Good morning and welcome to the 29th meeting of the Economy, Energy and Fair Work Committee for 2018. May I ask everyone in the public gallery and otherwise to turn any electrical devices to silent please? The first item on the agenda is a decision by the committee to take items 4 and 5 in private. Are we agreed on that? Yes. Thank you. We now turn to the committee looking at the damages investment returns and periodical payments Scotland bill, and today we have a number of witnesses on our panel. First of all, Kate Donaghy of the Forum of Insurance Lawyers, then Alan Rodgerson, former Scottish Claims Managers, Norma Shippen, director and legal adviser for NHS National Services Scotland and Joy Atterbury, who is head of litigation for NHS National Services Scotland, and finally James Dalton, who is the director of general insurance policy for the Association of British Insurers. Welcome to all of you this morning. Thank you for coming in to the committee. Your microphones will be operated by broadcasting. There is no need to press any buttons or anything that will be dealt with automatically. There is no need to answer every question asked by every committee member, but do come in as you feel appropriate. If you do want to come in, simply raise your hand to indicate to me that you would like to come in if you are not being brought into the discussion. If I might start with a number of questions, I think that some of you will have certainly looked at the evidence that was given to the committee last week. Perhaps some of the other side of the argument, if we think of this in terms of pursuers and defenders representatives, is that your thoughts are on the present personal injury regime, whether or not it is undercompensation or overcompensation for those who have been injured and seek personal injury compensation. What are your views about whether or not either of these scenarios is present in the current system and I suppose how this would play out under the proposed regime? I do not know who would like to start with that. James Dalton, I think, volunteering. I think that the current framework for setting the discount rate is one that is broken. The reason I say that is because the damages framework and the decision making from the courts has meant that the way that the rate is set, there is no relationship to what pursuers do in reality. It assumes that 100 per cent of a pursuer's compensation is invested in one type of asset, and no rational investor, whether seriously injured or otherwise, would take that decision. It also assumes that 100 per cent of that compensation is invested in index-linked securities, which again is not a balanced portfolio. What we are very supportive of is this legislation, which changes the framework for setting the rate that bears much more relationship to what happens in reality. It is a much more modern framework, and there are some parts of it that we might come on to later in discussion that we would like to see tweaked. Broadly speaking, the old framework is broken, and this new framework is a significant improvement. From your point of view, it is not about over or under compensation but about having the proper framework in place, and the current one is not a proper framework. Correct. The framework is the thing that we should be focusing on here. I just wanted to add one of the things that occurred to me is that there was a lot of talk in the evidence last week about risk averse. Seriously injured people are risk averse because they need to provide for their future for care aspects. That is absolutely true, and I fully support that principle. That is probably where part two of the bill comes in with the periodical payments. Where you have someone who is very risk averse or requires certainty, that is exactly where PPOs come in, and periodical payments would be uprated by reference to a wage inflation index, for example, for care workers. Part one of the bill, where we talk about investment choices that an injured person would make, you have to look at it as that provides flexibility for an injured person. They will be properly advised on how to invest their damages, and that is certainly contained within the bill, and it is about looking at what the real world choices are for people, where they choose to invest their damages and what rates of return they are likely to get. Do you think that that is appropriate to look to what people actually do or want to do rather than having a set approach to things? I think that it is to provide the flexibility, so that there is a clear choice there. If you require absolute certainty for the future, where you are risk averse or you have a certain need, that is a periodical payment, whereas people do like to be more flexible and, in my experience, injured people do like to take that lump sum and have control over their future. For example, I had a case—I should say that my day job is working as a claims manager for Aviva as well as the former Scottish claims manager. I had a case two or three months ago where the settlement was future losses in the form of loss of earnings and pension losses, and the injured person actually decided to go and buy a house in the immediate aftermath of settlement. It was not so much about the choices that she was being advised to make, but she needed the flexibility of that lump sum. She wanted to go and do what she wanted to do with that settlement. We absolutely support that principle, that it is for injured people to decide what they want to do with the compensation that they receive. I think that it is very difficult for us to know whether people are over or undercompensated with their damages, because we do not make any inquiry after the case has settled us to what people do with their compensation. However, what we try to do when we are negotiating a settlement is come to a fair settlement with the pursuers agents in the context of the rules that are available to us at the moment. What we have found is that, when you settle by lump sum in the catastrophic brain injury cases, it will always be the case that you are either overcompensating or undercompensating. As Lord Stewart said in the D against Greater Glasgow health board case, the one thing that you can be sure about is that you will get the life expectancy wrong. It will either be too little or too much, so either you will be giving a sum that is going to be too high or too low. That is why, within the NHS, in the past few years, we have moved, as a matter of practice, to always offering periodic payment orders when it comes to catastrophic brain injury cases. In that way, it is the right thing to do for the individual, but it is also the right thing to do for the NHS, which is all that we can speak for because it enables that life expectancy roulette to be taken out of it. I think that that is probably what we would say, Joyce or anything. I think that when you say that we will always get the life, the length of life wrong is, of course, that the court and yourselves calculate at the base of actuary aerial tables, don't you, if it is going to be a lump sum. Well, you get evidence from experts as to what the life expectancy is going to be, and there is usually a dispute about how long that will be. So you may get a variation of up to 15 years of a difference. It is not an exact science from anyone's point of view. I would like to move on now to questions from Jackie Baillie. Defender representatives have argued that the notional portfolio set out in the bill is over cautious. I wonder whether you could tell us why that is. I will start with Mr Dalton, given that there is supplementary information provided to us. Sure. The research that we provided to the committee suggested that the portfolio of assets is quite a conservative one that is being determined by the Scottish Government, and it also assumes a 30-year investment horizon. Those two things taken together in our submission make that a very conservative, low-risk portfolio of investments. Our analysis would suggest that an average life expectancy of a settled claim is around 40 to 45 years, so 30 years is very short. In that context, by having a portfolio that is underweight on equities means that you are not hedging your inflation risk sufficiently. If you were to increase the size of the portfolio of equities within that overall portfolio, you would be better able to manage that inflation at risk. If you were to combine that with an extension of the portfolio's life expectancy from 30 to 40 years, for example, you would get a less conservative but still low-risk portfolio. By interest, somebody else will explore the timescale with you, but by definition equities are riskier. We know that markets go up and markets come crashing down again. Why are you introducing that element of risk to somebody who would not be engaged in this discussion if they were not injured in the first place? Surely risk-free is 100 per cent compensation. There is no such thing as risk-free. If the pursuer wanted to pursue an option that significantly reduced their risk, as was said earlier, they would take a PPO on the context of the independent financial and legal advice that they have received in the context of the settlement of their claim. It is for the claimant to choose which option to pursue. I do not think that we are suggesting that the portfolio would invest in East Asia and IT start-up companies. It is a question of increasing the overall equity balance in that portfolio, but those are likely to be relatively conservative equities relative to the very conservative asset classes of cash. There are a lot of comparisons between an injured person taking a lump sum and then investing it and the draw-down pension market. Professor Vass talked last week about closed pension schemes, which, to me, is far more aligned to a defined benefit pension, whereas someone in a draw-down pension is there to provide for their future and invest for their future. They will be accessing the same investment markets as we are talking about for injured people. Certainly, when I have spoken to an independent financial adviser before, he likened investing in equities and not investing in suntan lotion and sun hats, but investing in suntan lotion and umbrellas at the same time to try and hedge some of the downsides to playing the markets. However, the idea is that injured people and draw-down pension investors alike would be looking to invest some for the future and get the best possible rate of return, but being properly advised by proper financial advisers to make sure that they are being cautious in their approach, not overly cautious as we would deem the portfolio as it is at the moment. The point is that you cannot make a lump sum risk-free because you can never know what is going to happen in the future. The only way that you could try to remove the risk for a pursuer would be to deliberately and significantly overcompensate, which would depart from the 100 per cent compensation rule, and it is not necessary, as Alan and James have said. There is as close as you can get to risk-free option for pursuers, and that is a PPO, and that would mean that they would not have to take any risks with stocks and shares or investments. I do not think that we have much to call into on that question. We would defer to actuaries. Let me come back to Mr Dalton. In its submission to the committee, the institute and faculty of actuaries noted that insurers have to account for personal injuries and liabilities on a risk-free basis. Why do you therefore think that it is fair to expect pursuers to take on more risk than insurance companies do themselves? This is a very important point that I think does need some clarification. There is a difference between the discount rate in terms of how one calculates damages in personal injury cases and the way that insurers have to provide capital on their balance sheet from a solvency perspective. Those are very different things. The risk-free and inverted commas rate is set by a European regulator, the European Insurance and Occupational Pensions Authority, and that risk-free rate is used solely to value liabilities. It is not used to value personal injury claims. It is about valuing the long-term liabilities that an insurer has on their balance sheet. There is a principle that underlines both. There may be different situations, but the principle is the same. The principle is that the risk-free rate that is applied for insurers valuing liabilities is about addressing the solvency and capital issues that insurers are required to adhere to to ensure that they retain their solvency. In this context, we are talking about how you value a personal injury claim that has a longevity to it, and those are different things that have different rates that are reflected on it. What I would say is that, in terms of the Europa risk-free rate, they are never negative. Andy Wightman Thank you very much.  