 Welcome to the 24th meeting in 2022 of the Delegated Powers and Law Reform Committee. We received apologies today from Stuart McMillan MSP, so I would like to welcome Jenny Minto MSP as substitute, and thank you very much for being able to be here, Jenny, and contributing. The first item of business is a declaration of interests, and in accordance with section 3 of the code of conduct, I invite Oliver Mundell MSP to declare any interest relevant to the remit of the committee. Thank you very much, Mr Mundell. Welcome to the committee. Before we move on to the next item on the agenda, I would like to take this opportunity on behalf of the committee to thank Graham Simpson MSP for his time with us. As both a member and convener of this committee over a number of years, Graham recognised the importance of delegated powers and was passionate in the need for their proper scrutiny, and we all wish him well in his new role. Next item of business is to decide whether to take items 6 and 7 in private. Is the committee content to take those items in private? Moving to agenda item 3 today, we are taking evidence on the Moveable Transactions Scotland Bill. First of all, I would like to welcome Lady Payton, chair of the Scottish Law Commission, and along with Lady Payton is Professor George Gretan and Professor Andrew Stephen. I would like to welcome you both. As former commissioners and former SLC were heavily involved in the commission's report on Moveable Transactions, which was published in 2017. Before we just kick off, I would like to remind all the attendees not to worry about turning on your microphones during this session, as they are controlled by broadcasting. If you would like to come in on a question, please raise your hand and we will bring you in. Before we move to questions, I first invite Lady Payton to make some refopening remarks. As chair of the Scottish Law Commission, I would like to commend this bill. First, it modernises the law of assignation, and secondly, it creates new statutory pledges. Both will be good for business. Both will help Scotland's economy as it emerges from the pandemic. Focusing first on statutory pledges, start-up businesses will be able to access finance, even though they do not own any land or buildings. Land and buildings are the traditional way that banks secure their loans. New businesses will be able to offer movable property as security—for example, vehicles, machine tools, patents, design rights, software licences and trademarks. Those businesses will be able to keep possession of and title to this property and use it to generate turnover and profit. By creating this new avenue to finance, the bill will enhance Scotland's attractiveness as an investment centre and also level up Scotland to be more equal with other modern law systems. The bill will stop young Scottish entrepreneurs from being told to go elsewhere, for example, to go to England, where the law makes secured lending easier. The bill will stop complicated work-arounds that are currently taking place as lawyers and clients try to get round the gap in the law. The bill will also support the First Minister's gender pay gap action plan. I can explain that more but, obviously, historically, few women owned heritable property. Things are getting better in 2022, and I do not have the exact statistics, but it is a fact that women have difficulty starting up a business because they have difficulty getting finance. The bill also, in addition to the statutory pledges, modernises the law relating to assignations. Currently, when claims for the payment of debts are being transferred from one person A to B, the paperwork involved is enormous. Letters have to be sent to all the debtors, so the bill offers a new system with registers that will cut down the paperwork. Importantly, the bill means that an effective transfer can be brought about when letters have not been sent to the debtors. Although we should say that the debtors are still protected as they are entitled to be notified before they have to pay a new person, a new assignee. Professor Gretan and Professor Stephen, who are sitting beside me, former lead commissioners in this project will be able to explain this advantage in more detail. I commend the bill. It fills a big gap in Scots law to meet today's needs, and I invite the committee to take it forward. Thank you very much, Lady Payton. It is a good outline rationale behind why the bill is being brought forward. It is all very positive, as far as I am concerned. I will now move to questions from the committee. The questions can be answered by Lady Payton, Professor Gretan and Professor Stephen. If there is anything in particular that any of our guests would like to be the lead answer on, please just let us know and just give us a wee wave. We will be fine with that. First, I will open up a couple of three-week questions, which I think have been answered before by the professors in particular, but I think that at this committee it would be very useful to have some outline on those. First, I will ask when the Scottish Law Commission, why did the Scottish Law Commission review the law on movable transactions and bring them into that? How is Scots law comparable internationally, and did international comparisons inform what was proposed? It has been apparent for a very long time, indeed, since the 19th century, that Scots law is outdated and cumbersome in its operation in those areas. The position has got rather worse in recent years with the internationalisation of finance. There was a time when Scottish businesses would raise finance within Scotland, and people would at least know the system cumbersome and unsatisfactory, though it was. Now finance has become internationalised very much. Furthermore, while Scotland has stood still, other countries have moved forward in those areas of designation and what the bill calls statutory pledge. Once seen this modernisation happening, for example, in Australia and Canada, the United States has very much been something of a leader in this area, other countries as well. Indeed, that has been happening even in the last, say, 20 years. Scotland now stands out a bit like a sore thumb unsatisfactory in those areas. There are workarounds, but the workarounds themselves are rather unsatisfactory in ad costs. The Scottish Law Commission has been aware of this for a long time and decided to tackle it. This is the result. Andrew, do you want to add anything? That is a very brief account. Yes, thank you. Professor Gretan began the project as lead commissioner, and then I succeeded him and we have both worked on it. I think that it is fair to say that, since the evolution of the Scottish Parliament, has done world-leading work on land law, but movable property needs to catch up. Some of your land law work has been done via the Scottish Law Commission, so the Land Registration Act 2012 was based on a report that Professor Gretan authored. It has not been the same. In fact, it has been totally different from movable property. We have stood still and we have got behind. In the two areas where the bill will make a difference—that is to say, asignation and security or movable property—the last law reforming statute on asignation was in 1862. In my view, although that is a more subjective question, on security, that would be the biggest reform or on wider rule property, it would be the biggest reform since the sale of goods act of 1893. Floating charges, we