a 43.5 per cent difference in the share of the asset value taken in England and Wales as part of the process. For £100,000 asset, the difference is less eye-watering, but the costs in Scotland are still substantially lower, with the effective cost being 13.9 per cent of the asset value realised in Scotland, but compared with 21.8 per cent in England and Wales, taking 7.9 per cent less of the asset's realised value in Scotland. So, convener, we are very conscious and need to keep the cost down where we can do so, and I think it's important that we continue to preserve low-cost access to debt relief for debtors, and with no proposed increase, the proposed regulations do exactly that. I believe that these regulations set out a sensible and equitable approach that reflects the challenging context for public finances and adaptive change in case numbers, but support the continuation of a fair and just debt relief mechanism in Scotland. No one would choose to increase fees without good reason to do so, however, the fact remains that the costs required to be met, and my belief is that it would be unfair to instead levy further upfront costs that would act as a barrier to accessing debt relief in the first place, and it would equally be unfair to put this all at the door of the taxpayer. The proposed fees regulations coupled with the on-going efforts to achieve efficiency savings represent the most effective approach while leaving more of the asset value after costs than is in the case in England and Wales. My colleagues and I, or colleague in this case, are happy to answer any questions or expand further on the points that I've raised in this information. I apologise for the long statement, but hopefully it's helpful. Thank you very much. That gives a context to your position, and I'll come to a question from Jackie Baillie first of all. I wonder whether I could explore with you, Minister, credit of petitions, because we heard evidence this morning that between HMRC and local government, this accounted for something like two thirds of credit of petitions. We also heard that the HMRC are seriously considering withdrawing from the accountant in bankruptcy and seeking assistance from insolvency practitioners in private practice. This is also being followed by local authorities. That makes me wonder about the sustainability of the AI given that, as prices increase and charges increase, customers will go elsewhere. I think that he's doing important points. It's a pity that Mr Dennis is not here to take forward the issues. I know that he's been in discussions himself with HMRC around these particular matters that we've discussed in ministerial meetings. We're trying to maintain a balance of having competitive fee structure and trying to work clearly. HMRC works very effectively with the AIB and we value that relationship, which works extremely well. We would look to discuss and understand the concerns that HMRC has, but I'm not anticipating—this is a very timely arrival from Mr Dennis—that there's any immediate issue. It's certainly something that we would need to take into account for Mr Dennis' benefit just arriving. We've just discussed the issue of creditor petitions and the dominance of HMRC in terms of the work that's done to AIB and threat to withdrawal from working with the AIB. I believe that the package that we're putting forward today is proportionate. It's about making a correct balance between the taxpayer funding of the services of AIB and reflecting the drop-off in the number of cases in particular categories. We need to cover the costs of the organisation while maintaining—and we obviously don't want to reduce the effectiveness of the organisation by continuing to see numbers of staff fall. It's getting that balance right. I think that we have got a proportionate system, hopefully one that delivers more for the creditor ultimately, that hopefully leaves some assets left for the debtor as well after creditors have been paid. That's less likely to be the case in England. 82 per cent of the value of a £10,000 asset is taken by costs and fees and commission before we even start to pay the debtor, pay the creditor back. Can I maybe push the minister just a little bit on this and maybe Mr Dennis now that he's arrived might help you? I am genuinely interested in is there a plan B because if HMRC do withdraw and if local authorities then seek alternative arrangements, that's a big chunk of the work of the AIB gone. Do you then take that monetary value and spread it amongst the rest of the debtors or is there a different plan B? I mean, I take the point entirely and that we need to prepare for a scenario such that. I hope that that scenario doesn't unfold, but if I can maybe bring Mr Dennis, because as I said earlier, he has been discussing this issue previously. Thank you, minister, and my apologies to the committee for being held up on various motorways during the snow today. Am I writing the fact that Ms Bailey is picking up comments in the dissif minutes from HMRC suggesting that they might look to appoint their own trustees? And in evidence from ICAS this morning? Yeah, which is quoting those minutes, I think. So you'll be aware that creditor petition fees come in two parts. You pay £150 up front, you pay a further £300 if AIB