IVA.CO.UK DEBT EVENING 02/08/07 - TRANSCRIPT

Transcript of the Debt Evening organised 02/08/07

IVA.co.uk Debt Evening, 2 August 2007, Transcription

Speaker key

HO Host, Zoe-Anne Phillips
AD Adam Davies
JB James Bellini
MA Mark Allen
KT Dr. Karl Taylor
JS Jonathan Said
VC Vincent Cable
KK Keith Kirkaoy
AM Alan Marsden
IH Ian Holland
JM Joanne McGillian
ZD Zoe Day
SH Stuart Hopewell
JH Gill Hankey
JW Judie Wilson
JF Jeremy Frost
MG Melanie Giles
MS Mervyn Smith
DD Diane Donion
LC Lisa Cuana

Good evening, ladies and gentlemen, and welcome to the IVA.co.uk Debt Evening. Thank you very much for making the effort to be with us this evening? Now, before we do start, could you all please make sure that you have turned off your mobile phones, or any pages that might go off during the evening. Before we begin the debate that forms the main part of the evening, I would like to introduce you to Adam Davies, who is the spokesperson for IVA.co.uk. He'd like to say a few words, and tell you about some of the research that we've been carrying out. Adam Davies?

Good evening, ladies and gentlemen, and once again, thank you all for attending IVA.co.uk's Debt Evening. This is the third evening we have run, and the feedback has been great. Now, before I pass you over to James Bellini for the debate proper, I would just like to give some background information on the site, and why we are here. Now, I'm someone who feels quite passionately about helping people in debt, specifically people who are in IVAs, or are contemplating one. This is because I recently completed an IVA, and boy, was it tough, and at times it was a very lonely experience. I had close to £70,000 of personal debt, and for me an IVA was a great solution, and it really has helped me get back on my feet.

Although the IVA is a great solution, I feel that more transparency over the procedures and how it works would help people enormously. A good number of IVAs fail, and potentially this can be avoided with support and help from other people. This is where IVA.co.uk comes in. The site helped me significantly when I was in an IVA. It was through the support and advice that I received on the live forum, that I learned about the possibility of an early finish, by way of full and final settlement, which is the route that I actually took.

Because I was such an avid supporter of the IVA.co.uk community, they offered me the role of being a site spokesperson, which I've embraced wholeheartedly. The forum has helped hundreds of people, and we are regularly getting 400 posts a day, many of which thank us for the advice and support that they've been given. There are still a lot of people in debt, suffering in silence, so this evening's topical debate is part of IVA.co.uk's overall aim to raise awareness of debt in the UK.

I'd like to take this moment to thank Community121, who are the people behind IVA.co.uk. Communit121 actually runs hundreds of community work sites, and you can find out more about them at Community121.com. I'd also like to thank our media partners this evening, Moneywise, Credit Today and 24Dash, all of whom have helped us achieve the great turnout we have this evening. Thanks very much.

Thank you, Adam Davies. I'd now like to introduce our chair for the evening, Dr. James Bellini. James is a broadcaster and futurist with a long television career, which includes the Money Programme, News Night and Panorama. James?

Thanks Zoe. Yeah, the Money Programme for three years, didn't learn a thing, I have to say, about money, so I'm going to have my ears open tonight. Anyway, thanks for that, and good evening to all of you, and as Adam Davies said there, we're here to discuss some of the big and latest issues relating to the debt situation here in Britain. We're going to be tackling four key issues in particular, and looking at the results also of some new research, commissioned by IVA.co.uk, and conducted by Ipsos MORI.

First though, I'll introduce our esteemed panel. On my immediate left here, Mark Allen, who is a partner at Grant Thornton. He's responsible for the national IVA service line, and is by profession a chartered accountant, Dr. Karl Taylor on his left there, who is a reader in economics at the University of Sheffield, and also who sits on the editorial board of economic issues. On his left, John Said, who is a senior economist at the Centre for Economics and Business Research, who contributes to macroeconomic analysis and forecasting, the big picture, if you like, and far left, rounding up our card this evening, Vincent Cable, MP for Twickenham, Liberal Democrats, and you were elected by surprise, you once told me. You stood for election as a bit of a laugh, and suddenly discovered you were in Parliament. Anyway, Vincent's a regular commentator on government policy regarding debt, so thanks all of you for coming as well.

So, I'm going to kick start the evening by presenting three key results from the research I just mentioned, conducted by Ipsos MORI. They surprised me certainly. More than one third of people in this country, in Britain, rate personal debt as a more important issue than terrorism, the environment and education. The second finding was that 84% of Brits agree that financial credit, things such as loans, credit cards and the rest, is too easy to obtain in Britain. Thirdly, 61% of Brits, that's nearly two thirds, obviously agree that going insolvent, in other words going bankrupt or taking out an IVA, is too easy in this country, so I hope that somehow wets your brain juices this evening.

So, taking those findings into account then, let's turn to our first issue tonight, the first of four, and that's the relationship between creditors, the debt solution industry and consumers, and I'd like to, if you like, ask the card to give their opinions about what they think can be done to improve the channels of communication between creditors, the debt solutions industry and consumers.