may come to later, were introduced in 1961. Floating charges are relatively narrow compass, because only companies and certain corporations can grant them. It is certainly the biggest piece of legislation on security law since 1961. I would argue that it is the most significant piece of legislation on movable property generally in Scotland since 1893. We are behind on that. It does not give Scots law a good reputation and impacts on businesses. It is very important, in my view, that we take it forward. That was what the Scottish Law Commission's consultees said, both in terms of should the Scottish Law Commission work in this area and when we had worked on it, whether they wanted the recommendations taken forward. We found very strong support. That is really very helpful indeed from both of you. Thank you very much indeed for that. Of any previous attempts to reform the law in this area, which sounds as though there weren't very many, why do you think that the proposals at this time are more likely to work than anything previous in Scotland? The possibility of reform has been looked at before particularly in the area of pledges, security, that is to say, but rather half-heartedly. What happened with the Scottish Law Commission project was a huge amount of energy was put into it. Detailed analysis of the current law, detailed analysis of the problems of the current law, extensive consultation with the relevant stakeholders and international comparison. That is very important in this area. You have to know what is happening in other countries, both around the world and in Europe. It was a major project and not a half-heartedly project. What we have here is, I think, quite a sophisticated bill, very much up to international standards that international finance will like. There is not only international finance, of course, I do not want to stress that too much, but Scottish finance will like as well. Thank you very much indeed, that is really helpful. So just move on to some more detail. Jenny Minto, please. Thank you, convener, and thank you, panel, for coming along to give evidence today. Lady Payton, I was very struck with your point about it modernising the law of asignation. I am interested to hear how the bill's provisions on asignation, on a practical level, will change how businesses might access finance, and perhaps you can give some examples of that as well. Also specifically about the point that you made about the gender pay gap action plan in that women have difficulties, as you said, starting up businesses and perhaps accessing finance. I will deal with that later point and then I will invite Professor Stephen to deal with the first point. The gender pay gap has been reflected very much in people who start up businesses. In fact, the First Minister launching this action plan in 2019 said that it is still the case that more than three-fifths of new businesses are being started by men and less than two-fifths by women. She referred to research suggesting that an increase in the level of female ownership of businesses would make the economy richer and all of Scotland more prosperous. I cannot give you precise statistics and it may be that in 2022 things have moved on a bit since then, one hopes so. Nevertheless, it is the case that a woman going to seek finance to start up a business often cannot offer heritable property, cannot offer land, cannot offer buildings, but nevertheless has a very good idea and if she could be allowed to raise finance over movable property, which she has, maybe it is the items in her workshop or whatever it is, that she is renting, she is renting the workshop but has items which are of value cumulatively could form the basis of a security, well this new statutory pledge will solve her problem and there will be more women able to access finance. In fact, Professor Stephen found he could perhaps hold it up. I will give the committee this later. It is a report by the World Bank, which I should have spotted earlier, but from 2019 it actually has a whole section on gender finance. I have to put a slight caveat on that the World Bank is particularly interested in developing countries and in terms of improving finance. I would not want to suggest that Scotland is developing a country in that sense, but our laws here are almost like a developing country and we need to develop them. There is international evidence that a modern rule of transactions law does help what is referred to in the report as gender finance, so there is evidence beyond Scotland on this, which I think is valuable. If I could just add to Professor Stephen's comments there, they give examples in this World Bank report of women entrepreneurs who couldn't move forward, but then, for example, they give a constant swannaker, an artist and founder of a particular small business. She was able to use her design furniture and home accessories to obtain a loan, and ultimately she was able to hire employees of 30 in number because of this facility. That was in Ghana, I think, so we work with you. Ghana is ahead. Can I explain the assassination provisions? Many small businesses fail because people pay them late, in other words, they have a problem getting debtors to pay on time. The advantage of the bill is to facilitate in particular invoice financing, so small businesses could sell their invoices to a bank or other financial institution, and then they get the money immediately. Admittedly, of course, a bank will charge for that, and one of the types of processes is known as invoice discounting, because the discount is how the bank takes its fee, but at the moment Scottish law is way behind on that. To make it work, it is often done through English law or through trusts, which are quite a complex legal structure. At the moment, what the business would need to do, or probably more of the bank, is to tell all the customers, and Lady Payton referred to lots of paper work earlier. That becomes very costly contacting all the customers. It is also impossible that the application typically uses a plumber saying, right, I will assign my invoices for the next three months to the bank. That will include your shower work that has broken in two months' time, but until your shower has broken and you have called the plumber out, we do not know who you are. We do not know the identity of the data. The advantage of registration as an alternative to intimation is that you can have a single registration for all my invoices for the next three months, which is much cheaper. I need to be clear, however, that the change only affects one of the two principal aspects of assignation. At the moment, intimation has two main aspects. One is to transfer the debts to the bank or other assignee, and the other is to notify the debtor, to tell the debtor to pay the assignee. I know that there has been concern about registration being an alternative to intimation and consumers being put in an awkward position because they do not know who they have to pay to. The bill does not affect the notification function of assignation. It is crucial if the assignee wants the debtor to pay them and not to continue to pay to the assignee or that there must still be intimation. The notification function of assignation will continue. Of course, you might not actually say to me why on earth are we setting up our register and the keepers having to invest all this time and money if there has still got to be intimation. The answer is that