House of Commons - Scottish Affairs

Select Committee on Scottish Affairs Minutes of Evidence

Memorandum submitted by Citizens Advice Scotland

EXECUTIVE SUMMARY

Citizens Advice Bureaux regularly deal with issues relating to poverty in Scotland. This response considers problems associated with poverty and:

— ill health and disability;

— welfare benefits;

— energy use;

— debt;

— lack of affordable credit; and

— financial services.

It concludes that further effort is required to tackle the problem, particularly with regard to income maximisation, early access to advice and a concerted effort to address the lack of affordable credit.

POVERTY AND THE CAB SERVICE

1. Citizens Advice Scotland welcomes the opportunity to contribute to the Scottish Affairs Select Committee inquiry on Poverty in Scotland.

2. In 2005-06, the 76 Citizens Advice Bureaux across Scotland dealt with 442,550 enquiries.

— the largest area of enquiry regards state benefits (31%), followed by consumer (including debt) (22%), employment (11%) and housing (10%);

— the single biggest issue is consumer debt (14%); and

— the second biggest issue is disability benefits (6%), which has risen from fourth biggest to second biggest in just three years.

3. Enquiries are therefore dominated by issues which arise from, or contribute to poverty. Whilst people of any income can use their local CAB, in general, bureau clients are more likely to live in council housing (32.8% compared with 20.6% of the population) or other rented accommodation (21% compared with 10.1%). They are less likely to be in full time employment (20.7% compared with 45.5% of the population) and significantly more likely to be unemployed (21.2% compared with 4.5%).[15]

4. We know from the annual Households Below Average Income Survey that poverty in Scotland affects:

— 140,000 pensioners (16%);

— 540,000 people of working age (18%); and

5. Since the previous year there have been modest reductions on pensioner and child poverty (down by 20,000 each) but no reduction in those of working age who experience poverty.

6. This submission is not an exhaustive treatise on a complex issue but rather seeks to highlight some of our recent work and ongoing concerns regarding poverty as it presents to the CAB service.

POVERTY, HEALTH AND DISABILITY

7. "Paying the price—the real cost of sickness and disability"[17] is a recent detailed survey of 417 CAB clients claiming Incapacity Benefit, Disability Living Allowance, or both. It found that amongst this group:

— 69% have a monthly income of less than £800;

— 48% reported reducing their heating, lighting or cooking because of difficulties paying for fuel;

— 78% say their health was fluctuating or getting worse;

— 29% felt that their health would allow them to work again; and

— 62% were in financial difficulty, five times higher than the general population.

8. Many had extra needs associated with their illness or disability, including prescription costs (51%) and transport/mobility (49%)—but less than one-third (32%) were exempt from prescription charges and less than one-fifth (18%) had a concessionary travel pass. They were trying to meet these extra needs through help from friends or family (53%) or by reducing expenditure on other things (47%). Almost a quarter (24%) said some of their extra illness/disability related costs were not met.

9. Poverty as both a cause and an effect of ill health is well known. Studies show that income maximisation has a significant positive effect on health. A University of Liverpool report[18] showed a measurable and statistically significant health gain associated with welfare benefits advice. Increasing the incomes of patients provides them with the ability to:

— meet essential expenditure on things such as diet and heating;

— access better accommodation; and

— participate in mainstream community life.

10. Building on many years of experience in providing advice in health care settings, Citizens Advice Scotland is currently working with the Scottish Executive on the NHS Independent Advice and Support Service[19]. This will provide assistance with complaints as well as health improvement advice, including welfare benefits and money advice, where appropriate.

POVERTY AND WELFARE BENEFITS

11. Our research on DLA and IB clients has fed into the government's proposals for reform of Incapacity Benefit. As a founder member of the Scottish Campaign on Welfare Reform[20], we have been working with over 40 Scottish organisations, including CPAG, the Poverty Alliance and Capability Scotland to highlight ongoing concerns with the proposals in three main areas:

— compulsion of individuals;

— adequacy of benefit levels; and

— resources available for reform.