As a matter of principle, why should the bill make any assumptions about what people will do? I think that there has to be a starting point of assuming what people will do. As part of the settlement process, you would expect an injured person to be properly advised by their solicitors and financial advisers. What you are looking at there is compensating someone for their future loss of earnings, their pension losses and their future care needs. Unfortunately, the way that the discount rate has been approached to date is to look at what sort of rate a returner would be or what an investment would be. In actual fact, you may get in your people who that is exactly what they choose to do is invest that capital sum for their future. Some people, particularly in the draw-down pension market, for example—I did draw the parallel there—like the idea of the flexibility that allows them what to do with their capital sum, but also an attraction of leaving something behind for their dependents. I think that it is appropriate to look at injured people the same way, because they will have the same considerations about providing for the rest of their life and providing for their family after they are gone. The principle is that we need a discount rate, because we are paying a sum of money up front for the future. At least the first part of the bill is about how to set that discount rate. I move on to the question of the 30-year period that is contained in the bill as part of the assumptions that have to be taken into account. We have heard from Mr Dalton who thinks that that is possibly too short—should be maybe 40. I would like the views of any other panellists who have a view on that. In particular, do you think that there should be scope for some flexibility around that, given that each case turns on its own facts and merits? I would just add to that. We talked a little bit about actuarial tables and life expectancy, a 30-year period for a portfolio. The expectation of a 56-year-old male in the UK is 29.64 years, so anyone under the age of 56 would go above that 30-year period. For women, it is 29.76 is life expectancy at 59 years. That is why the 30-year period is perhaps too short. Your second point is about flexibility. I think that that is a very good point about flexibility in the bill and whether you choose to look at that again as to whether to set potentially other jurisdictions around the world to do split rates in terms of a discount rate, so they will do a set period. Jersey, for example, came out and announced yesterday that for under 20 years they were going to set a discount rate of 0.5 per cent. For periods over 20 years they were looking at a discount rate of 1.8 per cent, so there are examples out there around the globe that could be looked at and it is whether the committee is minded to consider those. Our experience is probably slightly different to those of the insurers and the cases that we are principally dealing with at this very high level will often usually be babies who sustain brain damage at birth. The cases are being settled when these children reach usually about eight years, by the age of about eight years. The experts will usually be prepared to take a view about the life expectancy of that child, but what it does mean is that life expectancy predictions vary hugely. Thirty years, in some cases, will be about right, but it may be considerably more and, in some cases, unfortunately, it can be considerably less. The idea of variability is not a bad one in terms of our experience, but the number of cases that we are dealing with as lump sums, as you can see from the statistics that we have provided you with, are very small. They are nearly all being dealt with by PPO and, therefore, it may be that our input to this is not particularly helpful. Sorry, they are nearly all dealt with by PPO? By PPO. By PPO? In health? Yes, in health, yes. Broadly speaking, what is the situation in the general insurance market? Sorry, I should have announced that I was wanting to speak there, sorry. I have been doing serious injury claims and dealing with seriously injured people for the last 18 years of my career and I have never been asked to settle on a periodical payment basis. Now, I know that the statutory framework has not been in place in Scotland, but a voluntary framework has been in place for a good while now and I have still never been asked. My experience south of the border is different. I have been asked for periodical payment settlements and we have done them south of the border. It has just not been a thing in Scotland. Quickly, to say that my experience is the same as Alan's, I have dealt for a long time with serious claims for serious injuries and I have never been asked for a periodical payment order and nor has it ever been raised even as an option or floated at any settlement discussion. On the 30-year period, in health cases that you just indicated, you might have claims that are being settled for people whose life expectancy is rather short, five years maybe. Does that add to the argument for having a bit more flexibility around the assumptions that one makes about the period over which a portfolio will be invested or not? Yes, it could do. From our point of view, what it means is that settling by PPO becomes even more important because we all know that these life expectancy calculations can be wrong. If we calculated a lump sum settlement on the basis of a predicted life expectancy of five years and the clinicians' opinions were fortuitously proved wrong about that and the child in fact survived for another 10 years, then there would be enormous gap in the compensation that was available to them. Again, PPO's always are the way to go in that situation. I guess that when you change the discount rate, because it may seem like a small percentage, but it has a huge impact on the future value of a lump sum payment. The point that Joy is making is that if you have actually got it wrong and you have given a lump sum based on a negative discount rate, it could be a very high figure that then ends up not actually doing the job that was meant to do because the individual has died. I think that the change of a discount rate can have a major effect on those lump sums, and it makes it even more important for us to be able to impose a periodical payment order for the court to do that. Does that mean that you think that the review period suggested of three years for review of the discount rate when we get on to that is too short? I think that there are three, five or seven-year periods suggested in the various submissions to this committee. What are your views on those, just very briefly, before we move on to questions from John Mason? I would certainly advocate a five-year review period. Three years in my experience is a little too short. The reason that I am saying that is because it may be that in the run-up to a review that either party, either side sees an advantage in holding off and not settling the case at that point in time because there is some perceived advantage of waiting to perhaps get more advantageous terms after review period. I think that a five-year cycle would allow a more stable period in between times. I know that that is also allied with some questions around how an injured person would choose to invest their damages and what advice they would get. Obviously, you would expect that to be reviewed annually if they had a managed portfolio. I strongly suggest that five years would be the way to go on that to stop people trying to take advantage and delay settlement on the system or take advantage of the review period for uncertainty. In Kate Donaghey, I say that my experience in the lead-up to the change to the rate that we now have and since that rate was fixed with the consultations that are happening here and south of the border has impacted on litigation behaviour and it has made it more difficult to settle cases. Although personal injury cases are managed on a timetable by the court, the more complicated cases take longer and there is a period where you might be waiting a year or even two for a court hearing, and that is time that can be used between parties to negotiate a settlement. However, if one party perceives that there would be a benefit in waiting a year, there is nothing really to stop them from doing that if they think that they will get more or less if they wait. It has a material effect on the ability of us or our ability to settle cases. I think that recently it was a 15-year period where the rate was not altered or changed. Would you agree that five years is the appropriate length of time? Is seven too long? I think that five strikes the right balance. I think that there are ups and downs to having a long period and a short period. I think that five is a reasonable position to keep the rate relevant, but to avoid the distortion of the litigation process that a three-year rate might bring about. I see normaship in nodding an agreement. James Dalton nodding an agreement now, as well. I turn now to John Mason. Thank you very much, convener. I continue the theme of the discount rate. We also have this factor, the further adjustment of half a per cent. On last week's panel, we certainly had one witness that argued strongly that they felt that the pursuer is disadvantaged to start with, that they are taking on the risk of maybe living longer than they would be that inflation is bound to be higher than any rate that we set, because wages tend to go up faster and equipment costs tend to go up faster. They were arguing that this half a per cent is very much needed to swing things back towards the injured party. Do I get the impression that you folk do not agree with that? If I could start on that, maybe. I think that the problem is that we have seen no evidence of the problem. In our submission, you can make a political or policy judgment about whether you want to overcompensate. I think that what the Government's policy memorandum makes very clear is that they are seeking to achieve this 100 per cent principle of compensation, but then they have included within the framework for setting the discount rate, the 0.5 per cent further margin, which by definition overcompensates. That is a political and policy choice. In my submission to you, that is a very blunt instrument with which to achieve that policy objective. In our submission, if you have made a decision that you want to err on the side of overcompensation and you are being transparent about that, rather than using the very blunt 0.5 per cent further margin deduction, what you could do is determine what the actuarially assessed rate is and then round that down to the nearest 0.25 per cent. That will provide you with overcompensation, but not to the extent of a very significant cost associated with a blunt 0.5 per cent deduction. I would just add to that. If the portfolio is already over cautious as we would submit, then, as James says, the extra 0.5 is quite a blunt instrument to then take it into overcompensation territory. If there were to be overcompensation, then the cost would likely to be borne by insurance premium payers in Scotland, businesses and the public sector alike. It needs viewed and the two are very much aligned in terms of the portfolio and then the further adjustment, but I am of the same opinion of James in that the 0.5 per cent seems quite a heavy-handed way to go around changing rather than changing the portfolio. Yet we do not seem to have any evidence as to whether people are being overcompensated or unrecompensated, because nobody seems to have done a real study as to whether people ended up with money. It seems to me that we are a bit in the dark on all of this. We are. One of the panel members said previously that we do not necessarily get to see what the injured person does with their settlement as and when they get it, which to me would be the best evidence to help inform the committee is to exact investment behaviours of injured people. For me, I always take it back to the availability of periodical payments and the fact that I have never been asked for one. Lumpsums must be working for people. We might not have that balance correct in terms of the discount rate or where we have got to so far, but people must want the flexibility of that lump sum, otherwise they would not be asking for them. I mean, that strikes me as quite a big jump to say that it must be working because people have not done something else. I mean, if people run out of money late in life, there is not a lot they can do. No, no, I mean it must be working that they are choosing the lump sum that they are not asking for periodical payments and no one has ever come to me asking for a periodical payment. I think that one of my colleagues is going to ask more about periodical payments, but I think that we are kind of giving other evidence that there were other reasons people wanted the lump sum. Okay, on that one. Now, I suppose that moving on from that is the whole question of the methodology of calculating the discount rate and the plan is that the UK Government actually will be a player in this, but also that the Government could maybe change the notional portfolio.  