registration protects the assignee if the assignor becomes insolven. If the small business sadly becomes insolven, the bank will be protected because the invoices are due to them now, and they can at that point intimate to the customer. Customers will not be affected by this reform in the sense that the introduction of registration as an alternative only changes or offers an alternative to the transfer function of intimation and not the notification function. I want to try to make that clear because it is very technical and I am more than happy to help further. The final thing that I would say is that this is already going on. I have said it already, but I will say it again. It is going on through workarounds. Small businesses are assigning their debts to banks without customers being told because there is a workaround, a trust behind the scenes or that the debts are being written under English law. It is pretty neutral in terms of what is happening in practice, but it will definitely reduce costs. It will not have an effect on customers because they would only have to pay the bank if the bank still notifies. Does that help? That is very helpful. Thank you, Professor Steven. Professor Griffin, have you got anything that you would like to add? I entirely agree with that. Going back to my international theme, I am sorry to harp on about it, but, internationally, notification to debtors of a transfer is required no other country I am aware of. Sometimes it does not have to be registered at all. It is just done by the written documentation itself and nothing else. In many other countries, registration is involved, as it would be here. On the whole, registration is the trend of the future, I think, that is what we are seeing around the world. Yes, I think that is the point I wanted to add. Perhaps I just add something else. People sometimes find the idea that debt is being transferred a bit odd. After all, Professor Steven owes me £20. I expect to get the money from Professor Steven, and he will pay me, and that is it. In the business world, debt is very often transferred without being directly paid to the original creditor. That is very important in the business world. As Andrew has said, it happens in Scotland at the moment, but only by workarounds, which are awkward and expensive. Ultimately, the expense is passed on to the businesses in Bult. An example of why a debt might be transferred is that it might not be due for 20 days, so the invoice says that you have 20 days to pay, so the customer will say, all right, I will pay on day 27. If you sell it to the bank immediately, you get the money immediately as a small business, admittedly, with the discount. What the bill will hopefully do is reduce the size of the discount because the whole process becomes cheaper. Okay, that is very helpful. I am aware of that 20-day payment, and sometimes it is much longer than that, which would, as you have said, really impact on the cash flow of businesses. Just if you could let us know for the record what evidence you received, which suggested that finance firms would welcome that and that the business would be keen to take advantage of those changes? Our primary concept in relation to this was the federation of small businesses, who we met with and who, both at the time of the report, made supportive statements, and also I see have submitted to the committee. Their particular concern was the late payments of debts, the fact that the small businesses go bankrupt before they get paid. That would give an auction. One of the things that the federation of small businesses told us was that they liked this because it was not compulsory. Businesses did not have to do that. They might, if they wanted to, but it gave them an extra route to get finance, so they were very, very supportive of it. Can I add just one more thing? It is very technical, even Professor Gretton and I find the whole bill very technical. In some ways, I would not expect a small business to be saying that the law of vaccination needs to be reformed in the same way as a small business would not understand the technicalities of broadband or plumbing. It is so, so technical. The advantage of the bill, I hope, is that it will make life easier, it will make the law easier, but in a sense, to criticise the current law, you need to know the current law. It honestly is very complicated and I would not expect the average small business to know it in the same way as I do not understand how a smartphone or broadband works, but I want it to work. I want my broadband to be as good as possible, and I think that we at the Scottish Law Commission want our law to be as good as possible. One of our advisory group members talked about infrastructure, so broadband is infrastructure, transport is infrastructure, law is infrastructure. I commend that view. I wonder if I could just pick up a comment made by Professor Stephen in his opening remarks. I'm actually just in regard to floating charges, which is not in the bill. As you say, this type of law of reform happens once in probably four generations. Was any thought given to open up floating charges to individuals, to partnerships, and if not, why was that decided not to go down that route? Professor Gretan start, because this was raised in the discussion paper for which he was responsible, unless he particularly wants me to start. I will, but it might be more natural for Professor Gretan to start. There are various things that could be said about that. There has been discussion of extending it to individuals and partnerships. There are difficulties there, but perhaps more broadly, the floating charge is in many ways unsatisfactory. It has a rather low ranking. I think, whereas the, what is proposed here is in a way, to some extent, it comes in the same field as the floating charge because it's about some security for debt, but it operates in a very different way. It's something which is very important to improve access to finance. In England, for example, you have both the floating charge and you have fixed security interests, which are not the same but comparable to what this bill would propose, and in England they use both, and they don't regard them as one in place of the other. That will continue to be the case in Scotland. You'd have, I'm sure, with lending, you'd typically get both being involved. Extending the floating charge to individuals and partnerships would not take matters much further forward. Andrew Lyle. That's exactly right. You consulted on that. In other words, the discussion paper of 2011 consulted on that. There was no support for extending floating charges further, but by the majority of consultees, a floating charge covers all someone's property, and that would certainly be inappropriate for consumers, the idea that everything could be taken by the creditor. Even for sole traders and partnerships, they are subject to personal insolvency law, in other words, the Bank of See legislation, whereas companies are subject to corporate insolvency law, the Insolvency Act 1986, and there are certain checks and balances in the Insolvency Act 1986 to protect employees of companies, for example, when they go insolvent. Those do not exist in the personal insolvency legislation. We could have recommended changing the personal insolvency legislation, but that makes things much wider and more difficult. In being the lead commissioner on the report, it influenced me to extend floating