I often feel as a journalist and an observer, that we don't really hear enough and don't know enough about how the whole machinery of this industry works, so Mark Allen, I'll come to you first maybe. Can I just ask you first a big question anyway? Is there a debt crisis? I mean, we all know there's a lot of debt, but is there a debt crisis?

I'll give you the accountant's answer. It depends what you mean by crisis, the definition. Debt is increasing, and on the fringes, if mortgage rates go up, because I think mortgage is the key. Credit card interest rates aren't determined by the base rate, and we've had five increases in mortgage rates over the last 18 months. The average person has had to pay an extra £100 a month. People have come out of fixed rate mortgages. There are a lot of people out there who are going to have to find another £200 in the next few months, so there's a lot of people out there who don't have £200 at the minute, and when they're trying to find it, there's going to be a problem, so it is growing, but if you look at the amount of people that are actually going bankrupt, it is 0.27% of the population. That includes children, so if you take the kids out, it is 0.5%. So, if you lend to 100 people, and you're a bank, it is not unrealistic that one out of 200 is going to go down, so you price that in, so I don't think it is that everybody is falling off the edge, but there is certainly an increase, if you look at the figures, filling a CCCS, 5,600 people a day phone in CAB, so there's certainly an increase in the amount of debt.

We all know that the amount of personal debt in this country passed the magic trillion mark a while back, and I think as of last month, it is 1.3 trillion, so it is getting bigger. Is it getting worse?

Well, it is getting bigger, but if you look at the credit cards, we've actually repaid 500 million this month in credit cards, but obviously we've got a lot more money to find in the mortgages, and mortgages were up last month. So, overall debt is growing and it is still growing at 5 or 6%, but 58% of people repay every month. It is at the edges that this debt is increasing, and that's why we need the social policies to deal with that.

Vincent Cable, you can put your parliamentary hat on, if you like, how has this all happened, because it is far bigger than the rest of Europe, is it not? Is it government? Is it the lack of foresight or policy?

I think it's multiple causes, but I think the starting point is crisis may be the wrong word, but there's a very big problem. You can look at this numerically, and the relationship between debt and income in Britain is now roughly 160 ratio %, which is the highest it has ever been in our history, and the highest in the developed world, and that's partly a product of the deregulation of credit. The amounts of people's disposable income being spent on debt service, and we're talking averages here, it varies enormously between generations and groups, is now approaching about 20%, which is what it was at the height at the last personal financial grunge 20 years ago, and these ratios are getting worse. They are in an environment where interest rates are almost certainly likely to go up. We can argue about whether another 0.25%, or more, where there are severe doubts about the sustainability and the continued boom of the economy, and where a whole lot of things could collectively happen to make what is currently a problem into a real crisis, so I think we are dealing with a very big issue.

Okay, well, we're here to have a debate tonight, so each of these four sections I hope I can invite some of you to chip in, put your points of view, ask questions, argue, whatever suits you, but on the issues that we're currently looking at here, which is the macro picture of creditors and the debt solutions industry, if it is anyone's fault, if there is a crisis, whose is it? Is it something that's getting out of control? Is it something you feel demands particular kinds of solutions? Who wants to stick a hand up and come in on that? Okay, you can probably see lots of cameras around, so I'm going to be fairly strict about how people actually deal with their contributions. Sir, can you just tell us who you are, please?

I'm Keith Kirkaoy. I run my own debt advisory company, called Ditch the Debt. I'm actually quite concerned as to how large companies, Barclays, all the major banks are actually getting away with breaking the rules that are set by the Office of Fair Trading for giving debt management, in that if a third party is involved in the transaction, and the authority to act has been given to the company, then they, by the guidance issued by the Office of Fair Trading, should deal only with that third party company, and that's not happening.

Okay. Thanks for that. Mark Allen, are they breaking the rules?

Well, I represent a number of the confederacy, so you can probably guess what my answer's going to be. I represent them in relation to IVAs. I certainly think there's been an issue with just the relationship. You asked earlier on, James, has the relationship worsened? I think there wasn't a relationship 18 months ago. I don't think that the IP professions were close to the bank, or that the banks 18 months ago were involved in the IVAs, because it was relatively small, so they had no real interest in getting involved in the market. When the IVAs when up by 40% last year and it was hitting the bad debt revisions, the banks certainly wanted a higher involvement, and so I think there could be better understanding on both sides, and ultimately I think the Debt Resolution Forum that has been set up, the Insolvency Service and the BBA have set up forums to get people to talk has to be a good thing, and not everything is going to happen overnight, but certainly there's going to be a lot of positive things that will come out of that. This idea of blame, I've got both sides. I've also got an IVA department, so I can see both arguments, and because I sit on both sides, it's like any argument, nobody's 100% right. There's issues on both sides, but it needs to be fair.

Just a very quick response, sir?

Nobody's trying to blame anybody, but the Office of Fair Trading issued guidance, and that is the rules, and those are being broken.