is appointed to trustee. An HMRC's suggestion was that increase to the further £300 might cause them to think again. I think it's extremely unlikely to come to pass. We make a loss on the majority of creditor cases, so they'd have to find someone ready to take that work on. We also pay a substantially higher dividend when AIB is trustee compared to private trustees, round about 20% in terms of different impact to creditors. I would be very surprised if they managed to find AIB firms ready to take it on for just an extra £300. But as I say, we make a lot on these cases, so if they can find someone else to do them, all to the good. Some of the cyber rattling? I suspect that they were giving an initial reaction to proposals put in front of them. No-one likes to see fee increases. It's fair to say that I would like to go back to the office and consider my options. I think that's all they were saying. So we have no guarantee that they will continue to use AIB or the local authorities? We have no guarantee, but as I say, we deliver better service in terms of returns to creditors and in terms of lower costs than most insolvency practitioners. That's partly because insolvency practitioners take on higher and more complicated cases. HMRC tend to be a very aggressive creditor and it's not always more complicated cases they're pursuing. Mr Dennis, the minister was given an opportunity just to make some comment on the ICAS and Government Law Centre submissions. I don't know if you wanted to make some preliminary remarks now that you're here or whether you're just happy to respond to questions from committee members. I'm content either way if you're here. Thank you very much, Mr Chairman. Given your short of time already, I'll answer questions. If I may have an opportunity to come back with anything that I want to add at the end, that may be a save your time. The minister referred to a fee structure table that has been sent to the committee this morning, which has now been passed to members. I'll now come to a question from Ash Denham. Thank you. You will be aware and I doubt that we took evidence this morning from among others, from Mike Daley, who's at the Government Law Centre. I just want to read you a couple of remarks that he made and just get your comments on that, if I may. He said that the policy objectives in this case should be for the fees to be appropriate and fair. He felt that in his mind some of the increases didn't meet those objectives. He gave an example of cases where there was, for instance, a £60,000 home equity. He said that that was going up from £2,800 to £8,000 in fees, which represents a 183 per cent increase. He said that in those cases the money left from equity, where people could be in substantial hardship, meant that the money that they've got available to start over would be quite reduced. I'm just wondering what your comments would be on that. Clearly, I think that, convener, and to Ash Denham, I would say that nobody takes these decisions lightly. I certainly have had discussions with Accounting Bankruptcy around this issue, because I know that there's a way of great sensitivities. I should state that I'm not probably commonly known, but as a child I went through this as well as part of a family that lost their home through debt issues. I believe me that I don't take it in any way lightly. We are sitting in a situation where, at £60,000 in the table that we've provided today, a slight difference in terms of Mike Daley's figures in terms of the table starting from a slightly lower point, if you add in all the fees, commissions and so forth, of a different starting point, but we're not denying that there's a significant increase in fees, but we still end up with a position where there's £4,227 more being left for either the creditor or the debtor, or the changes that we've got in place done as the case in the comparable jurisdictions like England and Wales. We are trying to be proportionate. We are obviously conscious of the fact that two, obviously, as Mr Dennis has outlined, are not fully covering the cost of cases, the administrative cost. We make a loss, but we are trying to at least make sure that the pressure on public resources is matched as best we can, but we are mindful of the impact for individuals. Relatively small number, thankfully, of cases where evictions are required annually, and there are safeguards to try and protect people who are in hardship and to prevent unnecessary loss of their family home. Perhaps, if I could ask Mr Dennis to comment on, he may be aware of that kind of scenario that has been described by Mr Denham and may be able to give some guidance as to how that would be handled in practice. I think that it's worth repeating the point that it's a tiny minority of cases that have any assets in them at all. The vast majority of bankruptcies produce nothing for anyone. I have some figures with me, which show that those changes in commissions would have affected less than 1 per cent of cases in 2015-16. Or did you want to follow up on that, Gillian Martin? In the submissions to the committee and some of the evidence that was given by the previous panel, which is a question for Richard Dennis, people who have submitted and our panel members this morning have highlighted that they