Clause 12 — Insolvency

Part of Scotland Bill – in the House of Commons at 8:18 pm on 7th March 2011.

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Photo of Eilidh Whiteford Eilidh Whiteford Shadow SNP Spokesperson (International Development), Shadow SNP Spokesperson (Women), Shadow SNP Spokesperson (Work and Pensions), Shadow SNP Spokesperson (Agriculture and Fisheries) 8:18 pm, 7th March 2011

I am glad to have an opportunity to respond to the amendment in a way that does not involve any sort of knee-jerk reaction. I intend to discuss the substance of the issue, which is the power to transfer power over all insolvency matters and all aspects of company liquidation back to the House of Commons. Currently, certain aspects are devolved.

When the Commission on Scottish Devolution examined the issue it identified some shortcomings in the existing set-up, notably a degree of overlap in responsibility between the rules relating to insolvency governed here and those governed in Holyrood, and a need for consistency across the United Kingdom. As many Members will know, the Calman commission responded to the concerns expressed by, in particular, the Institute of Chartered Accountants and the Law Society of Scotland by recommending that the United Kingdom’s Insolvency Service should be responsible for the rules to be applied by insolvency practitioners on both sides of the border, with the consent of the Scottish Parliament, and that the Scottish Parliament should retain its legislative competence over corporate insolvency.

Members will note that clause 12 goes way beyond the Calman recommendation. It would transfer powers over all aspects of company liquidation to the House of Commons. I urge the Committee to think very carefully about the clause, because I believe it is a rather blunt instrument which could have a number of undesirable and unintended consequences. I suspect that there is broad agreement in the Committee that the existing legislative framework pertaining to insolvency in Scotland could be strengthened and improved, but the real question is how we should go about it. Should we, as the clause suggests, simply re-reserve powers—which might be a quick and dirty way of dealing with the matter—or is there a better way of achieving the desired outcomes of consistency and efficiency?

I fear that clause 12 will create as many problems as it solves. We should bear in mind why the powers were devolved in the first place. The purpose was largely to take account of the distinctiveness of the Scottish legal system. When Professor George Gretton, the Scottish law commissioner and expert on insolvency, gave evidence to the Calman commission, he stated emphatically:

“Insolvency law has to fit in within the general corpus of the law, including such matters as the different court structures, the different systems of what Scots lawyers call diligence, the different systems of property law, and the law of voidable transactions.”

He pointed out that the aspects of corporate insolvency law that had already been devolved by the Scotland Act were pretty much aligned with the areas that were peculiar to Scots law. The issue was thought through carefully in the first place, and I feel that we too should think carefully before unravelling the existing provisions without taking account of the wider implications.The chair of the Scottish Law Commission, Lord Drummond Young, has also expressed concern about the implications for the sensible reform of Scottish commercial law, should these powers be re-reserved.

As Tom Greatrex has already pointed out, some of the deepest concerns about the consequences of the clause have been expressed by the Scottish Federation of Housing Associations, which has argued against it in the strongest possible terms. Members of that association own and manage 47% of Scotland’s affordable rented housing stock. They have an annual turnover of about £1 billion, and assets worth about £8 billion, so we should not take their concerns lightly. Housing is a fully devolved matter, and the Scottish Parliament has the power to legislate on all aspects of housing policy. There have been a number of changes to housing policy since the advent of devolution, as well as significant policy developments. This has been a dynamic area of activity in the life of the Scottish Parliament.

Back in 2001, in an amendment to the Scotland Act 1998, responsibility for legislation relating to the insolvency of social landlords in Scotland was devolved to the Scottish Parliament. The amendment order was agreed unanimously, with cross-party support, in the Scottish Parliament, and the provision was passed in Westminster. The amendment enabled the Housing (Scotland) Act 2001 and the Housing (Scotland) Act 2010 to address the potential insolvency of registered social landlords. The 2010 Act established the Scottish housing regulator as an independent body to safeguard tenants’ interests and regulate the financial well-being and governance of registered social landlords.

Assessing the risk of insolvency among registered social landlords is an integral aspect of the existing regulatory regime. The 2010 Act also gave additional powers to the Scottish housing regulator to act quickly when a registered social landlord was facing insolvency, thereby safeguarding the interests of tenants and of the wider social landlords sector. There have been no cases of insolvency among Scottish registered social landlords in the past 40 years, but those representing the sector are not at all complacent, given the economic environment in which they are operating and the experiences that they have seen in other parts of the UK. They believe that there needs to be provision for a regulatory authority to deal with such matters in a timely and appropriate way, should cases of insolvency arise.

The regulatory framework that has been established in Scotland is designed to reduce the possibility of a social landlord becoming insolvent by preventing the situation from occurring. I am sure that Members will appreciate the importance of that, not only for tenants and social landlords but for the wider housing sector and other stakeholders. In particular, effective regulation is crucial to the ability of registered social landlords to access lending at competitive prices. The Council of Mortgage Lenders made that clear in its response to the 2007 consultation, and it is estimated that Scottish registered social landlords have saved about £70 million in the past five years by being able to access lower lending margins than are available in the commercial sector.

All this provides a practical illustration of why a strong regulatory framework is important, and why these matters were devolved in the first place. We really should not be rash enough to dismantle that framework. We must also bear in mind the fact that, if we pass clause 12, any future measures relating to the insolvency of registered social landlords would require legislation at Westminster, with all the difficulties of securing time that that involves. We need to recognise the practical benefits of devolution in this area, and not try to reinvent the wheel in our efforts to tidy up the loose ends in the wider insolvency provisions.

In housing, there is a strong case for preserving the coherence and alignment of the legislative policy making and regulatory frameworks. This would be broken if insolvency powers over registered social landlords were to be re-reserved. If the main reason for clause 12 is to tidy up insolvency provision from a UK point of view, it would be most regrettable if it were to make housing policy significantly more untidy in the process. I have a real concern that, in time, such a dislocation of policy from regulation could lead to delays, fragmentation and inappropriate decision making. It would be a retrograde step, and it would reverse recent progressive measures that have had the support of the Scottish Parliament right across the political spectrum.

I urge Members to look again at this matter. We need modernisation of the insolvency provisions; that will be very welcome. This is not the way to do it, however. There are many ways of doing it, and key to the process will be better inter-governmental working. I would also draw the House’s attention to the Scottish Parliament’s Scotland Bill Committee, which took these concerns seriously and recommended that legislative consent on this clause should be subject to certain provisions being drafted. We are not in a position to see those provisions today, so I would urge Members to oppose the clause in the interim, until we have a workable and effective solution before us.