My name's Alan Marsden, and I'm actually one year into an IVA, and I come back at what the gentleman's saying here. I think the industry needs to look backwards at itself, because I had already chosen the company that was going to represent me in the IVA, and I had people like MBNA, who I would term as thugs, and the way that they tried to lambaste me on the phone, and having someone who was probably a third my age tell me it was not his fault that I was in an IVA, was not the way that I felt I needed to be treated at the time. I think these are the sort of things that people need to look at, and these people were being ignorant of the fact that the IVA had been agreed and they were still pushing me, three months into the IVA.

So far, we've got breaking the rules, thugsï¿½

My name's Ian Holland. I work for a company called Money, Debt and Credit and also I'm the Vice Chairman of the Debt Resolution Forum, which Mark's just mentioned. One thing that I find the most disappointing is that banks don't seem to recognise that they're part of the problem, they don't think they've done it wrong. They say they've lent wisely, and I suspect that's part of the underlying issue that we're talking about here, that they've lent money to people that shouldn't have had it in the first place, and if they recognise that and started repairing that situation, which I think they are now tending to do, we might have a better future, but the present is that a lot of people are going to be in difficulty. There's £55 billion pound in credit debt out there, and I don't think half of it is performance driven.

Okay, thanks for that. We're going to drill down and go onto the second point, which is the simple IVA, or I think Mark said I can call it a SIVA, and the implications. Just to refresh your memories on what this might be, I think we're hearing more about this on Friday from the current consultation process, simple individual voluntary arrangements will allow debtors to clear their debt more efficiently, and the time scale of setting up a SIVA is expected to be much shorter than the original IVA. The insolvency service has conducted a twelve week consultation process about simplifying the IVA, and the consultation of that ends this Friday, so under the new proposal, three points. Only 50.1% of creditors will have to accept the SIVA, as opposed to 75% of the IVA, it is expected that SIVAs can be arranged for clients owing up to £25,000, and IVAs will stay in place for clients owing more than 25,000. Does that all make sense, Mark? It's very fluid in any case?

It is. The figure is likely to be 75,000. I think the SIVAs are good. From the creditor's point of view, probably their power has been taken away a little bit, because it has made them from 75 to 50%, but I actually think 50% is fair. It is a simple majority. The difficulty at the minute that we have is that, if you're one creditor and you've got a sizeable vote, you can demand that this thing isn't approved, even though all the other creditors want it approved, and I think that's out of character with insolvency legislation and bankruptcy or liquidations. I sat on the working party with it, and certainly I believe really that we should have the 50%. I think it is not going to take a significant amount of cost. People keep talking about it is going a significant reduction in cost for IPs. If you look at the process, one of the things that's wrong is that they actually said there should be no modifications. Now, if you're not involved in IVAs, that on paper to an academic sounds good, but in practice what it means is that, say I'm trying to do a deal with Ian. His only choice is to say yes or no, so I get the inner copy of the proposed names, and Mark says to me, I like it, apart from I just don't like this little bit here. Now, Ian can only reject it. So, what happens is I don't send him the proposal. I send him a draft proposal, and say, look at that. So, it's not really going to take away the cost issue that the government believe.

Vincent Cable, you were watching the brief on this. Is this fiddling about with the system?

Well it is. It's a rather technical issue for the industry, and I'd rather the industry people talked about it. I think the key point about IVAs is that, because they're under attack from the banks, because it gets in their way. I always take a fairly charitable view of people seeking IVA solutions, rather than traditional bankruptcy, because you can protect your home in a way that the bank repossession process stops you doing, and that's the great merit of it, from the debtor's point of view. There are bad debt solution company and good ones, and we can get into an argument about whether they should be regulated, but I would defend the principle, because it is often a much better way of dealing with your problem than with a bank.

So, Mark, you don't see it as a solution to this relationship problem? It won't improve relationships between the debt solution industry, creditors and consumers?

I think the danger is that when SIVAs come in, I looked at research in America, and at this moment in time now you see ads in the paper, if you've got debts of more than £15,000, phone this number. With the SIVAs coming in, there will be a certain amount of the cost taken out, and I think you will see ads in the paper saying more than £10,000. So, you'll see a lot of people in debt management who will be able to scale off the benefits of the IVA. The danger is, from the bank's point of view, if the numbers go from 50,000 to 100,000, which I think they will do, then the bank will say, God, this is too big. It is growing. We need to focus on it again. So, there's a danger that it could get the focus for the wrong reasons, not because it is not a good service, or not returning money, just because it is growing, so we need to manage that with the banks and work together to show that it is growing, but there is a benefit. What we don't want to do is go down to ancient Athens, where the danger is that we don't have a debt, good social or relief policy, then we throw all the farmers in jail, and everybody starves. You do need a good debt resolution, and SIVA will expand on that.

What about crystal ball time, though? What's in the pipeline beyond this, in respect of this kind of refining, if you like, or extension of the whole IVA type of solution? Will there be further looks at this? Will there be further possibilities?