think that there is a conflict of interest for the AIB, given that it's also a policy adviser to the Scottish Government, a quasi-regulator, provider of trustee services, decision maker and appeal adjudicator. That is coming from David Mingus' submission to us. I would like to give you an opportunity to respond to that. I would like to say two things. First of all, we have just finished a very extensive programme of bankruptcy reform, which the Parliament has discussed at great length. The decision to transfer those powers from the courts to AIB was a result of the 2015 act, which has now been taken forward into consultation. That followed an extensive period of consultation. The Parliament went into that knowingly with its eyes open. The second thing that I would say is that, whenever AIB takes the decision, we move powers out of the courts but we left a backstop appeal to the sheriff. We move powers out of the court because AIB is less intimidating for people who want to seek for a review. We're far quicker and we're also cheaper, but that doesn't stop people going to the sheriff for a review if they don't like the decisions and the reviews that we've been through. A follow-up question, you mentioned the consultation as well. Where, for example, a lot of the creditors would be like small businesses, was there any kind of consultation that included the views of the FSB or any other organisations that represent small businesses? The consultation that I was just referring to, the ones in the run-up to the big bankruptcy reforms culminating in the 2015 badass, in terms of these fees, we do have representatives of them on diss, if I believe the committee had a paper from Spice listing the members of the debt and insolvency stakeholder forum. I don't think the FSB themselves are there. Usually, because of the spokespeople for the small credit, there tends to be credit unions who are strongly opposed to practically all debt write-off for obvious reasons because they really struggle to afford any loss of investment, but they are most unlikely to be affected here by the big changes in peace. Given that the people who were here this morning have been asking for another consultation, a full consultation on this, would you like to respond to your views on doing that? In terms of AIP's conflict of interest, we have already committed to reviewing the impacts of badass in full. Bankruptcy cases take four or five years to run through, so it's perhaps slightly too early to start to look at the impact of that act. However, as I say, nothing has come up that wasn't foreseen. The safeguard is there. It has not been used. No one has actually been through an AIP review and reconsideration of the case of that and then gone to the sheriff. There are options there, but they are untested. While they are untested, that suggests to me that the system is working as intended. John Mason. If I could start off with the point about interest, the convener raised the 8 per cent. If I'm understanding your answer, minister, you said that there's going to be a review at a UK level of the judicial rate, which is also 8 per cent. If that said brought it down to six, would ours automatically come to six or is ours fixed separately? There's not an automatic link, but I would probably put it this way to Mr Mason that I would want to see if there is a decision that the judicial rate comes down and I would be looking to work with the accounting and bankruptcy to review the rate that's applied. I would go back to the point that was made earlier on that we're talking about a relatively small number of cases where this is applied and it's for persistent non-payment of fees and so forth. It doesn't apply across the board, but it is in a targeted way to try and encourage those who perhaps have a history of not paying to pay. You don't want to lose the incentive if you like to pay, but I do think that we need to reflect on any decision that's made around the judicial rate of interest and see if that has implications for the rate that's applied here. I wouldn't want to put it overly strongly and it's not an automatic linkage in the regulations to it, but it would come back to look at it if there was a significant reduction in the judicial rate of interest. If the two are separate, and if we think that the 8 per cent is too high or all of us do, why are we waiting for the UK review? Why can't we just go ahead and go for six or four or one and a half above base or something? I mean, I take that point. It's something that certainly occurs to me, but I think it's because it's a rate that applies in a very targeted way and I don't have the depth and knowledge as to how many cases that would be applying to it and perhaps it can come to Mr Dennis in the second door or to Mr Fisher, who's aware of the court case that was referred to earlier by the convener as to the relevance here. I'm certainly keen to reflect if the exercise at the UK level does conclude that the judicial rate of interest needs to be significantly reduced given the gap between base rates and the judicial rate is probably a very substantially enlarged gap. If I can maybe ask Mr Fisher to come in with Mr Mason and convener's consent. Mr Mason, just to make sure that we've understood your question correctly, is your