I quite like the idea that it could be completely automated, you know, that just we take people out of this and we look at what is the inflation rate, what is the gilt market doing, what is the equities doing, what is property doing, put a formula in place and then that formula just works its way through. Do we have to have people involved, Mr Dalton? That is a decision for policy makers, I think. I suppose that I am a supporter of technology and technological advances. I am slightly cautious about automating a process that will ultimately have such a profound impact on people's lives and people who are the most seriously injured people in society. I would be very cautious about automating that process and I think exercising human judgment in these decisions is probably, for now at least, the best place to remain. Okay, everyone comfortable with that, are they? Mr Donkey? I suppose that I would just say that the discussion that we are having today and the discussions that you have had around the discount rate highlight the difficulty of what it is you are doing when you fix a discount rate and are nice and attractive, though it might be to think that you could automate that. I think that it is a difficult process that cannot be reduced to an arithmetical formula. I think that it just wouldn't be possible. I mean that should we go the other way then and make it, in a sense, more political or more accountable and just say, right, forget the actuary, let the Government ministers and their advisers come up with a rate? I think that there should be involvement from that true department, but Foyle's view is that there should be political accountability for a decision which will necessarily involve an element of political judgment when the rate is fixed. Do you reckon that accountability is here or isn't here? I think that it is difficult to know how it will work in practice. The Scottish ministers retain the control and the current bill to fix a notional portfolio and to fix the standard adjustments, but the Government actually would have the final say on what the figure is. I think that it is not entirely clear, as matters stand, where the accountability for the decision would lie. Mr Rodgson, did you want to go? Yes, I was just going to say that England and Wales has went a slightly different route in that it is the Lord Chancellor with a panel of special advisers who will specify the portfolio to the Government actuary's department, as I gather it, whereas the approach that has been taken so far by the Scottish Government is that the Scottish Government set the notional portfolio, the adjustments and set the parameters for the Government's actuary's department. So it is really a question for the committee as to which direction you want to take it, and it is really a policy decision because both options might arrive at similar figures or they might completely depart on different avenues. So you do not have strong feelings one way or the other particularly? Not particularly, no. I think that as long as we recognise what we are doing and what route we are going down and we do it for the right decisions, then we have got to wait and see what transpires. Do you feel that there is any difficulty that could arise from the paths diverging in Scotland and England? Possibly. You do have the situation where injured people—I will draw the parallel back to draw down investors again—are investing in the same market, and that market is UK-wide. If you have a different discount rate in England and Wales than you do in Scotland as an end result, you might have more cost being passed on to a Scottish premium pair in an insurance market or, conversely, if the discount rate is lower in England and Wales, then England and Wales premium pairs would be paying more. Do you look at it more as a consequence of a different approach rather than something that is in itself a difficulty? It is not a difficulty, but I think that you need to be mindful of the unintended consequences. Andy Wightman wanted to come in on this point. That is just a brief supplemention. It has been mentioned before about insurance premium pairs and taxpayers paying for this. Have you got any figures on the percentage of the total insurance pay-outs or total compensation from health boards? What percentage of that is lump sums for pensionary insurance claims? I certainly do not have any empirical evidence of that at all. My suggestion would be tiny. Therefore, any impact on consumers would be almost negligible. It is a very small proportion of the overall total of numbers, but you are dealing with the highest value claims at the other end of the spectrum. It is very difficult to know exactly where the truth lies. I can certainly talk for my own company and my own employer. As I said, as part of the Whiplash reforms in England and Wales, they will pass on all the savings back to the people paying the insurance premiums. However, in terms of empirical evidence for what we pay out in claims in Scotland on the high-value personal injury claims, I do not have that data, I am afraid. Is it possible to find it out even in broad terms? It might be something that the panel members could write into the committee if they have that information. If we can get that information, I am happy to write to the committee. I think that that goes for the others as well on the panel. Given some information to the committee about that, the problem is that, because there are a small number of claims, if we give the figures it could potentially identify the person. We are reluctant to give the figures on an annual basis, but we have done it over a period of years. We could shorten that period of years to five years, perhaps. Yes. If you could do it in an anonymised format so as to give the committee some understanding of the answer to that particular point, I do not know, Kate Donahue, if you would be in a position to comment on that. Perhaps if I can leave that with the panel members. On any other question that has been raised today, please do not hesitate to write and add to the submissions that you have put in already. I am going to ask a few questions on BPO's. First, I want to check on what I understand from something that Joy Atterbyn said. You said that most of your settlements are actually PPO's. Most of our high-value settlements. The figures that we have given you are for settlements over £1 million. Have you got those? I think that we do here, yes. The numbers are very small, but what those will show, for example, is that in 2016-17, we had one lump sum settlement over £1 million and two PPO's. In 2017-18, we had one lump sum settlement over £1 million and two PPO's. The numbers are extremely small, but our desire is to settle those by PPO's. There were a number under negotiation at the current time. Am I correct in taking over what you said that it is mainly children that fall into this category for obvious reasons? For the rest of the panel, there is very little experience of PPO's in Scotland. Is that correct? Some of the evidence that we have seen over the last period suggests that the regulatory regime for insurers makes it expensive to offer PPO's. Are there any issues with the regulatory regime that would indicate that? As I was explaining in response to an earlier question, the way that insurers have to reserve for their long-term liabilities is set out in a very different way from the way that the discount rate is set. They hold capital based on those long-term liabilities. In direct answer to your question, there is no problem with that regime. Insurers comply with that across Europe in terms of how they value those long-term liabilities, and they put money on to their balance sheets to account for that, to ensure that they are solvent and that their capital position is robust. There is no problem with the regulatory regime. I think that there was some evidence last week that there may be a problem with insurers and solvency and how it is backed. Insurers in the right business in the UK are subject to the FSCS rules and guarantees, so essentially there would not be a problem with an insurance company. If an insurance company was not able to fulfil the PPO and went bust, the Government would step in and replace that with the Motor Insurers Bureau. That is one aspect where you perhaps need to look at the bill, because I do not think that the Motor Insurers Bureau is named as a compensator for the purpose of periodical payments at the moment. Despite any perceived issues over the insurance industry and whether we like PPO's or do not like PPO's or whatever, I do not think that that is necessarily the right question. The right question is what is the right thing to do for injured people? An injured person going to court and asking for a periodical payment, I find it very difficult to envisage a situation where the court would not have sympathy with that injured person and would not give them the periodical payment that they were looking for. It is not really for an insurance company to try to argue against that or intervene, because there does not seem any rational reason to do so. In fact, you have just touched on something that I was going to be asking anyway, which is relating to the bill's requirement for reasonable security enough to keep the continuing payment going. You talked about insurance companies. Obviously, there is backing there and probably any court would say that a properly constituted insurance company would give reasonable security. However, there are other bodies—maybe even the NHS, for example—other bodies at the court would not see as being able to supply that reasonable security. On the context of the Motor Insurance Bureau, a number of claims are settled as a result of accidents with uninsured drivers. The Motor Insurance Bureau settles a number of those cases on a PPO basis. What we would appreciate in this legislation is that, rather than the MIB needing to go to court every time it wants to settle a case to demonstrate to the court that it has got the solvency and it has got the capital to provide that PPO on a long-term basis, we would like the MIB to be deemed as—in the same way that an insurance company is—able to provide that claim—a pay that claim, sorry. We will certainly note that point. Are there any other organisations that might not fall under this