If you look at the long segmency of the SIVAs that's probably going to be another ten years. I don't think so. If you look at all around Europe, the IVA legislation that we've got in the UK is second to none. All other European countries are coming around to copy it. I think we have a duty to show the creditors the benefit that there is in the IPA, that there is half a billion pounds return going to the creditors, that there is better transparency, and if we've got alignment of fees, we can show that the regulation, because people keep talking that there's no regulation. Believe me, I'm heavily regulated, so we need to show that we are in a heavily regulated industry, there is alignment of fees, and there is a sharing of benefits, and if we can do that, then we can move forward.

Karl Taylor, with your wider perspective on these sort of things, are we creating a debt culture? Is that something we now have to factor into economic thinking?

I think potentially that's quite true, and it is not just a case for the UK. The European Commission recently estimated that 54% of GDP is actually made up of household debt, so it is not just confined to this country. It is also an important part of the economy, because obviously debt drives consumer expenditure, and that is a large proportion of GDP, so I don't think that things are going to change drastically in the future.

Questions from the floor, points, comments? Yeah.

Hi, Joanne McGillian from the Bankruptcy Advisory Service. Our issue with receivers is the fact that, contrary to what's been said, the likelihood of actually securing your home, if you go into one of these arrangements, is actually no more likely than if you go into bankruptcy. The home isn't going to be dealt with until month 54, whereas in bankruptcy, it would be dealt with within 36 months, maximum.

Fair enough, Mark?

I agree with that. My position on it was I would like to see the home dealt with at the start. I think that's a fair system. It mirrors bankruptcy. You're dealing with the assets today, not as they are in four years' time. I have to say that there was a lot of work from the HBOS , which his committee on the insolvency service, BBA Working Group, and what they've come up with is something that is what I would call a compromise, because although it is in the future, there is a certain amount of safety net for the individual, in relation to affordability and loan value on the home. Not ideal, compared to what I would like to see it, and from the bank's point of view, be careful of what you wish for. In 91% of bankruptcies, you get nothing. So, if I was the bank, I would be wanting people to go into an IVA, not a bankruptcy.

To me, there should be some reward to somebody that goes into an IVA, and I think this is a prime opportunity to provide that, to allow a person to have more of a chance to protect their own home.

And, if you look at countries like Germany, they're recognising that, if you treat somebody and they perceive it to be fair, for example, their arrangement lasts seven years. At the end of year five, you get 10% back of your income, and at year six, you get 15%, and year seven, you get 20%, and the idea is to have a carrot there, to keep people in the arrangements. In America, 70-80% of IVAs fail. Nobody gets anything, and in the UK at the minute, the official figure is 22%. That's understated. My guess is it is 30%, around that, and we want to bring that down. You do that by incentivising the individual to stay in the plan.

My name's Zoe Day. I actually tried to go for an IVA with Melanie's over there. I was rejected by a major creditor. I think this new SIVAs which are coming into place will help, because people are going into these things, and they are failing, I think they are going to help people to stay into them, because unrealistic modifications are actually being proposed. Now, I actually made myself bankrupt this year, because I could not afford to go into the IVA. So, it is a good thing that these things are being now proposed and these unrealistic modifications won't be put forward for debtors.

Thanks for your comment.

Ian Collins, Money, Debt and Credit. I believe that the problem that we have here is that the banks are looking at their net return all the time, and they're putting people into an environment whereby it is very difficult in the present country, with credit pressures, to survive an IVA, if they don't build in some flexibility in some lifestyles. The individuals are suffering here, as a result of the intransigence to some extent of the banks. Now, it is not the best solution, and I agree with the colleagues on the card that we need to give people a second chance. This should be financial rehabilitation, not perjury, that's what is happening.

This really takes us into the third of the four areas, which is regulation of the debt solutions industry. Now, Vincent Cable, I'm going to put this to you, the banks are getting a real heavyweight banging here, and as in so many areas of British economic regulation or non-regulation, we expect them to do it themselves. It's like the advertising industry, and I'm struck as an ex-journalist, every time I turn the TV on, on a news channel, I'm offered a loan.

Yeah, well regulation is very inconsistent, and this is part of the problem. Some aspects of financial services are very highly regulated, and if you make an investment, you make a savings product, and then you get all the small print, and the independent advisor has got to spend a long time talking you through the procedures, but at the same time, as you say, you can be offered a loan over the phone, unsolicited offers of lending, so regulation is very tough in some aspects and very weak in others, and what we need is more consistency. Generally speaking, in this country, savings and investment is quite highly regulated. Lending and the promotion of lending is largely unregulated, and this helps to explain the debt culture you've been describing, that institutions have no incentives to show any restraints or responsibility.

Jonathan Said, I know you have a macroeconomic view on these matters, not a highly specialised about specific debt solutions, but is regulation the way forward? Does it normally work in other areas? Should it work here? Should it be imposed more?