question, if the judicial rate of interest was reduced, would we automatically seek to or reconsider reducing the amount of interest charged on the late payment of debt, which is a separate issue? No, my first question really was, would we need to seek anything or would it just automatically work through, but I think I've got a fairly clear answer that it wouldn't automatically work through. That's right. We would then need to make or you would then need to make a conscious decision to do something, but that would be one of the input factors, if I'm understanding correctly. Yes, that's what I was trying to do. And therefore, because it's not automatic, I was then kind of wondering, well, why are we tied to that at all? I mean, I do accept the answer from... I don't know if it's worth me saying something about the different context, I suppose, in which this fee rate is applied. There were a few points that the convener made earlier in particular about the fact that there's no discretion analogous to what the court has when the judicial rate is applied. I suppose I would flag up the fact that there's express provision that we've added to the regulations to allow the fees to be waived in regulation 10.4 in the regulations. In particular, I think that the ICAS evidence was raising questions about the implementation. As the minister referred to, this is really about a very small number of cases where there's a persistent non-payment of fees. The analogy that the minister referred to in terms of the court fees, for instance, which are not paid. Trustees are bound under the regulations as they stand to pay the fees at a particular time, and this is for cases where those fees have, in fact, not been paid. So it would be possible to waive the fees in particular cases where there was a problem. The rate of the fee is put short of the rate in the late payment of commercial debts in trust act, as it stands. The ICAS, as I mentioned, we're asking for reassurances about the implementation of the fee rate in practice. Certainly, as the minister said, this has really raised a couple of cases and gave the example of two debtors account for 59 per cent of the debt, which is due for more than 30 days, which is the only case in which this fee rate could be applied. On that basis, the ability to apply the fee rate would be implemented reasonably and interest waved if there was a reasonable excuse. Already, AIB have the ability to report trustees to the sheriff for a censure where there's no reasonable excuse, and that would apply in cases where fees haven't been paid on the due date. It would give the assurance that the ICAS is seeking that these would be applied reasonably. That would just be entirely discretionary. There's no right, for example, to apply to the court to reduce the amount of interest. There's no right to do that. There's no right, but AIB would have to consider the case. If it was an unreasonable decision by AIB, that could be a judicial review, like any decision of an administrative authority. I quite take your point that there's no court directly involved, but those are fees that should have been paid initially and in our past payment. Forgive me, but judicial review would not be a reasonable way of reviewing such a decision, because that would have to be taken in the court of session. The cost would be prohibitive in almost every case. I refer to the fact that it constrains AIB's freedom of action in setting the fee rates. If I may, Mr Dennis, you said that you're making a loss on a number of the cases. I'm assuming that, because there's a scale of fees, that means the smaller, where there's smaller, less equity, you're making a loss and on the where there's more equity, you're making profit. The majority of bankruptcies produce nothing. Most produce nothing, right. Can you tell us what the cost of an individual case is, or do they vary hugely? They do vary hugely. I think that I do have that. If I were to guess off the top of my head, I would say that our ministers would cost around £1,500 a case. Right, and that's based presumably on that kind of average hours and an hourly rate and all that kind of thing. If you're getting £1,500, you're kind of breaking even, but there'll be fixed costs, which you have as well. Are you convinced that your fixed costs have been reduced as much as possible, because that's been kind of the crux of some of the questioning that, as you get fewer cases, your fixed costs have to be spread amongst fewer and fewer cases? That's an entirely fair comment. Perhaps no surprise to members of this committee that every spending around the Scottish Government puts agencies, unlike mine, under huge pressure to make sure that they are not giving us more public money than they need to. We have met our 3 per cent efficiency saving target set by the Scottish Government and signed off by Audit Scotland our accounts every year since 2010. So yes, we are doing what we can to squeeze costs. Is that 3 per cent on top of the fall-in case load for other organisations? That's 3 per cent against the budget that the Scottish Government of Parliament votes for me, regardless of my income. Is your budget falling in line with your reduction in cases and is another 3 per cent reduction on top of that, or is your budget just