reasonable security test? I cannot think of one because it would ultimately be an insurance company or a government agency in which case it is backed by the Government in any event. I am struggling to think of a single example that would not be covered. We used to have a thing called structured settlements a number of years ago before PPO's came in their current format. In the days of the trust—I do not know if you remember the NHS trusts—there used to be a considerable amount of discussion about whether that would be something that would continue into the future and indeed it did not. It was always recognised by pursuers' agents that there would be some mechanism of payment for a health service organisation or a Government organisation, but it was even a question that we used to have to field so that I could see that it would be an issue for some other defenders and probably the pursuers' agents. Just to tie off my question on the regulatory regime, are there any barriers there to ensure that a practical barrier to PPO is being offered from a regulatory or rather point of view? The only other aspect to bear in mind is the indemnity limits of a policy. An employer's liability policy or a public liability policy will have an in-built limit. That would be the only possible barrier, but that would be a barrier in any event because after that indemnity limit then it is essentially a private business money or private individuals money in some respects as well. I want to continue our discussion on PPO's, but in particular about the variation of PPO's at a future date. We have heard this morning that PPO's could reduce the chance of somebody being over or undercompensated. That brings a bit of certainty in the fact that somebody's life expectancy could change at a future date, so PPO's would be helpful to ensure that they get the award that they require. Given that degree of certainty, would I be right in saying that there are no concerns about courts varying PPO's? I think that you need to be very clear in the guidance as to what particular circumstances you would envisage that people could go back to the court to change or amend the PPO. One of the advantages about settling a case is that you achieve certainty for both the defender and the pursuer. I think that it would be written to the agreement when those circumstances might arise, but it would be important to have some degree of certainty about what kind of situation you envisage might arise, not just the general run of cases. What would you think those changes could be? If somebody became unexpectedly more severely damaged, there might be some event that took place in their life that was a consequence of original negligence that had not been foreseeable at the time of the PPO coming into play. Should there be a list of trigger points? It would be helpful if there were some kind of list of trigger points. You would not want to think that it would be done by every pursuer and every case on a regular basis, because the whole point of having the discussions and the agreement at the outset is that you try and foresee matters that could arise. We already have a system of provisional damages that is used in the main when we are looking at people who have developed a disease from exposure to something perhaps at work, and they have a relatively minor condition that would indicate that they have been exposed, but there is a risk that in the future they will develop a more serious condition. The provisional damages regime allows them to have some compensation now for the relatively minor condition, but reserves their right to come back to seek damages in the future if they develop a more serious condition. Foyle submission is that the wording in relation to PPO's and their variation should mirror the wording for provisional damages, because there has been a fair amount of argument in court about what a significant deterioration or improvement means, and if you tied it to that wording, you are benefiting from what has already been done before. The legislation also envisages that you would write into the agreement things that might change life expectancy or need for care that would restrict the scope for someone either side coming back again and again and trying to change what has already been agreed. I think that there are ways to manage that and to make it acceptable. It might even be that it is not for primary legislation to consider that. It may be that the Scottish Civil Justice Council in secondary legislation of rules of court can take account of this, but I do understand that, obviously, it is for the committee to make sure that the headline legislation is fit for purpose and enables all this to take place. Given that there might be an individual whose illness unforeseen progressively gets worse, as you suggested, Kate, who should pick up the fees if it goes back to court? I think that that is again something that is going to be in the detail, but if someone is compensated because they have been harmed by someone else's fault, then on a very broad brush basis it seems right that the person who has caused the harm should pay the cost of that. The concern would be that you could have a vexatious person who keeps bringing someone back to court. In those circumstances, you would need to look at safeguarding the defender in those circumstances, but that is really something for the detail of rules, and it was mentioned last week that quarks qualified one-way cross-shifting, which is coming in. The detail of that system is currently being looked at by the Scottish Civil Justice Council, and so that is something that they could also look at. I think that the detail that would need to be there would be appropriate for the rules council to look at. Okay. Anybody else? No? Okay, thanks very much. Just to pick up on that last point that you made, Kate Donahue, I am just looking at your foil submission to the committee. I think that you are referring to the issue about section 2e2a in the bill, and you have said to change the wording to the current wording, significant improvement or serious deterioration, rather than I think the wording in the bill, a change in the pursuer's physical or mental condition. Is that because if there is a new wording, then the courts will have to determine what that means and then we go through the process of establishing the meaning of it, whereas the existing wording is already understood? That is correct. There has been work done to interpret those words, and I think that it would be useful to use that work and that time that has been spent on that rather than trying to start again with the bill. On the other hand, I think that you also accept that it could be something that the rules council could deal with. Is that right? I think that it is going to be. I think that if the wording reflected the provisional damages wording, then people know broadly what they are dealing with and the level of change that would be required to justify bringing something to court. How the expenses situation works with that and any sanctions for people being vexatious on either side. I think that that level of detail is for the rules council to determine. Right. So your primary position is that this is something that should be made clear in the bill as opposed to left to the rules council? I think that the wording, the description of the change in circumstances, it would be helpful if it mirrored the Administration of Justice Act in relation to provisional damages. I think that the detail beyond that would make sense for that to be determined by the Scottish Civil Justice Council. Thank you. Any other questions from committee members? If not, we have a little bit of time, so I don't know if each of you wants to state sort of in one or two sentences the key points that you think we should, as a committee, take away from you. On the other hand, you may not wish to because you may feel that's limiting too much what you said and you've put in your submissions, but would anyone like to make any final comment to the committee on any particular point in the bill that either we've covered or not covered today? Nothing from anyone. Right. Well, thank you very much for your time. Thank you for coming in and I'll suspend the meeting to allow a change of our witnesses. Well, welcome back to our session this morning. We now turn to look at the subordinate legislation common financial tool Scotland regulations 2018, and we're joined today by David Hilferty, Deputy Chief Executive of Money Advice Scotland. Welcome to you. Eileen McLean, national council member for R3 in Scotland. David Menzies, director of practice ICAS and Craig Simmons, sector coordination manager of money advice service. Welcome to all four of you this morning. Thank you for coming in. The microphones will be operated by the sound us, so no need to push any buttons if you want to come in and just raise your hand to indicate that to me. No need to answer every question, but please feel free to contribute to the discussion as we move to committee members' questions starting now with Angela Constance. Good morning to the panel. I have three questions that are essentially to explore the desire for a common financial tool and some of the pros and cons around that. One of the key arguments for the adoption of the standard financial statement is that it will standardise the assessment of income across the UK. How important do you think this is and what impact will that have on debtors of having strict limits on expenditure? I do not mind who starts. I represent R3 and it is our members as insolvency practitioners who will be putting the SFS into practical practice on appointment and the basis of the regulations. I think that the R3 position is that it is definitely preferable to have a standard. One of the difficulties up until the introduction of CFS was that there was a number of different standards out there. Some firms would use British Banking Association, some would use what was the NCCCS, some would use none at all, they would have an individual. What we are really aiming for with CFT or now SFS is a common platform of analysis and we have had that in Scotland for a number of years now. SFS is UK wide and again I think preferable to have something like that. The fact that we have different solutions north and south of the border in terms of debt solutions is well recognised but the majority of the credit organisations are now based predominantly Manchester, a lot of them are based elsewhere in the UK. When individuals are getting debt advice, it is not geographic specific as to where that advice is coming from. It also means that where the majority of your credit organisations, the big commercial lenders, are also spread across the UK predominantly down south, there is a common platform that they recognise. We have had issues in the past where they did not necessarily recognise a Scottish specific approach because they just did not see it on a sufficient basis to be familiar with it. The SFS across the UK basis would definitely support that ease of use for everybody and a common platform for advice. Before we move on to other panel members, Ms McLean, is it there for your view that SFS will be accepted by more creditors? Arguably, yes. The principle of a common financial tool is one that we would generally support. Broadly across the UK, it makes sense to have a similar method of calculation. When the Bankruptcy and Debt Advice Act or Bill was being discussed in Parliament, it was the first time that the common financial tool was brought in. We certainly suggested at that point that the common financial statement probably was not the right method to use it in the first place. There is always a discretionary element that we would prefer to see something that was less administrative of a burden and something that was just a bit more generic around those tools. We can perhaps explore that further on, if that is of interest to the committee. Good morning and thank you also for inviting us to speak out. I am Craig. I work for the money advice service and we are the owners of the standard financial statement. It is worth