Regulation works to the extent that it is the right regulation, that it fits in with what the specific industry needs, and you can extend that to examples in different industries as well. I think the big issue that there is in the IVA industry, and more importantly in the debt industry is one of lack of information on the three parties that there are. So, you've got the creditors naturally not trusting the IPs, and you've got information on the consumer side as well, the debtor side, as well as a lack of information sometimes on the IP side. So, the trick there is getting that right, ensuring that all parties have the right bit of information. Whilst that is very important, what also needs to happen is a certain amount of self regulation which needs to be promoted, as long as it is the right thing. The relationship between these three parties is very much a maturing one, one which is very young, and over time I think, as the parties start to recognise that the longer term benefits of doing things the right way, that aspect will also improve. I think we need to balance the two.

Are there any lenders, banks in the room, anyone who would want to contribute to this? Are you regulated enough, do you need more?

Stuart Hopewell. I was coming at it from another point of view, to be honest. I'm Chairman of the Institute of Credit Management. Mark may know my views on IPs, and they're very strong. Mark says that the IPs are regulated, and that's true, but the IP in a firm of debt recovery companies or IVA factories, as we call them, is one of probably three, and yet you've got 50 employees, proposing these IVAs. I've found it incredible that the only people who really took action against these debt factories were the Advertising Standards Authority, about their adverts, not the financial regulators.

The difficulty is, and this is what I've been shouting about is that in the past the IP was the partner. Most partners are in accountancy firms or solicitors, and we were the partner, so we were the ownership of the practice. If you go to some of the large debt managementï¿½and I don't like to use the term factories, because it implies low-skilled people, and there are some high-skilled individuals out there, but if you look at some of the large companies, the owners are not the IPs, so they are now maybe middle management. The only think that can happen to me or my regulator, if I do something wrong, he can only come after me. It's not Grant Thornton, it's Mark, because I'm the licence holder. Now, that's a problem for me if I'm a partner in Grant Thornton. If I own Grant Thornton, and it is one of my lower level managers who is going to lose his job, well I'll just get another lower level manager in, and that's the problem at the minute. I don't think the regulation can come after the firm, so what you're finding in some of these firms, as IPs one comes in and one goes out, because he's basically saying, if he has a decision to make between compliance and losing his licence, or making more money for that firm, if he's a low level person who doesn't have a say in that firm, the decision may be commercial rather than compliance, and that's why I think the regulation needs to be with the firm. I'm not sure how that's going to happen. It's a complex issue.

I would agree with that. Don't you think the problem is that the onus that you mention, particularly the publicly quoted companies are effectively shareholders, and their interest is in profit.

Absolutely. What do they care if a guy who is earning £30,000 a year loses his licence, if the firm makes another 100,000? Maybe they do.

Thanks for your honesty.

Mark, what would your wish list be, though, if you were going to say, let's have a regulatory structure, for the top five or six points in that structure?

I think the key one has to be regulation of the firm, not the individual. That's where you will get the responsibility. I think the regulation needs to move from a more paper ticking exercise. Whenever I'm regulated, the regulators in the past would have come in and just said, have you answered the letter within seven days? Now, the fact that on my dividends I could have been promising 30 pence in the pound, which of course we do, and nobody's looking at that, yet there's an issue if I haven't replied to the letter in six days when it should have been five, so it needs to look at the overall big picture, and to look at the quality of the advice given, the returns, so we need to look at a more practical-based solution, and I know they are. The Institute of Chartered Accountants in England and Wales has taken on board a lot of views, and we had a presentation with our creditors last month, and David came along, from the compliance part of the Institute, and the work that they're doing now to IPs are going to come in more regularly. They've taken on board the issues, but sometimes what happens is a lot of pub talk goes on in the IP industry. You hear there are complaints and nine out of ten cases fail, and there are a lot of issues. If you speak to the Insolvency Service or the regulators, they say, we're not inundated by letters. There are not a lot of issues. Now, either there are issues and people aren't bringing them forward, but certainly the regulators do not have a lot of problems with the personal insolvency arena.

Vincent Cable, we saw earlier from that Ipsos research that quite a lot of people in this country, a huge majority in fact, put financial problems and debt higher than things like terrorism and the environment, so for them it is very much top of the political agenda. Doesn't seem to be top of the politician's agenda, does it, by any means?

I'm trying to make it one, but yeah, you're right. Certainly in my Friday surgery, it is very clear that there are enormous numbers of people who are seriously struggling actually. The area where it is a cliff edge is actually mortgages. Most of the talk in the media is about unsecured lending and credit cards, but actually it doesn't take a great deal, in terms of interest rates and a slow down in the economy to push hundreds of thousands of people over the edge, in terms of mortgage pronounce, because they've been borrowing at way over three times income, which in most countries is a definition of sub prime lending, and you see in the United States what's happened with sub prime lending. It is cascading throughout the financial markets. It has happened here, but it hasn't yet caught up with us. So, this is a really big issue.

In crude terms though, is it because Britain is much more of a house owning culture. We have mortgages a lot more than most European countries?

