Scotland in the Red: Looking at the picture for Scots dealing with problem debt

By Sharon Bell, Head of StepChange Scotland

Scotland in the Red is a report we publish annually which looks at some of the key issues that have been facing clients in Scotland. In our 2023 analysis just published, we can see the particular problems that have arisen from a lack of financial resilience, especially in the light of the rising cost of living, playing out in significant arrears problems in priority debts such as Council Tax.

It’s an exciting time in Scottish politics with a General Election campaign under way, but while those seeking a seat at Westminster have been busy on the campaign trail, the Scottish Parliament continues to sit. MSPs recently passed the Bankruptcy and Diligence (Scotland) Bill, which includes some great provisions to improve protections for people in problem debt including the Mental Health Moratorium, which we’ve been working on with colleagues across the debt advice sector.

So with all parties under scrutiny on their policy proposals, it’s a great moment to take stock and consider where the focus should be in Scotland to help people experiencing problem debt.

Our latest edition of Scotland in the Red is based on a sample of 9,285 new clients who completed a full debt advice session between January and December 2023. With clients in every corner of Scotland, we can get a real snapshot of their experiences of problem debt and from this intense kaleidoscope of data we can pull out common themes and patterns, and hone in on key demographic groups of our clients.

Our recommendations follow directly on from these observable trends, many of which have continued into 2024 and which our friends in the advice sector in Scotland are also seeing. Let’s look at some of the key findings from Scotland in the Red and what we think needs to be done to address the underlying issues.

The most concerning theme to come out of Scotland in the Red is the continued pressure that households face with council tax, which in Scotland includes water and sewerage charges.

The challenge here is significant, with 30% of clients overall, and 47% of clients under 25, behind with their Council Tax. There are two key points that make this alarming;

• a younger group of clients struggling with this priority cost — another generation that’s already under pressure falling into difficulty with what has been an intractable debt issue for many years
• the nature of council tax debt and the way in which council tax arrears are collected through debt enforcement activity can drive a household deeper into financial difficulty

The most problematic aspect is how quickly a household can fall into difficulty and trigger a domino effect of action, a missed payment or failed direct debit, leading to the full year being charged, and the application of fees and charges when the debt is passed from the Local Authority to Sheriff Officers. The enforcement powers at their disposal are alarming, the most common that our advisers encounter being the arrestment of bank accounts and of wages, which can cause hardship and force the individual into arrears with other payments.

Debt advice needs to be part of that journey, and as early as possible. Local authorities have done significant work with advice services to address this negative feedback loop, but the situation across Scotland is patchy, and that’s why we want the Scottish Government and COSLA, the Convention of Scottish Local Authorities, to formalise a charter of best practice in dealing with arrears that involves advice services as early as possible and throughout the process.

But the reasons why households are falling into difficulty in the first place also needs to be addressed.

That’s why the charity has called on the next Westminster Government to prioritise combating inflation and restoring financial resilience, particularly through adequate safety nets.

Over 55% of our Scottish clients were working in 2023, but still had fallen into problem debt. Too many are working, but still not able to make ends meet, so encouraging fairly renumerated employment and addressing the adequacy of welfare so that there is a viable safety net in place for those in crisis is vital.

With the Scottish Parliament passing improvements to Scottish debt legislation, we need to ensure that improving our Scottish Debt solutions like the Debt Arrangement Scheme, Minimal Asset Process and Sequestration is an ongoing process, not a once per Parliament event. That is why the independent Stage 3 review of Scottish statutory debt solutions must produce positive holistic recommendations. The stage 3 review must address key areas where gaps in the system that are apparent to advisers are letting clients fall through the gaps.

The risks of consumer detriment due to the cost of living, (cited by 25% of our clients as the reason for their debt problems), higher interest rates and inflation will cast a long shadow. The Scottish Parliament must remain nimble and responsive when it comes to alleviating the problem debt crisis that too many households face. While there are many themes common to both Scotland and the wider UK, the fact that debt advice and solutions are devolved means that the unique characteristics of the Scotland debt landscape can and should be reflected in bespoke solutions too.