falling by 3 per cent? My income from cases is falling in line with the reduction in the number of cases. My budget is something separate because it is kindly topped up by the Scottish Government and the Scottish Parliament. It's my overall budget against which I have to demonstrate 3 per cent efficiency saving. So as your case load falls and you get less income, you just get more money from the Scottish Government? Orr by putting up fees. It's getting the balance right, that's the crux of the matter here. That refers back to the points that I was making in my opening remarks. Just to emphasise the point, as examples of efficiency, the public facing IT systems that I mentioned that the accounting bankruptcy have developed in the last few years have also helped the insolvency practitioners, creditors and debtors save costs. It's helping from the side of the client, if you like, but it has helped with the operational efficiencies within the organisation. It's just a small point back to the interest. I noted that you said that this new order would give you the powers to waver with a discretion to do that. Does it also give you the ability to reduce it in some fashion? In other words, vary it? De facto, yes. My two large creditors, who I would like to chase, owe fees on a huge number of cases. If I were to charge 8 per cent on £100,000 that would say that it was overdue for 120 days at the moment, they could say to me, well, we'll do a deal if you waver the fee on these cases but not on those cases. Or, if you waver the interest, we'll pay tomorrow, either of which will be fine. What we're doing is creating a stick here to make people pay the court fees as that's surely due, rather than stretch them out as long as they possibly can. Andy Wightman. Three questions. First of all, I have a question for clarification from the minister. You mentioned in your opening remarks the sum of £207,000 to offset the forecast declines in operational income of what we have in the business and regulatory impact assessment of £1.3 million in 2017-18, £4.2 million in 2018-19, £3 million in 2019-20. Can you clarify that? £207,000 is the additional funding arising from the new fees, from these regulations, that would offset this deficit in each of the years going ahead? It's really just to make the point that, in the absence of this, we would have had to find a further £207,000 of public funding to help top up the EIB's budget. That's his theme. He's bringing in the first year. We will grow to over 800,000 in four years. That's very helpful. Second, we heard evidence this morning that the impact of the fees in the business and regulatory impact assessment doesn't appear to take into account the behaviour changes that might arise in those making applications, that some people might be deterred, etc. Given that those are the people in fairly vulnerable situations, that's a pretty important impact. Do you want to comment on that? I'll bring in Mr Denison. I've tried to emphasise that we're trying to avoid putting up upfront fees for debtors to seek help and to address their issues. We want to allow people to act responsibly. Many obviously want to sort the problems out and get their life back in control and move on from whatever problems have arisen. By avoiding putting up upfront fees, in England, Wales and Northern Ireland, up upfront fees are much higher than they are in Scotland. We believe that that's the right balance that we've struck here in recovering costs in the realisation of assets. It's a very limited number of situations to emphasise the point where we actually get anything in terms of realisation of assets. Where that does happen, we're leaving more of the asset for the creditor and the debtor as well. We're trying to get right at both ends of the equation, lower upfront fees and taking less of the asset value in the process as well. We're bearing more of the cost, if you like, of the case than is the case in England and Wales and Northern Ireland. That's the right balance, but if I can maybe bring Richard in on the point that you raised. I'm going to give the minister to make the key point, which is that we're not increasing debt of fees, unlike our colleagues in England and Wales, the upfront fees. The only people who might be potentially put off seeking bankruptcy, and bankruptcy is a very significant step. People should only be seeking debt relief if they genuinely need it, are the very limited number of cases where, actually, once the assets have been realised, the debts are covered in full. In 2015-16, there were only 260 cases, but that was the case. My final question is that some of the concern appears to have arisen as a consequence of the fact that the framework in which those fees are set appears to be rather arbitrary, one in terms of forecast income of the accounts in bankruptcy and how much they feel they can recover in fees. In other agencies of the Scottish Government, for example, Registries of Scotland, who have full cost recovery, they have a system where the property market is very busy. They put aside funds and reserves, and they draw on them when the property market goes down. In other words, they have a system in place to manage finances in the face of fluctuating income. Fee orders that are then set by