Yes, and given the current level of prices, obviously people can only get into the market with totally unrealistic ratios, that's right. I think that the underlying problem is that there's a whole generation of people under 40, who've never been exposed to the pressures we had in the late 80s, early 90s. It's just not part of their experience. We've had a 15 year boom, in which you can borrow more and more on ever rising incomes, and not be hit.

Is that boom mainly down to the Labour Party?

Well, most of it was under Gordon Brown, and it has done good for this period of time, but it is not sustainable.

Karl Taylor, let's look at a wider, macro picture here. Is it getting to a point where it starts having major economic implications, not just simply the sort of people that Vincent's turning up at his surgeries on a Friday, and saying, I've really got a problem here.

I think potentially that's true. The issue for me is whether the individuals and households actually have the financial assets to cover any secured/non-secured debt that they have. If individuals do, then it may not be problematic, but when you look at households in the UK, and I've been to Germany and the States as well, you find that there's a very uneven distribution of households being able to cover their debt, and that's where the problem kicks in. Typically it's the youngest household heads, those in the lowest quarter of the income distribution that don't have the financial assets to actually cover their debt, which if there's an adverse shock, such as unemployment or interest rate rises, that's really problematic, not only because interest rate increases might decrease your financial assets, due to repossessions, if you can include the value of the house as an asset, but also you need to be able to convert those financial assets into cash, in the case of an adverse economic shock.

Wearing your forecasting hat, are we going to have something in ten or fifteen years' time, which is just so large it is actually beyond management?

Well, I take a more optimistic view, in general about debt. Levels are rising and they probably will continue to rise, but when you look at the big picture, they actually are not as high as they used to be, and a number of the assets or the value of things like property, for example. If you look at the property market, house prices actually are quite where they are because of the shortage of houses, and most of the debt is in that area, and an important thing to look at in that area is how much mortgage payments you need to make, relative to your income, and that is still at low levels, compared to where we were at the height of the Lawson's boom, for example. So, in terms of debt problems I think I would generally agree that there is an issue there that we need to tackle, and that need tackling. However, I don't think that that is an issue which will become unsustainable in the longer term.

Gill Hankey, one of the directors of the Bankruptcy Advisory Service. I think, while I appreciate that increasing mortgage payments is obviously going to cause a problem for a lot of people, the majority of clients that we see are in rented accommodation with no assets, and they have phenomenal amounts of debt on credit cards. They've got 23, 25, 29 credit cards, and our worst one up to date owed £247,000 on credit cards, and was in rented accommodation, and his only asset was an 11-year-old Volvo car. They are the ones that are teetering on the brink.

Judie Wilson. I work for the Community Legal Service Direct. I'm actually a debt advisor. We tend to deal with people at the very brink, at the end. We have clients who mainly are on benefits, who have actually been offered IVAs with no assets, maybe two, three years before retirement age. We'd don't always agree with this. It's quite a concern, and obviously we all work mainly nine to five, but if I'm off work during the week, all I see is adverts about personal loans, more credit. One of my clients had £56,000 worth of unsecured credit cards and loans, 63 years of age, offered an IVA, living in a council property. Where's the legislation there? What's happening, because to me, being a debt advisor, I don't always advise on IVAs, because I don't trust them at the moment.

Thanks for that.

I know there's been a number of issues and the truth is it is very small. We review probably about 83% of the marketplace, and from our database the amount of cases that I see of people on benefits is relatively small, but it is important to the individual cases, and it makes a good media headline, that IVAs are on benefits. A lot of people come into us and they can afford £300 or £400. Now, we would recommend in the circumstances, if for example they had no assets, you would actually say financially on paper you would be better off to go bankrupt. What we're all forgetting in this room is it is not about financially. It is about the individual. If that individual says, actually I want to try to pay this back. I feel better about myself to do that, it's not my job to say to that person, no, you shouldn't do that. So, whilst I agree certainly you should make sure that as long as the advice was right to start with, you say to the person, here are your options. In bankruptcy, this is what will happen. You don't have assets, so bankruptcy seems the ideal option, and a proportion of people will choose that, but what about that one person who actually says, I want to try that? Should he be excluded? Again, the data would show that certainly on the cases that we have, that people who we have recommended, you should go bankrupt, they have got a higher probability of potentially failure, but if you take that, should we then exclude that person because there is a higher percentage that they will fail than somebody else, because you could argue they've nothing to lose, in the sense that they want to make an effort to pay. They've no assets, they've got a £400 a month surplus, and should I exclude somebody from an IVA because there's a 10% higher chance that they won't last the five years than somebody else?

I'm Jeremy Frost, from the Frost Group, an insolvency practitioner. I think we're in a rite of passage at the moment. With someone being bankrupt for a year or less than a year, I can't see any reason why even with equity of property why people wouldn't go bankrupt, because you can actually get a mortgage to buy out your trustee, or your interest in a property, provided it is not too excessive. So, why would more people not doing that, rather than the IVA?

Sounds a bit complicated to me. Adam Davies, do you have a point?

Just on the point of why people don't go bankrupt. For me, when I went into my IVA, bankruptcy would have been financially better for me, because I had no assets at the time. The simple reason I didn't go bankrupt is I didn't want everybody in the local community to know about it, and I think a lot of people do not go bankrupt simply for that advert in the local paper.