charges further, for which there really was not support. It would have meant revision of insolvency law, which would have gone beyond scope. Thank you for that much better answer than mine. Well, thank you. I think that it's just helpful that we've got that. The bill would reform the rules on delivery for possessory pledges. What practical impact will this have? Do you think that there will be a continuing demand for these pledges beyond that of pawn brokers? Okay, this is a very interesting question. Because of a case from 1856 called Hamilton Against the Western Bank, it appears that the only way that one can do pledge in Scotland is for me to pledge my pen, which is not very valuable, Lady Payton, but I will pledge it nonetheless. I have to physically give it to Lady Payton, like Pauline, which consumers do. If my pen is one of my key assets, such as my computers and my vehicles, this is no good to a small business. You've got to physically hand the thing over. The case that I mentioned suggests that that's the only type of possessory pledge. Other countries, the law is clear that you can do possessory pledges by intimation. Say that I have whisky, and that whisky is stored in an independent warehouse, I can tell the warehouse to hold it for the bank. It's not clear under Scottish law at the moment, because of that case I mentioned, that you can do possessory pledge by notifying to a custodiar. The bill makes it clear that you can do that, which may help our whisky industry in terms of being clear that the whisky that they store in independent warehouses can be the subject of a possessory pledge. The statutory pledge lets them go a step further. They could grant the scooty over the whisky in their own warehouse, rather than in the independent third-party warehouse. That's a definite step forward. Why not just abolish possessory pledge while PON is reserved to the Consumer Credit Act of 1974, so the Scottish Parliament could not do that? More widely for businesses, it is the international norm to have security created by either delivery, could be delivery by notification to independent custodiar, or by registration. So we're really following the international rules. My colleague, Chris her Louise Gullifer at Cambridge, who's arguably the world-leading expert on this, mentions that in some African countries they have reformed the law so it's non-possessory only. She says that the standard international approach in Europe, North America, Australia and New Zealand is to have both possessory security and security by registration. I think that it's very helpful. Thank you, convener. Okay, thank you very much for the question, Jeremy. And for the answers, and Oliver Mundell, please. I thank you, convener. Just following on from that, I mean, I guess if you're in possession of something, you know, then it's lower risk. So I guess at that lower end of the market as well where people have credit sort of issues and other things, there is an advantage potentially to the individual or small business, you know, in still being able to hand the item over in terms of the cost of... Well, it's lower risk for the creditor because, and this is the same for security rights generally, whether they're created by delivery or by registration, the lending is lower risk because they've got an asset which they can go against. For the data it's better because in general secured lending attracts lower interest rates. I'm not sure in terms of risk of losing the asset, it particularly makes a difference whether there's delivery or not. The most important security in Scotland is the standard security, the mortgage of land. And the absolute core of the standard security light in all other countries is the debtor stays in possession. You don't have to give the keys of your house to the bank to give mortgage finance. So in many ways what this bill is doing is introducing the same type of security as we typically grant over our houses for mule property without having to hand the thing over. And if it's mules, I mean, for ponds, something like a watch doesn't take up storage space, but if it's a bigger asset, if it's a company's vehicles or computers, that that will take up storage space and will increase the cost because the creditor's got to store. So it's a typically non-possessed finance, it's better actually for both the creditor and debtor. I say typically that. That's why I referred at the lower end because I think there's obviously a cost in recovery and effort involved for the debtor in doing that. Yes, and I notice that you've had written evidence along the lines that there's a worry that the cost may be higher because, say, it's a vehicle, it's got to be recovered. The same argument can be made for houses, that ultimately to enforce a security against a house, the house has got to be recovered. You're generally of higher value, a house, and that balances out the risk for the... To some extent, and that is why creditors wouldn't take security over very low value assets anyway, it would have to be something worth several thousand pounds, I think, realistically. I'll come back to that question later, but I was just interested in how the register might work in practice, and I guess, particularly at that lower end as well, you've said it could be cheaper, more efficient, and that it can access finance immediately, but it's just how it would work in practice, because I guess the process of registering your house or registering some other legal documents in Scotland can end up being quite clunky costly, and just how that would actually... How you'd envisage that working. I will start, maybe Professor Gretan will follow. The international norm in this area is for electronic registers, and for documentation that is limited, fairly standard form documentation, and also in these registers that the keeper, the register, will not check the documentation, so the system is basically automated. The process of registration in the international norm, in what we have based our work on in terms of looking at compared to jurisdictions, is the registration will be relatively cheap. It will be very different from land registration, and of course, a standard security amorgash has got to go to the land register. There the keeper has to check things, and there's a huge challenge with land registration about the mapping. We've got to make sure that the mapping of your land doesn't overlap with the neighbouring land owner's land, and that has meant that the land register has been, and indeed is, a relatively costly register. For these registers, there's no mapping. In theory, one could have a photograph of an object to help to describe it, but I doubt that that will happen. So, as registers go, it should be a relatively cheap register to run. For the most part, it should be automated, and because it's automated, that means that the charges to register something or to say it should also be relatively low. I say again, in line with international standards. Just a couple of points. One is, as Andrew said, in practice it's only going to be larger value assets that people are going to be interested in anyway. We're not going to be talking about securities over boroughs, for example, so the costs have to be looked at in that connection. The second thing that I'd mention is that, often, securities are enforced not directly but because the debt has gone bankrupt. Now, where a debt becomes bankrupt or it's a company that goes into