ministers, again, according to a system that is fairly well understood, seems to be a rather ad hoc decision with very little framework around it to say that this is how we set fees. It would be fair to say that, in the defence of AIB, it is very difficult to predict exactly how many people will run into insolvency or bankruptcy situations. That in itself is quite a difficult thing to forecast. Obviously, there is a rough idea of how the economy is going and making some predictions, but I would want to rest entirely on that. It is also the case that Registries of Scotland and others are attracting fees from positive things in terms of people transferring assets, which is something that is a key part of the economy. If we were to build up fees, for example, to the point where we could provide an endowment or a fund that would allow AIB or, indeed, to find funding to endow AIB, so it had a float, if you like, that it could manage its finances over a period of time, that would require significant investment by Government up front to do that. I appreciate that, so choice people could make to do that. However, alternatively, it would mean that you would have to significantly increase fees to allow a significant margin to be built up over time, so that you could do that. At the moment, we have probably got the correct balance, and we are adjusting, as we go on year to year, the budget requirement that AIB needs to ensure that balance is right between public funding for a core service that needs to be provided to help people in very difficult circumstances versus recovering some of the costs of the administration, but not making a profit. At some point, we have to decide whether we want to go down a market approach in which we can free up AIB to build up a war chest, if you like, and we have to raise that from cases that might mean that we have higher fees, such as in England, or whether we continue to strike the balance that we have, which I think is the right one, where we keep the costs down. I don't know whether Richard has a view. Just to be clear, I'm not advocating AIB for Richard. I didn't think that Mr Whiteman would have a model. You're saying that there is an understandable framework within which costs are allocated and fees to set. I believe that there is. I appreciate it. It doesn't have the clarity or transparency, perhaps, as the relationship that has been described by the registers of Scotland, but I think that we're trying to keep the balance right in terms of making sure that we provide enough funding with reasonable costs being recovered. Without causing additional difficulty for those who are affected by debt or, indeed, the creditors. Right. I think that we have possibly time. We're slightly running a bit longer, minister, but is it all right if we perhaps take a few more short questions? First of all, Bill Bowman and then Gordon MacDonald and Richard Leonard. Thank you, convener. I perhaps didn't fully understand all the explanations, but earlier evidence spoke about the increase in the income from those fees, cross-subsidising, and other things that you do. Is that correct? I think that the answer to that is no. I think that what the other evidence was referring to is that among the package in front of the committee, there is one fee where we are imposing a cap, which is the audit fee, which we think will cost us around about £86,000 a year in income. Clearly, had we left that particular fee without a cap and had the £86,000 coming in that way, we could have offset and reduced one of the other fee increases that we have put forward, or we could have asked the Scottish Government to find us more money. We have put together a package here, which we think is a fair package to raise about £800,000 in total by the end of the four-year period, where it is all in full. The certainty is that we will still need more funding from the Scottish Government to top up our budgets in the coming spending round. I look forward to no doubt trenching discussions with the minister about quite how far he is prepared to go and quite the level of efficiency savings that he would expect us to deliver. When the minister mentioned new responsibilities coming to you from the recent act, they are fully funded elsewhere. Is that what you are saying? They are funded within the mix of our income. They are not being specifically funded from these fee increases. They were new responsibilities that transferred to us in April 2015. Is that what the fee increase will go to Bardsham? If it could maybe be to say that, when I mentioned it earlier on, it was the context of staffing numbers and saying that staffing numbers had fallen, but new responsibilities had been taken on board. I think that it was just in case an impression had been given to the committee that the staff numbers were only related to the case work, which has been discussed today. There are other functions that AIB perform for Government, and, indeed, all the innovation in respect of the IT products that are public-facing. I thought that it was an unfair analysis of the staff numbers that had been provided, so I was trying to explain that. Gordon MacDonald. I just wanted to ask about your cost base. The information that will be given this morning is that you have had a 20 per cent staff reduction