Hi, I'm Melanie Giles. I'm also a licensed insolvency practitioner. I'd like to direct this one at Mark and Vincent, from different angles. When I started doing insolvency work, there was a great difference between somebody doing an IVA and the implications of somebody going bankrupt. That gap is narrowing, and I'm almost wondering whether it has flipped over, because bankruptcy is getting far easier and kinder. We're now seeing cases where the OR isn't even conducting even a telephone interview. The allowances in bankruptcy, in terms of expenditure items are far more generous than creditors are allowing under IVAs, and of course creditors have no say in the guidance to trustees in bankruptcy, so from a government perspective, and also the profession, I just wonder if that is going to lead to more bankruptcy cases in the future?

Thanks for that, did you want to follow up sir? And, over there after that.

Unknown speaker

I wanted to agree with that. There is one problem, in that it is very difficult for shareholders to earn any money out of bankruptcy, but there is for IVAs, and that is the basic problem you're going to get.

Okay, sir?

Mervyn Smith, personal practice but also involved in acting for what we would call an IVA multiple company, and I'm a bit concerned with regard to the rather demeaning remarks with regard to insolvency practitioners by the gentleman representing the ICM. I wouldn't expect anybody to want to comment adversely on a set of accounts that I audit, and I would expect the same respect in respect of an IVA proposal that is presented. The problem that surrounds an IVA factory, is that I do not believe that they should be quoted companies, because though they have different targets and the service that they're supposed to be providing, but nonetheless an insolvency practitioner, certainly in one of the majors that I'm involved with, are highly qualified. One of them has been very much involved in compliance work. Others, I've been doing IVAs for the best part of 19 years, I expect that I know a reasonable amount about them, I'm very concerned with regard to the fact that debtors are hugely desirous of wanting an IVA, and they do not get the brownie points that they deserve as a consequence, and as the lady just mentioned, bankruptcy is really a bit of a breeze, and will continue to become even more so, in the circumstances and, although it is a digression from what I was saying, there requires to be a much closer understanding by inexperienced people in the credit management field, who have targets, very narrow windows which they look through, and in many instances reject what should be the first principle of an IVA, is it the best deal in town, and if it is, merits acceptance, but I do not accept the principle put forward that insolvency practitioners, because they happen to be in large groups, are therefore of inferior quality to any of the chartered accountants, who may be with one of the big four accountancy practices.

Mark, do you have a comment?

I think the insolvency profession, we've all been through a lot of exams to get to where we've got. We're heavily regulated and sometimes it can be annoying when you hear some of the remarks that's put to us by various different stakeholders, but the only way to do that is to try to get the information to show the work that we're doing, and I listened to a banker one time, and he called it noise. If there's 100,000 anything, anyone of us in this room can pick out one case and say, oh, this was done wrong, and there was an issue with it, so therefore the whole industry smells and they are all bad. The truth is if there's a huge problem in the IVA industry, it would have come out before now. Of course there's issues that we're always trying to improve, and there's better going to be coming forward now, so people can make informed decisions, so I think the industry has moved along. I think there is going to be better communication between the debtor and the creditors, and I think what we can do as a profession is the difficulty the creditors have is they don't get the money quick enough, and we as a profession don't pay out money to maybe year two or three, and therefore the year two and three to bankers is like two careers away. We live in a world now where your next quarterly earning statement is the one that you're looking at, whether you're a banker, an accountant or whatever. So, if we're able to move on where they can see the colour of the money quicker and see the benefits that they're getting, I think it can only help this problem.

Vincent, you had something to say?

Personal bankruptcy and how easy it is getting. I was involved in the original legislation, the Enterprise Act, when bankruptcy was made easier, and I actually voted against those provisions, and it is worth remembering why they were introduced. It was the brainwave of Peter Mandelson when he was the Secretary for the DTI, and he went off to California, and he was hit by this idea that the way to get an American entrepreneurial culture is to make it much easier for entrepreneurs to go bankrupt. This is why the law was changed. Nobody conceived that it would be used by poor people or ordinary households as a way of solving their own financial difficulties. So, it has been completely taken out of context. I'm not an expert on this, I just see anecdotes from my own constituents, but my experience is that many people get into terrible trouble when they go the bankruptcy route. They don't find that trustees are obliging when it comes to sorting the problem of their house. You can get a very sticky, legalistic trustee, who will give you no help whatever. Some bankrupt court are very unforgiving, so my advice to people is before you go down that route, make absolutely sure that you're getting completely independent advice, not the advice of somebody who has an interest in the outcome. That's why the Thoresen Review that's currently meeting on independence advice is so important.

I know a couple of people wanted to come in. I'll invite you to come in on this fourth section, otherwise we're going to run out of time. The fourth area really is the macroeconomic picture of IVAs and things like that, debt solutions and so on, and really, when we compare ourselves to most of the other European neighbours that we have, the situation is totally different. Debt seems to be built into the economic machine here a lot more. So, within that framework maybe I can invite our card to think about that more. Is there something special about us in this country, and can it lead to some kind of disaster, and with that, I'll bring you in madam, at the back, and then down the front here.