liquidation or administration because it's a company that has very different regimes, as there are, indeed, for personal bankruptcy, enforcement may be by the insurance administrator, and then what happens is that they sell the vehicles, and then the secured creditor of those vehicles gets paid in preference, so there isn't actually, in many cases, any actual enforcement by the secured creditor himself. Maybe it depends on the circumstances, but very often if the debt is not paying the secured creditor, they're probably not paying other people either, in which case it's very likely to be an insolventy situation. As I said, in which case there's no special enforcement, the question doesn't really arise, because the insolventy administrator will be selling everything anyway. That's helpful. I would not generally expect debtors to be looking at these registers in the same way as the average business or consumer doesn't look at the land register, even though, with the Scottish Land Information Service, it's now very easy to do. For the most part, we leave registers to our legal advisers, so I wouldn't normally be expecting businesses or consumers to be actually looking at these registers, and the same way as they typically don't look at the land register. That's helpful. There's also been some concerns around privacy, and I'd just be interested to know what thoughts you have on that. That is an important issue, particularly for natural persons. This was humans rather than corporate bodies. Again, we can draw on international comparators and look at how other systems have dealt with that. What the law question suggested and the government has taken forward is that, for natural persons, only the month and year of birth will show up. There may be only one George Gretan, but there are more than one Andrew Stevens out there, and if you just have Andrew Stevens okay of the address, date of birth in many ways takes you that bit further. However, in terms of what would be publicly viewable, it would only be the month and year of birth, and that follows Cymru's house. Cymru's house in the UK, where one can find out if anyone is a director of a company, one can find that information, but one will only get their month and year of birth. We drew particularly on the existing model operating in the UK, which is Cymru's house. That's a very valid concern. The detail of the registers will be done by statutory instruments, and I'm sure that such issues will be carefully considered at that stage as well. I'm sure that they will. I wanted to move on to some of the consumer issues, but I know that, a few times we've mentioned that, in practice, it will only be for high-value items. It was the first before going into the consumer stuff in particular, just around the minimum sums involved. That's obviously had quite a lot of pickup outside the Parliament, and I know that you've made representations already on that, but it just was to understand where the £1,000 came from and what you think is the right amount, the right threshold, and why you went for this model of having a fixed sum rather than trying to identify the type of movable goods that it should apply to. Very briefly, the amount would be for the Scottish Government. The figure was in there because it was felt as a drafting issue, so there should be some initial figure. Perhaps under the affirmative procedure? I would need to look at that again. In theory, Parliament, assuming that there is a statutory instrument power in the bill, I see that as being checked. Obviously, the bill is not in its final form, but the affirmative procedure could potentially provide another check, if you like, beyond the Scottish Government. That's a good point. I think that one shouldn't take that £1,000 figure too seriously. It drives from the commission report of five years ago, so £1,000 is—well, it's worse less than it was when I arrived in this committee room. That would be for future consideration. I mean, just to push you out a little bit, the kind of experts on this, you came up with these proposed changes. You said that they're needed. At what level do you envisage them kicking in? It's difficult without a figure or a sort of type of property to get your head round. Is this designed—I mean, it's one of the things that's come up in relation to consumers, but is it designed to cover household goods? No, absolutely not. Can I maybe say where the £1,000 came from? It came from the date arrangement and attachments—or was that the right way around? The date arrangement, Attachments Scotland 2002, which is about diligence, and the figure appears on that. You can't go against certain assets below that figure. That was its origin. However, there's a statutory instrument, which is referred to my written evidence, from 2010, which says that for vehicles it's actually £3,000, although even if you search the official databases, the 2002 act still says £1,000, which is misleading. I would suggest for motor vehicles it should be at least £3,000 to match that figure. Professor Gretam is right. The bill provides for the figure to be set by ministers, taking account of what's considered appropriate at the time. I agree with him that £1,000 is on the low side. It was proposed in 2017, and we are now in 2022. Probably the legislation will not come in until 2024 at the latest, because the detailed work on the registers is at the earliest, because the statutory instruments that will be needed plus the work on the registers needs to be done. 2024 is another two years away, and I would hope that the Government, at that point, will look at that carefully. However, yes, it's higher than £1,000 now that we are where we are. The bill is deliberately designed to be agile. Ultimately, the figure is by statutory instrument, because our view in line with international comparatives was that we couldn't find a system in terms of reform over the last 20 years, which just said no consumers. What we found was that reforms were applied to consumers, but with special protections. Again, I can refer to this World Bank report from 2019, which I will leave, which says that a secure transactions law should apply to any type of grantor, whether an entity or individual getting financing for business or consumer purposes. The rights of consumer grantors and debtors are typically addressed through consumer protection legislation that may limit the extent to which a security right may be created, e.g. up to 60 per cent of wages. The bill says that no vaccination for wages is 100 per cent, or enforced, e.g. a security right may not be enforced in some household goods. Mr Mundell, to be absolutely clear, the Scottish Law Commission's policy was no household goods. The £1,000 figure was seen as a simpler rule, rather than the diligence rule, so I am absolutely clear that the figure should be set at a level to exclude ordinary household goods. I guess that the horses bolted a little bit, and there is now a lot of interest in that aspect of the bill. Do you think that there would be any negative in putting something on the face of the bill? I know that it is possible, at the moment, through secondary instruments and other things, to exclude items from being covered by the bill, but whether there is merit in putting it in plain English on the face of the bill? Can you be more precise? Do you think that ordinary household goods or essential household goods are excluded from the provisions of the bill? Is there