mentioning that the standard financial statement has been built on the good practice of what is already in existence in the sector. There is something called the common financial statement, which is currently in the common financial tool. There is an approach that step-change use that a lot of insolentate practitioners use across the UK. There are various other approaches used to assessing affordability when people are in problem debt. What we tried to do is take what has worked well in all of those other existing formats. We have learned a huge amount from what has happened in Scotland. The savings category is a prime example of that, where some of it has worked and some of it has been built into the standard financial statement. The main thing to stress about the impact on debtors is what happens at the minute if you go to a step-change in Scotland, for example, or a Christianity's poverty, who are UK-wide, you will be assessed using one format and one set of spending guidelines that are different to what is used by the AIB here. The standard financial statement means that there will only be one approach to that across the debt advice sector. Why I think that is really important for clients is that if you go one place and you are assessed using one method, the output may be slightly different to what ends up being in your common financial tool output. I do not think that is a great customer experience to have that change. You may go to a different provider who can provide that particular solution and an IP, for example, who would say that spending guidelines in this format is different to the one that has been used previously. It should reduce burden on advice providers and some of the practitioners, but most importantly, for me, on clients who are in their hour of need, who need a seamless journey. We view this from the perspective of our members, our front-line money advisers, who are dealing with the tool on a day-to-day basis. I think that if you pitched that same question at our members, the resounding response that you would get back from them is that we have already had a standardised assessment of income since the introduction of the CFT in 2015. Therefore, it is more likely to view this as a question of how important it is that we replace our existing standardised assessment of income with a new standardised assessment of income, which is not nearly as tested as the current system. I am not sure that we have got concerns as going to lead to more work through additional evidence requirements. The evidence requirements are something that we will not touch on throughout this session, but I think that that is where we have got a practical difference for clients in Scotland compared to clients in England and Wales. The approach from the Accounting Bank in Scotland means that the evidence requirements are more onerous than elsewhere. What we have got with the standard financial statement is moving of certain categories so that they will always be evidenced. Those categories include transport, school uniform costs, the cost of school trips, things that are difficult to evidence. That would be the viewpoint of our members and that would be some of the impacts on clients and debt that start to emerge when we transition towards this new but second standardised assessment of income. Following on from David Hilferty's point of view, Kate McLean had and her contribution acknowledged that UK creditors already have to adapt to specifically the Scottish processes. I will put the question to David Hilferty first. Does it make a practical difference if Scottish statutory debt solutions use a different income assessment method and I think you began to touch upon that? The first thing I would say is that when I speak to our members, when I speak to our money advisers, the difficulty that they have in dealing with creditors is not with your conventional consumer creditors, which, as I said, are based throughout the UK. Consumer creditors, banks, lenders, credit card firms and so on, they have numerous approaches in place to deal with customers who are considered vulnerable, customers in low income and advisers will tell you that dealing with these types of creditors is relatively straightforward for the most part. Will the difficulty often arises is in dealing with what you might refer to as public sector creditors, in dealing with DWP, in dealing with HMRC and primarily in dealing with local authorities who often recover council tax arreals pretty aggressively. The notion that previously advisers have had problems trying to negotiate with consumer creditors is not something that our members would necessarily recognise. Turning to your second point about the impact on statutory solutions, when you are going through a statutory solution, the evidence requirements that need to be backed up within the financial statement, as I have said, can be on the recent in many cases. We have seen examples of cases where a father who did not live with his daughter was asked to, or his expenditure, to visit his daughter by train fare, was considered excessive. We have seen examples of a disabled client who was asked to evidence expenditure on the incontinence parts. Those are issues that you do not necessarily have elsewhere in the UK but that we do have as part of our approach to statutory solutions in Scotland. What the SFF does is it moves, as I said, elements like transport and school uniform costs into categories that must be evidenced. That was not previously the case in CFS. That is before we even start to talk about trigger figure breaches. In that sense, there is an increased workload on advisers, on clients and on the AIB as well for that matter, unless we get a position where there is a reasonable approach to guidance. In that case, that would alleviate a lot of our concerns in that area around those evidence requirements. I want to put the same question to the rest of the panel and perhaps they could also comment about the issue around public sector, whether it is local authorities or DWP, dealing with those public sector bodies as creditors. I think that the wider issue is that from a creditors' perspective, if you have no standard whatsoever, we go back to a scenario where there is a huge subjective overview and what you have are individual creditors, whether they are local authority, small traders, who will express an opinion on a debtor's spend.  At the end of the day, there are all sorts of privacy issues. Debt is not a crime. What we are really aiming for here is a standard of living. If you set a standard against which the average is then benchmarked and a noble comeback to trigger figures, as long as you have some kind of benchmark, it is actually harder for creditors to argue because you are using a standard against which everybody is measured on a common basis. I think that it is similar to David. It is the level of evidence requirements that is the onerous part of this at the moment. It makes absolute sense for everyone to be assessed in a common way, in a standard way, within a defined framework. In terms of UK creditor positions, they are well used to dealing with slightly different nuances of Scots law and the slightly different procedures that we have. Particularly around the assessment of contributions, it certainly benefits them to be able to do that on a common basis across the UK, whether it is someday entering into an IVA in England Wales or Northern Ireland or a trusted or a debt arrangement scheme in Scotland. If there is that sort of commonality across the board there, it is certainly beneficial for them where they have a discretion as to whether they want to permit that debtor to go into that solution or whether they are able to assess that far easier then. If I may just pick on three of the points that I have heard there. David is absolutely right that Scotland is already leading the way in a commonality approach in formal solutions. It is worth me stressing to the committee that there is, of course, still non-formal solutions operating in Scotland, such as informal debt management plans, token payment agreements with creditors. Actually moving to a standard financial statement brings that consistency across the board for people in debt, whether they are going for a formal solution or a less formal solution. The point also around evidencing of trigger-figure breaches is certainly going to come up more during this discussion, but I must touch on the reasons why travel, things like prescription costs, school meals have come into what we would call the fixed expenditure cost. Forgive me if I am telling the committee what they already know. Coming to the fixed committee cost is that there is no trigger figure to those. They are viewed as an essential expenditure and they would not be subject to a challenge by creditors. The challenge would be around the more discretionary areas of expenditure. I see that as a very positive thing for clients who do not have to then have the spending guideline pursued against things like their bus fare or what have you. The final point on public sector creditors, I can only really reflect on the experience we have seen down in England and Wales. Standard financial statements have been in operation since 1 March 2017. We have had just over 100 local authorities in England and Wales who have signed up to express an interest, and I must be clear with the committee here, to express an interest in using the standard financial statement as their approach to assessing affordability. A number of those have now implemented it, the rest are investigating debts. We also sit on a Cabinet Office fairness group, which has the likes of DWP and HMRC upon it. That is a key topic of the agenda at the minute, having a consistent approach to public sector debts. I am very encouraged that the momentum that the SFS is building, and I would expect if it is implemented in Scotland that we will only continue. My final question, convener, is the panel confident that the SFS will be accepted by UK Government bodies? Alternatively, if the common financial statement was to be continued in Scotland, who would maintain it? Whether it is a common financial statement or SFS, what are the issues around any assessments, costs and bureaucracy for those that are providing advice? There are a few examples where the UK Government has already accepted the use of SFS. One example would be the insurance service in England and Wales, which has been used to assess bankruptcy and have done since April 2017. They are very positive about the standard financial statement. It is in the pre-action protocol in the court system down south as well. I should also mention yesterday, along with the budget papers, the Treasury published plans for a statutory debt management plan, which would be similar to the desk up here in Scotland. They reference use of standard financial statement in that. I have no doubt that it is well supported more broadly in the UK, certainly. Sorry, I forgot what the second question was. It was about whether who would maintain the other system if it was continued. Currently, it is maintained by a charity called the Money Advice Trust. It is the common financial statement. It has indicated that it intends to cease the common financial statement. If everyone goes on to SFS, of course, I believe that it would seek funding to do that if it wants to continue it. At the minute, we will fund the standard financial statement. It will be of no cost to anyone but us. I tend to agree that the adoption of SFS by UK Government departments is broadly well supported. I think that the question of maintenance of common financial statement, if that was maintained within Scotland, we need to understand the basics behind it. Fundamentally, it is a model in which categories of expenditure are allocated against a model, essentially. Those figures are taken from ONS stats at the moment, household expenditure. In terms of maintenance, I do not think that that is a huge deal in terms of taking whatever ONS figures are there and putting them into the appropriate format, because it is a formatting issue rather than anything else. SFS and CFS