Hi, I'm Diane Donion and I'm an insolvency practitioner with Accuma, whom you may or may not know that Acuma is one of the factories that we've referred to. I'm a bit concerned that there seems to be this perception that we hard sell IVAs and I would like to point out that our conversion rate is actually 4%. As a company, we can offer all sorts of debt solutions to the customer, remortgage, bankruptcy advice, send people up to the Bankruptcy Advisory Service, and I do believe that we do a good job as an IP working in a factory. I do not disagree with what the chap from the ICM has said, with regards to the lack of regulation in the factories. As an IP, I'm highly regulated by my authorising body, and that's how it should be. I worked hard to get my licence and I intend to keep it. Having said that, the front end of the company, the sales team, they are not regulated, hence the debt resolution forum, the organisation that's been in existence now some seven to nine months, the main objective of the DRF is to bring regulation into the unregulated side of the business, and I am actually a board member of the DRF.

Is that part of what you're doing there?

Absolutely.

What's the verdict here? Any views on this forum? They're not thugs, I know that.

Our main objective is to bring in training into the unregulated side of the business, so that will be the debt management companies. We own a debt management company and I'm really pleased that we will be bringing training and regulation into that side of the business. We don't hard sell IVAs. I don't disagree, we are a factory.

There's a couple down the front. Jonathan, I'll get you thinking about this, that debt is the other half of credit, and economies can't really work without credit, can they?

Unknown speaker

James, I just want to rewind the clock about ten minutes ago, when you said that we're bombarded with these adverts on television. I was actually watching Nickelodeon Junior with my 12-year-old nephew, which is obviously based all around children. Now, why is there credit cards, loans and God knows what for money advertised on there. We're educating children that it is acceptable to have that.

Big subject that, but I think it is an important one. This country, compared to the EU countries has a very special and separate approach to this thing.

I'd like to take a point from what Adam Davies said about the stigma. I wasn't really too worried whether my name got in the paper. I don't own a house and I didn't own a house when I went into my IVA. I'd sold it sometime before that, because we'd had a consolidation loan that we tried to pay off, we did, 14,000 of that loan was credit insurance, and I was told on the day that I paid it off, they said, keep paying it to make up to the five years and then you'd get the money back, but I quickly worked out if I had paid it back for the next year, it would cost me fourteen grand anyway, so I wasn't any better off. Carol Vorderman is not my favourite person, and I doubt whether she should sleep straight at night advertising that particular company, but I find it very difficult to accept people that go into IVAs. I went in because I felt very strongly I got myself into that position and I should pay back some of that money. I took very little advice. I'm an intelligent human being, it was my way of getting out of it. I will not fail, and I don't own a house. A house has got nothing to do with it, and when I went into my IVA, I was struggling with my work. I've now got a very good job, and before five years' time I will pay it back.

Madam? We're nearly to the close here.

My name is Lisa Cuana, journalism student at the University of East London. In reference to what this gentleman was saying about debt advertisements, I think it is ridiculous the level of debts students are in, in my university, and the access they have to credit cards and loans at such a young age, when banks know that it's not possible for them to pay back those debts, how they would want to pay them back, and the idea of an IVA is fantastic, because it gives people the integrity to pay the money back and to understand the consequences of their actions. Going around the easy way is not helping anybody.

Thanks for that, just to remind us there are a lot more graduates around than when I went to university, the average debt of a graduate leaving university these days is over £13,000, so they start their adult working life in debt, with a debt mentality, but we'll come back to this wider point. Jonathan, debt and credit are opposite sides of the same coin. Are the problems simple any acceptable price of running an open market economy?

To a certain extent unfortunately they are. If you compare the United Kingdom with the continent, the UK does have a freer economy where the government plays less of a role, and that has developed in a number of benefits which we cannot forget in this debate, but the important thing is understanding where the right levels of regulation do come in and the right policies are put into place, for example interest rates is a very important policy, and when we think that people are as a collective borrowing too much, we raise interest rates, and that's what they are there for. What more needs to be done is in the area of information, and also in social policy on the fringes, where there are people who have taken on too much, but we do need to accept that the standards of living that we have as a collective are essentially driven by people taking risks, credit and we have to remember that individuals are the ones taking the decision, and they are mature individuals.

So, final comment from you Karl Taylor?

I think so, yeah, that's my view, and I don't think the UK is too dissimilar to the other side of the Atlantic, or of the European countries, where it does differ is the actual level of debt at any point in time is higher. In a nutshell, debt is not going to go away.

On that note, thanks for being such great participants in this debate this evening. Thanks for joining us. That's all we have time for and thanks again to our panellists, Mark Allen, Dr. Karl Taylor, Jonathan Said and Vincent Cable. I'm James Bellini. Thank you and good night.

ENDS

IVA.CO.UK DEBT EVENING 02/08/07 - TRANSCRIPT

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