a negative? Does that possibly forward? The bill enables the Scottish ministers to provide specific categories that cannot be subject to security. The Scottish ministers could say that household goods are excluded, so that is in the bill as an option. That is a ministerial thing. I am saying that it might provide reassurance to some of the parties who have commented on the bill to move it on to the face of the bill so that it is there in primary legislation and it is whether you see any negative to excluding ordinary household goods from those provisions up front. I will give that one to Andrew, but I will add another comment, which is that the statutory pledge would still be subject to the regime of the consumer credit act, so that would automatically kick in. The bill does not say that it would be subject to the consumer credit act, because that applies automatically, so that regulatory regime would be applicable anyway. Andrew, go back to the question. I would want to reflect on it, but not immediately. In other words, I do not have an immediate objection to it. The concern with simply saying that you might not have a statutory pledge in respect of property that cannot be the subject of diligence, which is certain household goods that are listed on earth, is that the rules are spread across at least five sections in the 2002 act, and they are also nuanced. I think that the motor vehicle provision, which is 3,000 now, says something like, insofar as needed by the family, so we then get into a factual discussion over was that vehicle actually needed by the family or not or did they have a second vehicle, whereas the financial limit was designed to make it a lot more simple if an asset was below that figure. I guess that in terms of consumer protection, maybe I understand from a legal point of view or from a technical point of view, it is easier, but maybe there are questions that we should be asking, are we allowing people to secure debt against things that they cannot live without? The interesting thing is that, when the Lockways from England Wales did a report on a similar idea on what they called goods mortgages, they started with an idea of having a power to exclude certain goods such as household goods, but in their final report they dropped it. That is not my written evidence, because the evidence to them was that creditors would not be interested in ordinary household goods, but we are agreed that, as a matter of policy, such goods should be excluded. On line, we have Paul Sweeney MSP with us. Paul, if you would like to ask, please. Thank you very much, convener, and thank you to the commissioners for their very helpful evidence and statements. Just to touch on some of the aspects around consumer protections, just in addition to what Mr Mundell had mentioned about how we create a mechanism that is effective at protecting consumers, there has been some focus on that £1,000 placeholder. It has been a bit of an unfortunate red herring perhaps in hindsight, but we were considering as a committee in private session how we might want to introduce perhaps an amendment to provide automatic controls to that figure. It is some sort of deflator that would automatically correct every financial year. If we were to do something like that, would you endorse such a mechanism, or would you say it was a reasonable undertaking and perhaps assist us in designing it in that way? I think that it sounds reasonable. I assume, when I think the answer to this is yes, Mr Sweeney, if it was to be done here, it should probably be done in the diligence legislation as well and probably in other places. I just wonder to what extent there might be a wider way of doing that, but it seems eminently sensible to me as a matter of policy, as a matter of technically achieving it. I am slightly nervous about you asking us to help, but we would be willing so to do. I wonder if there are precedents in other legislation, which no doubt the Scottish Government lawyers on us could look into, but I would suggest that it is something that would be best done more widely, particularly in relation to the diligence provisions. That is a perfectly reasonable suggestion. There is a systemic issue here in the criminal law that is a system of the standard scale. With criminal penalties, you do not have to name the figure, which is then subject to the problem of the changing value of money. The legislation simply says that the fine will be at 0.5 of the standard scale or whatever it happens to be. The standard scale can be adjusted every now and again, and it will work smoothly. That is criminal law, but on the civil side, this approach has never been adopted. That often causes problems with figures getting out of date and Governments not getting around to passing the necessary statutory instruments to update them. There is a systemic issue here, I think. As I say, your particular idea certainly has no objection to it. That is reassuring, and it is perhaps something that the committee members can reflect on as we go forward in this process. Thank you for that. More broadly, we would be interested in understanding more about what the commission did to seek views of consumer groups and what was the feedback that was received or evidence that was received in the course of preparing the draft legislation. It is something that we did. In 2012 or 2013, we went to discuss our policy proposals, as they were, which were within the commission at that stage with Consumer Focus Scotland in Glasgow. I specifically remember discussing the financial limit, rather than excluding goods except from diligence. Having discussed that with Consumer Focus Scotland, they were content that consumers were included, but they were keen to keep in touch in terms of further detail. Consumer Focus Scotland was abolished, so that, of course, did not happen. We looked into the question of whether lending would actually be made to consumers, so we discussed with one of our advisory group members, Bruce Wood, who knows a lot in this area and had worked heavily with the Consumer Trade Association, the Financial Leasing Association and their evidence to us was that it could and would bring benefits to consumers in terms of the potential for lower interest rates. There were subsequent consultations on the bill. There was a consultation on the final draft of the bill in the summer of 2017, before the report was published at the end of 2017. There was a consultation done by the Economy Committee in 2019 into 2020, and the Scottish Government did a target consultation. Those were all opportunities for consumers to engage. We made specific attempts to engage with law centres to get their views. That did not result in a response, but we regarded the settlement as a very sensitive one and one where it was important to get evidence. We were influenced by how reforms have been done in other countries. It is unusual to leave consumers out, but the original discussion paper has questions on consumers. We did our best in the ensuing period to highlight the consumer aspects of the bill. Ultimately, people are busy. I have noticed in law reform before that sometimes those who respond to parliamentary committees' call for evidence have not engaged at an earlier date, and some stakeholders who have engaged in consultation 1 when it gets to consultation 5 are a little bit fatigued. I invite you to look at responses to other consultations as well as this one, but we were