12. The government has stated in its five year strategy for the DWP that it is cutting 30,000 jobs, and some JobCentre Plus offices in Scotland have already closed. This reorganisation is having a major impact on both clients and CAB offices. The switch to telephone based applications is causing hardship for some clients as well as unnecessary delay and frustration for clients and CAB advisers alike. It is therefore particularly disappointing that the DWP has received £268,000 through its use of 0845 telephone numbers for benefits claimants.[21]

13. One of the government's flagship schemes for tackling poverty has been the introduction of the tax credits system. Where this has been working it has been successful but it is ironic that a system designed to alleviate poverty is actually causing it in some cases. Hardship caused by recovery of overpayments was highlighted in a joint report with Citizens Advice England and Wales[22] and we remain concerned that HMRC practices are jeopardising the policy intention.

POVERTY AND ENERGY USE

14. Recently there have been significant and sustained increases in the price of gas and electricity. This has a particularly dire effect on those on a fixed low income. Communities Scotland has modelled that for every 5% increase in prices 30,000 households in Scotland are plunged into fuel poverty. Since 2003 domestic gas prices have risen by 87% and domestic electricity prices by nearly 56%[23].

15. This is reflected in the Paying the Price research, which found that almost half of CAB clients on IB or DLA had reduced their heating, lighting or cooking in the last year because of difficulties paying for fuel. There is currently no additional support for fuel expenditure offered to people with disabilities or health conditions who are under 60.

16. In addition, those on prepayment meters pay the most for energy and their use is concentrated in low income households. In partnership with Energywatch Scotland, we have been calling for equalisation of prepayment meter and standard tariffs, as well as an end to the practice of backdating price increases when meters are recalibrated.

17. In our response to the DTI energy review, we also suggested an inquiry into the lack of competition in the energy market in Scotland as well as measures to explicitly link regeneration with tackling fuel poverty.[24]

POVERTY AND DEBT

18. In 2003 we conducted a major study of CAB debt clients, "On the cards"[25]. Amongst its key findings were:

— The average debt owed was £13,380, a 64% increase on 2001.

— For every £1 in monthly income, an average of £22 of debt is owed.

— Half of clients had a monthly income of £800 or less.

— 14% of clients have five or more credit card debts.

— 25% have been harassed or pressurised for repayment.

19. Follow up analysis looking particularly at low income debt clients[26] found that:

— The lowest incomes are most prevalent amongst debt clients of the youngest age group (16-24 years) and single adults.

— Two in five CAB debt clients mention low income as being a reason for their debt problems.

— Debt clients with lower incomes are more likely than other CAB debt clients to have done nothing about dealing with their debts.

20. CAB clients' debts vary by income group. The clients in the lowest income third had an average monthly income of just £291. Clients in this group are more likely to have:

— Rent arrears, related to the fact that a higher proportion of this group are tenants.

— Utility debts and social fund debts.

— Hire purchase agreements, which is indicative of restricted access to credit.

21. The methods creditors use to recover money is a significant area of concern to the CAB service. Formal methods utilise legal proceedings in the courts, whilst informal methods utilise any means of recovery that does not involve the courts.

22. Informal debt recovery in Scotland is governed by the Consumer Credit Act and the Office of Fair Trading. The OFT debt collection guidance was introduced two years ago and has been very welcome. It has made a difference in terms of some companies being much more aware of which practices would constitute breach of their consumer credit licence. However, our evidence shows that there are still large problems with many creditors who do not comply, even when the guidance has been specifically pointed out to them.[27]

23. Formal debt recovery is devolved to Holyrood, and differs significantly from England and Wales. The Bankruptcy and Diligence (Scotland) bill, currently before the Scottish Parliament seeks to modernise many forms of diligence, including important new protections for bank arrestment and sequestration. Of concern is the new diligence of land attachment, which means a debtor can lose their home for an unsecured debt as little as £3,000.[28]

24. A further difference concerns council tax collection, which can be pursued by summary warrant. This means there is no opportunity to defend the debt in court and incurs an immediate 10% surcharge. We have raised concerns that council tax in itself disadvantages those on low incomes[29], but this is compounded by the debt collection practices of local authorities, who are the largest users of formal debt recovery in Scotland.