since 2009. However, your case load has reduced by 63 per cent in that same period. Given the investment that you have highlighted in new technology and IT, are you satisfied that staffing levels are at the correct level? Broadly speaking, I just want to say yes. Just one point of clarification in terms of the case load. The new cases have fallen by 63 per cent, but most bankruptcy cases run for 40 per cent. The stock has declined far less than that. Can you give us an indication of what it was before and what it is now over that period of time? Across our entire case load, including protected trust deeds and the debt arrangement scheme, there are about 55,000 cases currently active. There would have been about 65,000 at the peak. There has still been a reduction, but it is probably more in line with your staffing levels reduction. Is that what you are saying? The figures that I have here say that, in 2015-16, the total case load, which takes on the historic cases that Mr Dennis referred to, had reduced by 5.6 per cent since 2009-10, where staff numbers have reduced by 19.6 per cent. My final question is, if we were to move to annull the bankruptcy fees regulations, what would the impact be? Obviously, we would have to find additional resources to make up the up to £800,000 that will be recovered by 2020-21. I would hope that the committee would do that where it would say which elements it disapproved of, and then we would bring forward a new package. Ideally, I would encourage the committee not to do that, if possible. I hope that we have set out that nobody, as Mr Dennis has alluded to himself, likes to pay fees and costs for such actions, but we have tried to keep the balance right, so we are not putting it on front fees to ensure that people who need support to clear their debts and to get back on the straight and narrow and do that without a disincentive. At the same time, we are not recovering as much of the asset values for our costs and commissions as happens elsewhere in the UK. The costs have gone up and we acknowledge that, but it is not something that we have done lightly and we have tried to keep the balance right and reduce the take from those assets being realised to ensure that creditors and, indeed, hopefully the debtor will get something back if that is possible. Richard Leonard. The Government Law Centre has a reputation as an organisation which fights for social justice. The Institute for Chartered Accountants in Scotland is not notorious as a revolutionary guard, but both of them have described your proposals that still are before us as being unfair and regressive. We have to give consideration not to how these fees compare to England and Wales, but to how they compare from this year to next year. As I read it, the commission charge on assets realised is going to move under your proposal from a rate of 15 per cent on the first £10,000 to a rate of 15 per cent on the first £50,000. That is an extraordinary increase, isn't it? I do not think that I would characterise the changes in that way. I fully acknowledged the reputation of the Government Law Centre and did I cast it with good organisations and different approaches? I am not taking the points that I have made lightly, but I will just reiterate the point that we have to reflect the need to recover costs to some degree. We have held costs down substantially lower than they are elsewhere in these islands in very similar economic and legislative contexts, so we have our own jurisdiction in Scotland clearly. We believe that we are striking the right balance. We are not recovering the full cost as Mr Dennis has made clear. We have not taken these decisions lightly and they are substantial. It would have to be acknowledged even if I cast and the Government Law Centre are not delighted with the changes that they are going through. I am sure that they would have to acknowledge that the costs overall are far lower than they are in England and Wales and the fees are far lower than they are in England and Wales and Northern Ireland. I think that we have got the balance about right. It is the scale, is not it? It is 180 per cent of a rise overnight. It is a staggering increase, is it not? It is worth it to reiterate the point that I cast have said that they have no significant objections to their proposals. I take the point that Mr Leonard may have heard something that I have not been present to hear. I cast his evidence this morning. In terms of their written submissions, they have said in their paper that they have no significant objections to their proposals. Does that not mean that they have specific objections? I think that there is a particular issue about the audit fee that was raised, about the capping of the audit fee, and that was addressed in Mr Dennis' earlier remarks. As to the issues in regard to the table that we have sent to this morning, I do not think that there has been a similar strong objection to those costs that have been set out there. I have just referred back to Mr Dennis' point about the audit fee. Perhaps a final question from Jackie Baillie, and then I will perhaps give the last word to Mr Dennis. Jackie Baillie. If you look at David Mingus' written submission to the committee, he in fact talks about interest on unpaid fees provisions