very sensitive to the fact that consumers raised particular issues. There is one final point in the same way that I talked earlier about small businesses not understanding wheel transactions laws. In the same way that I do understand plumbing and smartphones, there is a similar challenge with consumers because the area is technical. I agree with all that. Could I come back to an earlier point about the exclusion of household goods? I was a bit vague in my response. I would have no objection to hardwiring that into the bill. There may be a slight difference between me and Andrew here. I do not think that it is a big issue, because, as I said, it can be done by a statute anyway. However, if it was thought that it was desirable to hardwire it into the bill, that would be not unreasonable. That is a helpful background, and it certainly provides some degree of reassurance around some of the commentary that we have heard about the proposed legislation. Ficking up on the point that was mentioned about responses from law centres, there has been a response received from the Government law centre in particular. It has effectively compared the enforcement of statutory prejudice to warrant sales. We assume that you do not think that that is a fair characterisation. To offer some particular sections of the bill that are cited in relation to that, section 60 will entitle a creditor to serve a pledge enforcement notice on a debtor where payment has not been made. Section 65 will enable an authorised person—in other words, a sheriff officer—to enter someone's home to remove movable goods subject to the statutory pledge, and section 66 of the bill giving a creditor the right to sell someone's movable goods at a public option. I bear in mind that we have had discussion around the protections that we can introduce around particular goods and household vulnerability and exposure and so on. Can you just explain in more detail why you think that this particular characterisation of warrant sales is not a particularly fair one and that allows us to understand more of context? I have got the other ones. The characterisation as a warrant sale is incorrect. The Scottish Law Commission was behind the legislation that replaced warrant sales, so the idea that the Scottish Law Commission would support the reintroduction of warrant sales is wrong. We have discussed the exclusion of household goods, so that would mean that a sheriff officer was not coming to somebody's house because ordinary household goods are excluded. The provision about auction is drawn from Saskatchine, where it says that if the creditor is buying the property, it has to be an auction. It is an enhanced data protection provision to make sure that the best value is got. I would say about auctions is that just about every other debt enforcement process involves auctions, so a pawnbroker could auction, a holder of a standard security could auction, someone doing diligence could auction, a trustee in sequestration could auction and in other countries the idea of selling or auctioning is just standard. To catarise the statutory pledge as unique in the terms of auctioning is wrong. I have read the government law centre response and it refers to certain checks and balances. I am more than happy to consider what further protections could be brought in so that protections that might exist in the diligence of attachment would also apply here, that that seems entirely reasonable. However, I would suggest that, if we exclude ordinary household goods, this is not going to be happening anyway. One final point. With a warrant sale, the creditor could come in and sell or stick her and take goods away generally. For security, the only thing that they could remove is what the debtor has voluntarily granted the security over. If the bill excludes certain property, that is not going to be possible. Even if the debtor did that, I know that it might be suggested that vulnerable debtors have no choice to sign here. The only thing that the sheriff officer could remove is what has been identified as for security purposes, whereas for the warrant sale, for the poltax, the sheriff officers could come in and stick her, stick her. It is a bad analogy. It may seem the same at first sight, but it is a bad analogy in my view, Professor Grinton. I agree. Just before I bring Paul back in, Jeremy, are you on that point? Yes, please show me a bit of that, Professor Stephen, because at the moment we are looking at the bill as it is. Obviously, we are looking maybe to win amendments, but correct me if I am wrong, but at the moment, if I buy a television for £1,000, that is then assigned to somebody else in the appropriate way, so it is registered under a third party, and I stop paying for my television. They can come along after due court process and take my television away. In the same way as if you had higher purchase, the television, they could keep it away, yet depending on where the financial limit is. At the moment, as the bill stands, that is depending on the value of it. I appreciate that you cannot go along as we used to do under warrant sales and to give it your teaching at the moment, but that television would still be removed by show-off officers? If the television had a value of above £1,000 in principle, it could. I think that as with higher purchase, it will be relatively unusual with something of a value that is not that high, because of the costs of recovery. In some cases, banks will simply write things off, but if there were not the protections in the bill with the financial threshold and the power to exclude certain goods, then yes, those processes would follow through. The main difference between consumers and businesses as the bill stands at the moment is that you need a co-order, so there is that protection as well for consumers. They would also need to go through the Consumer Credit Act 1974, which is a 14-day warning notice and the powers that courts have under that legislation. You have given me an opportunity to say something that I hope to say at some point is to be clear. The statutory pledge is not a new product in the sense of consumer credit law, so I know that there is a concern. I am keen to assuage that concern. I think that there is reference to something called buy now, pay later, which was not regulated and the financial conduct authority had to catch up. It is absolutely clear that the statutory pledge is subject to the Consumer Credit Act 1974 as that act stands because it is a type of security and security is defined in the act. Mr Balfour, as well as the need to get a co-order under the bill, they would need to go through the Consumer Credit Act procedures as well, so that gives that layer too. I agree that the ordinary television should be excluded. I have no further questions. That was a helpful and serious response, so I am happy to rest on that. Thank you very much for the questions and for the answers. Finally, Jeremy, if you would like to give us a couple of wee questions at the end, please. I suppose that we have discussed about the highlights of the bill and the ones that have perhaps had most responses both to your initial consultation and to the consultation done by the committee. Are there other things—you may want to come away and write to us rather than tomorrow now—maybe small things that you think the bill needs amended on or looked at to make it even better than it is at the moment? I suppose that what I am looking