POVERTY AND AFFORDABLE CREDIT

25. A longstanding concern has been that those on the lowest incomes pay the most for credit. This means that when borrowing is unavoidable—for example when a major household appliance breaks down—the costs to those least able to pay is actually the greatest. For example:

— a 70 year old retired woman with a loan running an APR of 246% or;

— a female client with mental health problems with a loan running at an APR of 177%; and

— a lone parent owing £500 to one lender, who negotiated reduced payments of £20 per month. After interest and charges only 15 pence was going towards the debt.

26. In response to the Competition Commission's inquiry into the home credit industry, we have been strongly supportive of proposals for home credit providers to provide greater transparency on product pricing, clear and regular statements, and not to penalise early repayment.[30]

27. Credit unions have a vital role to play as an alternative source of credit. The Scottish Executive has put significant investment into developing credit unions, which are already further advanced than elsewhere in the UK. They will never be the whole solution, however.

28. The social fund could be another significant means of addressing this problem for those on the lowest incomes but it remains unfair and underfunded. The move to telephone applications has only compounded the inequity in the system.

29. We have also been working with the Scottish Executive on six financial education pilot projects, seeking to test different methods of delivery with groups and individuals at key transition points in their lives. The final evaluation recommended rollout of the service across Scotland, commenting that "the projects deserve praise for their ability to link with relevant partner organisations, often working with people in vulnerable and hard to reach groups, to make a qualitative and quantitative difference in a relatively short timescale of fifteen months."[31]

POVERTY AND FINANCIAL SERVICES

30. It is not just the high cost of credit—the cost of engagement with the financial services sector can be prohibitive, and in some instances punitive.

31. We recently published a report with Citizens Advice England and Wales highlighting the gross inequality of ATM charges. "Out of pocket"[32] exposed the link between deprivation and fee charging ATMs. Such practice is particularly troubling at a time when DWP is increasingly moving towards the payment of benefits directly into bank accounts. As a result of the briefing and attendant media coverage, several high street banks have made welcome announcements to address this issue.

32. The charges levied by banks are another area of major concern[33]. Again, those on the lowest incomes are hardest hit. We have been working with Govan Law Centre, developing a toolkit for CAB advisers to use to challenge these charges, with notable success. The recent OFT announcement that charges were unfair[34] is welcome but there remains a significant problem. We are therefore continuing to work with Govan Law Centre on legislative ways to tackle this problem.

IN CONCLUSION

33. Poverty remains a significant problem in Scotland. As both a cause and effect of ill health, and of financial difficulty, it is particularly pernicious. Income maximisation, early access to advice and a concerted effort to address the lack of affordable credit have a significant role to play in tackling this enduring issue.

David McNeish

Parliamentary and Policy Officer

October 2006

15 Social profile of CAB clients, May 2005. Back

16 HBAI 2004/2005 http://www.scotland.gov.uk/Resource/Doc/95793/0023203.pdf Back

17 Paying the price, July 2006 http://www.cas.org.uk/payingtheprice.aspx Back

18 Abbott S & Hobby L (2000). Welfare benefits advice in primary care: evidence of improvements in health. Public Health 114, 324-327. Back

19 CAS press release, 1 September 2006, http://www.cas.org.uk/pressrelease192006.aspx Back

20 Joint letter to MPs, April 2006, http://www.cas.org.uk/scottishcampaignonwelfarereformlettertomps.aspx Back

21 rightsnet news, 29 Sepember 2006, http://www.rightsnet.org.uk/cgi-bin/sub_client/search.cgi?template2=news/user_details2. htm&output_number=1&sort=news.submission_date+desc&news.ID=92915024141 Back

22 Money with your name on it, June 2005, http://www.cas.org.uk/moneywithyournameonit.aspx Back

23 Energywatch press release September 2006 http://www.energywatch.org.uk/media/news/show_release.asp?article-id=983 Back