are using the same things, but just with categories of expenditure in slightly different areas. I do not really see maintenance of CFS being a tremendous burden. I do not know who is best to pick that up, whether it be the accountant bankruptcy or some other public body out of that. Eileen McLean, if you have anything to add that has not been said already? Just in terms of who might do it, I know that there is an argument through the AIB supporting that. There is arguably, however, a bit of a conflict of interest there because they would be setting the standard and then monitoring and implementing in certain cases, so perhaps somebody completely independent who would, as David said, take some of the wider economic figures and put that into the model. Perhaps Fraser of Allander Institute was an obvious one that I thought of, or a different government agency or department, maybe the economic directorate, for example. There would be a degree of separation between the setting of the standard and the implementation across my mind that that would be quite important. Okay, thank you. David, how fair to you? Nothing much to add from what the panel said already in terms of who would maintain it, but what I would emphasise is that if the spending guidelines are broadly in line between CFS and SFS, then what we have got there is really a distinction without too much difference. But if you are persuaded that there are certain drawbacks and flaws within SFS, then you will also find that within the CFS. For example, there is no transparency under either option. In the relationship between the client, the creditors and advisers, the client is the only person that has not had access to those spending guidelines. I do not know for the panel if the committee has had access to the guidelines, but what preventing members of the public from seeing those guidelines does for me is that it helps contribute to that notion and that misconception that people in debt somehow cannot be trusted, that if they could access those guidelines that they are somehow going to game the system. As Eileen said already, being in debt is not a crime and we need to change a lot of the misconceptions around people in debt. We are also concerned that under both options there is no real contingency. When it is 10 per cent of disposable income, it is capped at 20 per cent. Now if you are paying £50 per month towards your debt, then you have got five pounds disposable income contingency slack there to play with. It is just not sufficient to deal with unexpected expenditure. I know that Eileen mentioned living standards and David mentioned as well the methodology that underpins both CFS and SFS. It is based on spending patterns within the bottom 20 per cent households in ONS living costs and food survey. I frequently made the case that if you base it on what the bottom 20 per cent are spending it, then you are basing it on people who are spending what they have rather than what they need. That seems to me to be the wrong starting point. I am fully aware that the decision here is almost a straight shoot out between continuous CFS and SFS, but what we would like to see going forward is a full review of potential alternatives and a view of the guidance that interprets the regulations. Just on that last point, whether we could not, as a committee, request sight of that guidance, I think that it would be useful in our deliberations. I wonder whether I could be slightly cheeky, because David spoke about his network of money advice advisers. When did each of you, in turn, last provide face-to-face advice to a debtor using one of those common financial tools? David, we start with you. I have never been a front-line money adviser. I was appointed as a police officer at Money Advice Scotland, but I am very much somebody who always thought that police officers should not remain in the office and have their heads stuck in books and legislation. At Money Advice Scotland, we work to the maximum that if you assert something without evidence, it can be dismissed without evidence, so we put evidence at the very heart of all that we do. Our analysis of the CFS and SFS has been based on really close engagement with our members. We have had three consultation events. We have had different engagements throughout the country in Glasgow, Edinburgh, Aberdeen. We also went through the rather laborious task of line-for-line taking CFS financial statements and transposing it into the new standard financial statements. Whilst you are absolutely correct to say that I do not have front-line advice experience, the level of engagement that we have had with our members, I hope, goes some way to make up for it. Are there people who give front-line advice? Our members are Money Advice providers in local authorities, cabs, housing associations, as well as SMIPs in the private sector. Our members are giving advice, my role is not going into too much detail, it is slightly more complicated. I teach the insolvency profession on a regular basis, working with CFS in terms of high-works. I am currently advising a debtor at this moment, so the last time I used the common financial statement was last week. I am not a regular debt advisor, but I am stressed that the standard financial statement as an idea has been around since about 2013-40. It is not the idea, it is whether you have practical experience of applying it, because I think that is the nub of it. I have heard today that people agree that there should be a common financial framework. The question is which one and how does it work and whose interests are in. I wanted to be a bit cheeky and ask that question. Let me come on to something more substantive. Clearly conflicting views between the accountant in bankruptcy and at least Money Advice Scotland, if not others, as to whether the use of the standard financial statement will result in more or fewer trigger-figure breaches. What are your views? I will come to David Menzies first, seeing that it was only last week that you advised me. Without prejudging what David might say, I do not think that there is a huge difference in terms of the AIB and Money Advice Scotland's view of that. I think that there is commonality in terms of the view that there will be increased trigger-figure breaches using the SFS. The question is by how much and how many. I am sure that David will talk about that in a bit more detail, but the analysis that was carried out by the AIB in relation to the consultation was carried out prior to the SFS trigger figures being uprated. It showed that around 12 per cent of debtor contribution orders would result in a trigger figure breach being increased. The initial comparative survey that Money Advice Scotland carried out, that percentage was about 40 per cent. Since the figures were uprated, the Money Advice service re-established that evidence and that came out about 4 per cent of bankruptcies would result in increased trigger-figure breaches. There is commonality across the board saying that there will be additional trigger-figure breaches, there will be additional evidential requirements and that is just the way it is. I think that that is where things are standing at the moment. I think that it is important to stress that the initial AIB consultation took place, I think, back in October last year, or at least closed in October last year. The argument around trigger-figure guidelines has certainly moved on a lot since then. In fact, since then, there have been two separate up-ratings to the spending guidelines within SFS, since then. I think that a huge amount of credit is due to Craig and his colleagues at Money Advice service for that. We were at the forefront of raising those concerns and there was a response to those concerns. In certain trigger categories, the guideline has increased by more than 100 per cent. It is worth noting, however, that the last up-rating in 2017, so the SFS guidelines have increased, the CFS guidelines have come down slightly, and that is why we have got this picture as much as anything else of a set of guidelines that is broadly more equivalent. When we asked Money Advice Trust why the CFS guidelines had come down, which seems somewhat perplexing—I mean, your household bills haven't come down in the last year or so, have they? What they said, and again it comes back to the methodology, is that people in that bottom income quintile were registered as spending less. They were spending less because they had less, because they had less. The CFS guidelines came down accordingly. That is another one of the drawbacks that we see in the current methodology. Again, I emphasise whether we are using CFS or whether we are using SFS. Can I add, when CFS came in, that the number of individuals making contributions plummeted? So, between 50% and 75% of debtors in our insolvency solution at that time went from paying a contribution to no contribution. The fact that we are now going back to just 4% arguably, or 4% to 12%, making a slightly increased contribution, I would just like to put that in context. And finally, Craig. He was getting praised there. Thank you, David, particularly for that. I don't have a lot to add to what David said. The only thing I would mention is that it's very difficult to compare precisely common financial statement to standard financial statement. The best—what I see as most reliable is what's happened, where it's been live in England and Wales, and none of the providers who have used it south of the border have reported any problems and any particular increase in trigger figure breaches. Okay. Thank you, convener. May I just ask, in terms of allowable expenditures, that graded according to region or area, that sort of thing? I'm happy to answer that one. No, the spending guidelines that are attached to three areas of expenditure are UK-wide spending guidelines, and it's all tied up with the standardisation of this format that it would be used UK-wide. The key thing to stress on that is that it's within the guidelines and guidance for SFS that clearly there'll be areas where—take very rural areas, for example, where there may be higher expenditure. Where spending guidelines have reached, there should be a note added to the statement, and where there's a good reason that should be accepted, and that tends to be the practice that we've seen thus far. Does that add hawk, dependent on the individual, the location, whether or not? It's designed—that flexibility of the process is designed into it. It takes into account your domestic situation, the type of house that you live in, the fuel, so that certain categories are not having an upper limit and are not triggered as a result, for example fuel heating, that kind of thing, and it's dependent on the number of adults and the number of children that live in a property. It's a concern that we've certainly raised, particularly in response to the additional cost of living in remote and rural Scotland, and while Ireland said that—I know Craig mentioned this about transport costs and energy costs—they're not triggered categories, but they are categories that if you're submitting a statutory application to AIB have to be evidenced in every case, whether or not that spending is considered excessive. I think that we need to look at the wider context of the money advice sector at the moment. Investment from local authorities and money advice services has dropped by 45 per cent in the last two years. What we need is money advisers on the front line advising clients. We don't need them chasing up fuel bills. We don't need them chasing up bus tickets to submit as part of the application. Is the proposal better from the point of view of taking into account regional differences as applied in individual cases or not? Purely in terms of comparison between the CFS and the SFS, it broadly doesn't make any difference. Both are done on the same figures, essentially the same source figures. There is no regional variation in that, but both of them allow a degree of flexibility or rationalisation for individual circumstances. I think that that then comes back to the original principle, which is that going to one debt