for is our process. After this, we will be to do empowerment processes to bring forward amendments. I am just wondering from your perspective, are there any areas that require looking at however small we might be? I think that there are. I have tried to read all the responses to the committee and some of them from the legal consultancies that are lengthy, and I know that the Scottish Government intends to look at those in detail in their art to stage 2. I myself have thoughts at a small level, but I do not think that we have time to go through them at the moment. I think that the detail points that your consultancies have raised should be looked at to come up to that slightly higher level. The thing that is missing from the bill, which was in the Scottish Law Commission report, is financial instruments and shares. I know that legal consultancies are particularly keen to see that done. The Scottish Government said that it will be done, provided that the UK Government agrees under a section 104 order. If you ask me what is the best way in which the bill could be improved, it would be to put financial instruments back in, but I know that there is the legislative competence issue, but I am delighted that the Scottish Government is working to achieve that through a section 104 order. The expression of financial instruments in this context includes shares, which might not be immediately obvious from the terminology. I would agree with that at the moment that intellectual property is in, and that is excellent. If a new business has intellectual property that is worth £100,000, it can grant security over it. Under current law, it is possible to buy a workaround that is highly unsatisfactory in all sorts of ways. Yes, it is very important that the shares should come in. If an 104 order is necessary, I hope that they can be obtained here. There are drafting issues, but they are technical. That is a big policy one, to make sure that other intangibles come in and not just IP. Perhaps you could come back to us if there are technical things you would like us in writing. I suppose that my final question was going to be around the financial instruments and then being in your draft bill, but not within the Scottish Government bill. I am missing maybe an unfair question to ask you, but I will ask you anyway. Do you agree with the Scottish Government that it is incompetent for them to have it within the bill? Do you think that, if it was put back into the bill, it would be competent? I have not looked to that question carefully. My general impression was that it would be competent to have them in, but, of course, legislative competence is a difficult area, and I have not looked at it in detail. I have not seen the Scottish Government's detailed legal opinion on that, so I would need to see that to see if the view that we took in the report that it was included was, in fact, misplaced. However, I can understand that the Government wants to be cautious that they do not want a situation in which it was challenged on the basis of legislative competence. However, it is not something that I have been able to look at in detail, because I have not seen the internal opinion that the Scottish Government did on that. However, the fact that the policy decision is to implement, albeit via the section 104 order route, is very pleased, but I think that what you will hear from the law society, perhaps, or other lawyers working in this area, is that they are keen that it moves forward as well. Although it has to be done by section 104 order, when the legislation comes into force, it all comes into force that there is not a lag with the financial instruments and stuff, there are real issues here. It is a really good example of Scots law being inadequate. Under Scots law, you have to transfer the shares into the bank's name and the bank is there for us to report for persons with significant control and other administrative requirements that put up costs. It means that you cannot create security over shares more than once, because you can only transfer once. Who gets the dividends? Who gets the vote at the AGM? None of that is an issue in England, but in Scotland, the only way you can do it is to transfer it into the bank's name. It definitely needs to be addressed. I am pleased that the Scottish Government has committed to doing that. Of course, on their view, they are dependent on the UK Government, so I hope that the committee will support the Scottish Government in pressing the UK Government to have this taken through. We have mentioned physical assets quite a lot in this meeting, but intangible assets are hugely important. Scots law really has to fix this problem. IP shares maybe other things as well. I have just been reading my notes. I have just one quick cover question that I had, which is completely unrelated to that question. I am picking up something that my colleague, Mr Mundell, was talking about. In my garden, you have been able to look at the register and how often you can do that. My understanding is that we are limiting the opportunity for people to do searches on that. No. It will be a public register, like the land register, but the way in which you could search would be limited. The standard approach is that you can only search against the grantor of the statutory pledge or the assignor. There is a commercial reason, which is that if you can search against the assignee or the creditor, you get their customer list. If you can search against Bank of Scotland PLC, vast numbers and you get details of the customer, as you can see. If you can search against George Cretan of the 52 Grange loan, you will get nothing. The registers will be mainly used by would-be creditors to check whether you have already done it. In so long as the officials will not be checked by consumers, particularly in assignation, consumers will certainly not look at it. There was a concern about consumers having to pay search fees, but they absolutely do not need to look at it. Thanks to all of our committee members for the questions. The questions are exhausted, as may well be our witnesses, but thank you very much indeed because that has been extraordinarily helpful. I thank Professor Cretan and Professor Stephen for extremely helpful evidence. I might ask Lady Payton if it will be acceptable if the committee may follow up by letter with any additional questions stemming from the meeting. Yes, that would be very acceptable. In fact, can we express our gratitude for this opportunity to discuss and hopefully assist with the progress of the bill? A written follow-up would be very welcome. Indeed, that is very kind of you. I will let you go now. I will suspend the meeting briefly to allow our witnesses to leave the room and thank you very much. We are considering instruments subject to the affirmative procedure. No points have been raised on the draft homeless person's suspension of referrals between local authorities Scotland order 2022 and the draft social security miscellaneous amendment and transitional provision Scotland regulations 2022. Is the committee content with these instruments? Thank you very much for that. Under agenda item 5, we are considering instruments not subject to any parliamentary procedure. No points have been raised on SSIs 2022, 274, 275 and 277. Is the committee content with these instruments? We appear to be, so that is great. As agreed earlier, I will now move the meeting into private. Thank you.