were not consulted upon and not objected to in principle, however, the interest rate applied in the circumstances in which interest will be demanded do give cause for concern. He does go on to say that these things were not agreed and they did not feel that consultation was sufficiently full. Notwithstanding that, all of the witnesses this morning said that they felt that there was a need for a fundamental review. I wonder if I could put that to the minister that rather than this piecemeal approach, a fundamental review might give everybody comfort and satisfaction. On the latter point, I am happy to accept that I think that Mr Dennis made a good point earlier on about the data and needing to ensure that we have sufficient time to understand how the measures that I am putting forward work in practice, but I absolutely accept that we would want to sit down and review how they have performed in practice. If there are cases where there is a disproportionate impact on individuals, we would want to highlight those clearly. Some of the measures that we have talked about today are provided as a disincentive and, hopefully, it can reach an agreement with a debtor to make sure that debts are paid without the need to invoke relatively punitive interest rates that have been referred to. I take the point on board and if we need to give a commitment to the committee to undertake a review at a suitable time when we have the data to do that, so that there is no misunderstanding, the witnesses talked about a review in advance of the regulations being put in place. They did not feel that there was sufficient justification and they felt that there was a need for a more fundamental review of the approach rather than passing those regulations and then reviewing them. If I may come in and reply, it would be very difficult to do a review until such time as we have evidence of the impact of the changes that have gone through. I take the point around the impact. We have, hopefully, the clarity that we have been able to give today about the number of cases involved where interest rates would be applied and the relatively small number of cases where there is a loss of a home or asset are of some comfort and the safeguards that are put in place to ensure that there is obviously a right of appeal to the sheriff if that is something that people feel is being treated unfairly. There are some safeguards in place but we are obviously listening carefully to the views of the committee and we will take on board the points in terms of our future policy direction. Mr Dennis, would you like to give a last word, as it were? Thank you very much, Mr Chairman. I will just say three quick things to the committee. Firstly, in terms of fundamental review, Parliament extensively looked at all aspects of bankruptcy over a two-year period into their after the 2015 act, including how we were going to charge for this. In the November 2013 regulations, we introduced a different model of charging. Secondly, I suspect the minister to cover this in his opening statement. I was not here to say it, but just to put on record that some of the things that the Government Law Centre said about my agency not delivering any efficiency savings and the staff numbers that they quoted were just based on wrong numbers. They had looked at headcount, not whole-time equivalents to some of their calculations. We have made very significant efficiency savings. We have seen staff numbers reduced from around 170 to below 130 at the same time as taking on new responsibilities, and we expect to see staff numbers fall further in the coming years. We are doing what we can to drive efficiency. We also have an enviable record in terms of delivering IT systems on time and under budget. There are not necessarily that many chief executives who can sit in front of you and say that. Finally, I have talked about this package raising around £800,000 over the full four years. That is the level that we are looking to put up fees out of around about £12 million in income now. The big elements of that are the basic administration fee, which brings in about £400,000, and the upfront increase in credit and petition fees, which brings in about £250,000. As I am sure that the committee is aware, our front-creditor petition freeze, from the petitioning creditor, can be reclaimed from the case. I have not received a single representation from a creditor organisation, including all the big banks who will be paying the vast majority of these charges, suggesting that they are unhappy with the comparison between our proposed fee increases in those in England and Wales. Perhaps I could clarify one point. I think that you do not accept the figures from what you say in terms of employee numbers. Can you give us what you say are the correct figures? 173, down to 139. 129, that is not right. Apologies, convener. A full-time equivalent in 2009-10 or 173, full-time equivalent in 2015-16 or 139. I can tell you those numbers have declined further since those last published figures. Those figures were given because they were available to someone who looked at our published documentation. Right. Thank you very much. Thank you to our witnesses. I will now suspend this session and go into private session. I will allow the gallery to clear.