adviser, you should get the same result as going to any other one. I'm not convinced that under either the CFS or the SFS you actually get that, because some people do allow something, whether it be cigarettes or the degree of travel, that rationale around how much is too much travel to go and visit your daughter or whatever. That doesn't get away from either the CFS or the SFS. That judgment is still built in as part of those. What I would just add to that is that the point isn't necessarily which tool uses how we implement it. I think that we are all in agreement a wider discussion about the level of confirmation and evidential requirements that go into supporting that both in terms of a cost, both to the money advice sector, to the insolvency profession and the level of evidence that the accountant in bankruptcy oversees the implementation of that. Certainly from a sequestration point of view sets the contributions, whether there is work to be done and no from sitting in an R3 capacity in the bankruptcy stakeholder group, that has been fed back to AIB regarding the level of evidence and I advise that that is something that they are looking at. A very simple question that might be building on some of the information that you have given us. What is the likely administrative impact on money advisers and insolvency practitioners of a switch to the standard financial statement? I think that, as I have indicated already, there is a large evidential requirement, which is really that burden as a result of the operation, the way that the accountant bankruptcy operate it and require that evidence. Those work concerns that are in place, whether it is the common financial statement or the standard financial statement, I don't think either of them is going to increase the administrative burden an awful lot other than, as I say, in relation to the trigger figure breaches, where there does appear to be clear evidence that there is an increase in the number of trigger figures that will be breached. So there will be an additional administrative burden in terms of evidence in that, the discussion back and forward between the AIB, the insolvency practitioner or debt advisor and the debtor around obtaining that evidence and justifying why those breaches are there. We have done, based on the analysis carried out by the AIB and Money Advice Scotland, we are conservatively estimating that that cost to the UK economy or the economy in Scotland, I guess, is somewhere between £155,000 and £450,000 per year, depending upon which range of breaches it is that you are looking at. So there undoubtedly is a cost to this. Is there other costs, for example, systems changes that have got to be made and so forth? Because I would imagine that there is some sort of bespoke system or software that would need to be in place. There certainly will be some changes. It depends on each organisation, I guess, how they operate. Money Advice Service provides an Excel template spreadsheet, so some places will use that. The Accountant and Bankruptcy have built into their systems into basis the common financial statement, which will have to be updated. So undoubtedly there are IT costs there. Some other practices, step change and such like that, they will need to invest in IT changes as well. If we are talking about back office costs, you seem to be indicating, unless I am misinterpreting, that they will be fairly minor. Relatively minor. It is in the context yet. But the question is whether that cost is justified or not. What is relatively minor? We are not talking about millions, absolutely. We are talking about millions. No, we are not talking about millions. I will just pick up on the insolvency point. Being an insolvency practitioner and keeping abreast of the myriad changes that we have, the new insolvency Scotland rules coming for example, we have to just absorb that cost as a cost of doing business. I would suggest that most of the IPs have already our own board with us. Yes, there are lots of things that we can do to talk directly to AIB systems, but they are not a significant cost to the IP community. Implementation costs vary by organisation, as Dave has already said. What is universal though is the potential for additional costs day to day when it is in operation through these additional evidence requirements? That is where if we can get good guidance around the proposals, some of those concerns will be mitigated. The only thing that I have to add to that, I disagree with what David is saying. I do not believe that there is any evidence that there will be additional burden between CFS and the common financial statement that is currently used. The spending guidelines are broadly similar. There is one less expenditure category that is covered by a spending guideline. I do not think that there will be any increase on that front. To add to what we provide for the systems, there is an Excel tool. We have also produced a developer toolkit, which is something that you can drop in to systems, which does a lot of the work, which reduces the burden slightly. Quite a lot of training will be available that we have produced and that we are free of charge to advice agencies. John Mason Thank you, convener. Mr Simmons, if you could explain about the money advice service. I believe that you are a UK Government agency. Is that the correct term? That is right. We are an independent body settled by government. It is a technical way of putting it. A quango would be the phrase that is used, but our statutory objective is to improve the quality, consistency and availability of that advice in the UK. The reason why I think that we are the right people to be developing a tool is that we have none of the access to grind around the contribution that is made. We want to develop a sector that works well for both credit as end to advice agencies. We have no other motivator. How did that come about? Who decided that there was going to be the standard financial statement? We were established in 2012 and we did a consultation on what would be the right things for us to look at in the debt advice sector, sector-wide initiatives that will help to improve quality, consistency and availability of debt advice in the UK. One of the strongest things that came back among other things was to have a standard approach to financial statements across the country. As I mentioned at the top, there are a lot of disadvantages to having various different approaches to that. That was what the sector told us was needed. You are saying that you are independent from Government. One of our concerns might be that going forward, although we might be comfortable with where we are at the moment and it seems to be that the two models are not that different, there could be political pressure put on your agency in the future to either squeeze down what debtors are allowed to keep or inflate what debtors are allowed to keep that kind of area. Are there clear rules around that? The methodology that is used to find the guidelines is written and it is in stone. It is a process that is run every year by our statistician and we produce all the calculations. It would not be easy to change the methodology secretly. We have a governance committee that has people like Settins Advice, Settins Advice Scotland, Money Advice Scotland, most advice providers in the UK, a number of creditors and the AIIB who would have a say in what that methodology is. We would like to say and our position is that this is a collaborative project, the standard financial statement. It is really the sector's tool, not ours, and those decisions are done in consultation with practitioners rather than we come up with them and roll them out. It is done very collaboratively and I must just put on record how grateful we are to AIIB who have been very collaborative in this process and shared a lot of learnings with us about the common financial tool that has been here since 2015. Can I turn to the other three on the panel and ask are you also comfortable that it is Money Advice service that is doing this and the process and the protections and safeguards and all that kind of stuff? I think that any change to that methodology, as Craig said, is low risk. There is a governance group set up there that covers a range of bodies across the sector. If you look at another hand and you quite like the notion of reviewing other ways that we might do this, there is a low probability of that. That would be on the wrong side of your question. I think that generally, in terms of how the tool is put together in working absolutely, I have got no concerns around that. I think that the concerns that we would have in relation to the regulations is more of a principle-based type thing, where the control of that is not within the control of legislators or within the Scottish Parliament. I would suggest that some of those aspects are not sufficiently well protected within the regulations. It moves some of that responsibility into the Money Advice service hands rather than within the legislative provisions around that. What is the concern there, sorry? I think that we already have a really well-defined system of regulation. The code of conduct that is available for the SFS, for instance, dictates or allows the governance group to decide who can and cannot use the SFS. However, in legislation, we have a requirement saying, well, you have to use this. You could potentially have the possibility, I guess, where the governance group is saying that this firm is not applying the procedures correctly. Therefore, we want to withdraw their licence, which then impacts on the ability of that debt provider or insolvency practitioner to be able to provide their services in the regulated sector. You are saying that it is a bit confused, the picture, right? It could easily have been resolved by licensing being done directly to the AIB or the Scottish Government and then being brought in that way. However, it is a confused bit of legislation in that way. Could I ask Mr Simmons to comment on that point? I am very happy to, of course. I think that what David is saying is technically accurate. I think that, in practice, the likelihood of debt is very slim because we have designed the SFS in collaboration with the AIB. I believe that the principles that we set out in how you use the standard financial statement are the same as the AIBs. The chances of there being a disagreement are very slim. That governance group that David has touched on has got AIB on it. I would never foresee a day of us withdrawing a licence without consultation with the AIB just to give some additional comforts. SFS has been live since 1 April 2017 and, as yet, we have had no reason to remove anyone's licence. I think that the likelihood of that is very small. Mr McLean? That provision exists already with CFT, where you have to be licensed by the money advice trust to use it. When we are talking about licences, they mean registration, so they know who is using it and we have had no instances of any, certainly any, insolvency practitioner having their licence to use CFT withdrawn in that time. Okay, thank you so much. Andy Wightman? Thanks very much, convener. David, you made some comments earlier about the fact that the standard financial statement and trigger figures are calculated using average spending by the bottom quintile of household income comes. Is that a concern, therefore, that the standard financial statement is not taking account of what some critics would regard as a reasonable standard of living as opposed to the standard of living of the lowest income households who, by definition, are probably spending less than they should be in certain areas? First, the point around the spending guide—this has been a topic of debate among the sector around this—we did an exercise with the Joseph Rowntree Foundation. I think it was just over a year ago now to compare the spending guidelines with the minimum income standard that they set, and they found that broadly the two are aligned, and most interestingly, of all to me, it was a surprise that actually the O&S figures look at the lowest quintile of income, but actually it doesn't look at the lowest quintile of expenditure. I don't want to get in the jargon here, but actually the expenditure levels at that lowest quintile use would be the second quintile of expenditure. That gave us some real reassurance that it is broadly aligned with the minimum income standard that the Joseph Rowntree Foundation do, and we've committed to running that exercise regularly to see if they broadly stay aligned or if they're diverging, and if they start to diverge, we'll look into that. So the question is not so much whether they're aligned with the minimum income standards, but whether they should be aligned with reasonable income standards. This is something the governance group of advice providers, AIB and creditors considered, and it was deemed that the current methodology is the most appropriate. Okay, any other comments? I'll come in that, and again, I'm going to make you wash the table, but we long called for that comparison work to be done between where the trigger figures sit and what is understood as a social acceptable living standard, so we're really pleased to see that work undertaken. The only household type within that research, and the committee might be interested in that research, incidentally, the only household type that had a better deal under minimum income standard, if you like, than under the trigger figures was for a single person. Now, every other household type fell slightly below the minimum income standard within that analysis. We also found that lone-parent households were disproportionately impacted. I know that we can talk about guidelines being broadly aligned on paper, that might look the case. If you've got £15 a week less than, say, a minimum income standard, it looks broadly aligned on paper, but in practice, when you think of what that household is forsaking week to week, throughout a payment agreement that might last five, six, seven, eight, nine, ten years. Now, I think it's easy to view a financial statement as something of an abstract concept. It's an income expenditure form, essentially, with certain guidelines when spending. Of course it is that, but it does so much more than that. It effectively sets out a standard of living for a household, for a client, over the period of them repaying their debts. We've been consistent that it's a drawback of CFS and SFS, that we don't have a way of checking whether or not that payment agreement leaves somebody with a social acceptable living standard. That's something that we've advocated, that there's not a lot of support for—I'll rephrase that—that there's no support for from the SFS governance group. Again, it's an example of something that, if we had control over ourselves, that's something that we could aspire to. I don't know why you wouldn't want to know that the payment agreement that you've set up where that leaves somebody in terms of a social acceptable standard of living. Those are regulations in which Parliament will decide whether to approve or not. We can't amend them. It's a take it or leave it. I was intrigued that the ICAS said in your evidence that we would strongly encourage AIB and Scottish Government to defer any decision on the use of CFS or SFS and, instead, urgently carry out an assessment of the policy effectiveness behind the CFT. Is it your view, therefore, that we should not pass those regulations? I think that that's clearly for Parliament to decide, but I think that there is a— Yes, I'm asking whether what's your view is what Parliament should do. There is a need, certainly, to review the common financial tool and the methodology in behind that. As I say, whether it is the CFS or the CFS, I think broadly the contribution levels are going to come out about the same. Whether we want to change to SFS, then carry out a review and implement a further change, further down the line if that's necessary. I don't think that that's necessarily desirable. I would much rather probably that we carry out that review now and make one change at the right time. Is the implication of what you're saying is that there has been no review at all? There must have been some review. I'm not aware of a review of the effectiveness of the CFT being introduced through the Bankruptcy and Debt Advice Act having been carried out as yet. In a sense, the legislative change is being proposed in the absence of any assessment of the policy effectiveness of the existing tool? I would suggest that the underlying rationale behind the regulations is simply because, on a UK-wide basis, there is now the standard financial statement, the withdrawal of the CFS being maintained and those two items are driving the change in regulations, not whether there is a policy need to change the regulations. I think that there is perhaps a tendency for the Parliament, for the Government to look at this just in what we can fix. We can fix a bit of bankruptcy law. We can bring in SFS for CFS. There are whole other policy issues that sit behind this about minimum wage, about living wage, about what is a socially accepted minimum level of income and those regulations are not going to fix that. It is arguably that there are all sorts of other things that we have long called in the insolvency profession in Scotland for a routine branch review of whether the family home, for example, should be included in a bankruptcy or a protected trust deed. We can have that debate, but that has to be set against a whole wider discussion about housing policy in the country, for example. Therefore, I think that there is a tendency to think that we will bring in SFS, and that is going to fix all of those other issues, but it will not. SFS is a tool and a mechanism and a measure. There are other wider issues that probably have to be addressed, and I would respectfully suggest that they are outwith the scope of those regulations. David, do you have any comment on whether, in fact, we should be deferring any decision or not? I think that, as I have said already, the drawbacks within CFS—you will also see an SFS—in that case, there is not much difference there. I think that what we, the echo Davies, call for a review of the effectiveness of the policy, we would also welcome a review of potential talenters. One thing that we need to do is to sector a whole lot better. This process is engaged with a range of IPs, a range of money advisers and a range of creditors, but we have not really heard from people in debt, people who are in these plans. One of the most encouraging things that I have seen from the Scottish Government in recent years was the establishment of experience panels, with the view that who better to help shape a new system than people with experience is often quite unpleasant experience of the previous system. I think that that is what we need to do in a debt advice context as well in the decision of whether to go ahead with this current process or review what other options might be available to us. Do we have any sense of what those other options might be? What are the alternatives? Have they been explored? Perhaps I could just reflect on some other countries' experience where they don't use this particular method. If you look particularly at Canada or Australia, for instance, the way that they assess debtor contributions or surplus income into that is that they will take the income level, they have a number of bans that will take into account how many people are in the household, dependences, etc., and they set an element of income that is outwith the scope of debtor contributions, and then they set a percentage above that. It is a very straightforward system that is really easy to understand. It doesn't have cost to maintain, it doesn't have a large administrative burden and that could be used as a model that I would suggest in Scotland. I wouldn't suggest exactly the same because, again, I think that there are some disadvantages that it doesn't particularly take account of, you know, people with additional support needs or that sort of thing where there might be levels of expenditure required there, but I think that that sort of system with an adapted percentage for Scotland, perhaps with an additional lower percentage for those additional needs people could work effectively within Scotland. You hinted that in your evidence in paragraph 9. You say that the end result of such a system would be to increase the returns to creditors. What's the basis for that? It's by significantly reducing the cost of administering the calculation. Just to clarify, it wouldn't result necessarily in increased debtor contributions resulting in increased to creditors, but it would lower the cost of administration. Okay, that's helped. Thank you. Of alternatives, as David's outline, you could have a set percentage contribution if consistencies are objective of this policy, then that seems a really consistent approach. You could draw on the Joseph Rowntree Foundation's minimum income standard if you wanted to enshrine the living standards debate at the heart of this process. You could apply the SFS without spending guidelines. As a format itself, it's absolutely fine. It looks good. It works well. The concern, as we've all heard, comes from the spending guidelines. I don't say that to some physicians, but we saw in the AIB's consultation that spending guidelines shouldn't influence contributions. If they shouldn't influence what somebody's paying towards their debt, then why have them at all? There's no alternative. I feel that we could be examining it. Someone's wanted to say something on this. I just want to give some extra reassurance to the committee that the standard financial statement has been some years in the making. It's looked to build on the good practice. It's already out there. It's taken what's worked in the common financial statement. It's also taken what's worked in the step-change approach that they use and various others that are used in public approaches to affordability assessments, and it has been tested with the money advice community at quite good length. I'm confident that this is the current best practice available. Just to touch on the point around spending guidelines, I just think it's worth touching on what's in our guidance for using the standard financial statement, which is they are exactly that guidelines. They are not allowances to be capping people's expenditure at, typical on David's point. It allows that degree of discretion and flexibility for money advisers to look at a person's individual circumstances and say, actually, the expenditure does need to be above that, and I will put a note on the format to record why. Finally, and I won't take up too much of the committee's time on this, the ONS survey, which is the basis of the methodology, our assessment is the most robust set of data out there at the moment for building a set of guidelines like this. We looked at the Joseph Roundtree approach and we worked very well with the Joseph Roundtree foundation, but their sample size is quite small, and the way they update it annually is not across every household type. They only update bits of it annually, so we'd run the risk of it not being up to date. You've tested it across the sector, but have you tested it with debtors themselves? So, it's being used in England with a number of large providers who are reporting that it's working well. That's with advisers, but what about the debtors themselves? It's being used with debtors at the minute in England, hundreds of thousands of debtors in England. No, my point is that the experience of the debtors and their views of the system being taken into account. Not as yet, because we have rolled it out only a year and a half ago, but we have planned to evaluate both the impact on the client, the impact on the debt advisor and the impact on the creditor. That's when we reach a certain scale. We're hoping that Scotland will be on board when we do that so that we can test the impact of its new policy, so we will evaluate it. We always do. Okay, thank you. Thank you very much. If there are no further questions from committee members, thank you for coming in and I'll suspend the session. We'll move into private session. Thank you.