OVERARCHING REGULATORY IMPACT ASSESSMENT
Effective Enforcement
Introduction
1. This Regulatory Impact Assessment (RIA) supports the White Paper Effective Enforcement. The White Paper contains proposals covering:
2. Individual RIAs have been produced for each of the areas of the proposals and are annexed. This section provides an overall assessment of the regulatory impact of the proposals.
Issue and Objective
Issue
3. Effective enforcement is crucial to both the criminal and civil justice systems. People ordered to pay a court judgment, criminal penalties and compensation awards, or to comply with the terms of a community sentence, have little or no incentive to do so if they know there is no effective means of enforcing it.
4. Under the existing arrangements, following a judgment after a payment has not been received a creditor may apply to the court to enforce the judgment. The creditor will decide which of the following enforcement methods they favour: attachment of earnings, charging order, third party debt orders, judgment summons or warrants of execution. The most common enforcement method is the warrant of execution, which has a very low success rate in terms of debt recovery; during 2001 only 50% of warrants executed were successful, the main reason for this being inaccurate or insufficient information on the debtor. The existing arrangements for enforcement agents are a mix between state-employed bailiffs and those employed in the private sector, some of whom are certificated through a court procedure, others who are not. There is limited regulation of enforcement agents through the certification process and contracts with Magistrates' Courts Committees. This means that there is no clear complaints procedure for debtors to complain about the actions of enforcement agents, and has led to abuses of the system such as that outlined in Undue Distress.50 Unless there is prompt and efficient enforcement, the authority of the courts, the deterrent value of penalties, and public confidence in the justice system are all undermined. An adequate regulatory mechanism and appropriate methods for service delivery for both public and private sector enforcement agents are needed to enable straightforward and effective warrant enforcement, whilst offering protection to vulnerable debtors who are genuinely unable to pay. This package of legislative proposals aims to provide information for, and improvements to, court-based methods of civil debt and commercial rent arrears recovery and a single regulatory regime, law, and fee structure for warrant enforcement agents. It sets these in the wider context, including the European dimension, proposals to reform the Consumer Credit Act, ongoing work to tackle over indebtedness and relevant research.
Objectives
5. The objectives of the main parts of the White Paper are as follows:
Regulatory regime
6. The aim of regulation, through a statutory body, is to ensure that warrant enforcement is carried out appropriately, effectively and fairly in relation to both debtors and creditors. In accordance with the broadened remit of the Enforcement Review, announced by the Lord Chancellor on 6 March 2001, the Authority will regulate all public and private enforcement services. Therefore our principles apply across the following areas of warrant enforcement: High and county courts, magistrates' courts, parking charges, local and national taxes and duties, maintenance and child support. It will aim to maintain and raise standards across the profession, and promote best practice, fostering public confidence and creating a level playing field across the industry.
Enforcement Agent law
7. The objective is to introduce a single piece of legislation to replace existing bailiff law. This piece of legislation will set out clearly the powers for effective enforcement on behalf of creditors and standardise the powers, responsibilities and conduct of enforcement agencies. The aim is partly to codify existing practices and harmonise the law. The new legislation is not intended to dilute the powers of any enforcement agents but to retain the powers that they currently have, whilst allowing other types of agents to obtain those powers once they meet minimum requirements, thus eventually resulting in a unification of powers. It is felt that clarification of enforcement agent law will help to achieve one of the underlying objectives of the Enforcement Review, to make enforcement more straightforward and understandable. Additionally, clarification aims to ensure that debtors receive fairer treatment from enforcement agents and are not subject to the sort of oppressive activities outlined in Undue Distress, by ensuring all parties have greater knowledge of their rights.
Distress for rent
8. Currently landlords are permitted to enter a property without a court order in order to seize goods to secure payment of rent arrears. There has been concern expressed that distress for rent might breach the right to a fair trial, the right to respect for privacy and family life, and the right to quiet enjoyment of possessions, and could therefore be challenged under the Human Rights Act 1998 (HRA). The aim is therefore to secure methods of rent recovery which are both efficient and strengthen compatibility with the HRA through the modification or abolition of distress for rent.
Fees
9. The objective is to include in the primary legislation a power for the Lord Chancellor to set fees for enforcement agents in England and Wales in order to achieve the aim of ensuring enforcement agents receive fair remuneration for enforcement activity carried out and thus reduce the incentive for them to abuse the fee structure (for example by charging for visits which did not take place). By ensuring enforcement agents receive a fair return for enforcement work carried out, fee reform also aims to reduce the degree of oppression and hardship faced by debtors and end the situation whereby debtors who pay cover costs of enforcement actions against all debtors.
Data Disclosure Orders
10. The objective of the Data Disclosure Order (DDO) is to offer a court-based mechanism that will provide creditors with access to relevant information on judgment debtors in order to inform their choice of enforcement method (thereby enabling them to undertake appropriate enforcement action against those who fail to respond to or comply with the enforcement process). Improving the information fed into the warrant enforcement system should also lead to increased effectiveness of this particular enforcement method, as well as the effectiveness of enforcement overall, since the Report of the First Phase of the Enforcement Review identified improved information as the key to effective enforcement.
Attachment of Earnings
11. An Attachment of Earnings Order (AEO) allows a creditor to secure payment of a debt by ordering the debtor's employer to make regular deductions from the debtor's salary, until the debt is paid in full. The First Phase consultation identified that the current process may be subject to unnecessary delay since it relies on the debtor's completion of a means form (N56) to calculate a Protected Earnings Rate (PER) and a Normal Deduction Rate (NDR), and some debtors do not return the means form when first requested to do so. The First Phase consultation also identified that creditors find it difficult to track debtors who change employment whilst an AEO is in place, leading to some AEOs failing to recover the whole debt or being subject to significant delay. Therefore, the objective is to reduce delays in the current civil debt procedure, increase its effectiveness and make it clearer to understand and operate for users through the use of fixed tables to calculate amount payable, and tracking orders to locate the new employment details of debtors who change employment whilst an AEO is in place.
Charging Orders
12. A charging order is a means of securing a debt by placing a charge onto the debtor's immovable property, particularly a house or land, although it can also be used against shares. We propose to make procedural changes to the Charging Order process to help the system run more smoothly. This includes making a charging order available in cases in which the debtor is not in arrears with an instalment order.
13. We are also introducing an extra safeguard which will allow debtors who are the subject of a charging order under certain circumstances to ask the court to consider whether the charging order should be removed.
Risk Assessment
14. The current enforcement profession is fragmented, with some individuals operating outside of any structures and some evidence of threats and intimidation being used against vulnerable people in their own homes. This has been supported by the report Undue Distress. If abuse of the system such as that identified in the report and by the Advisory Group on Enforcement Service Delivery continues, then there is a risk of continued hardship being felt by debtors. Potentially, the confusion arising out of various pieces of case law and legislation could lead to a number of risks including: legal uncertainty, leading to lack of confidence in the justice system; and inadvertent over- or under-charging by enforcement agents because they are unsure of the charges. The range of current fee structures offers scope for exploitation as debtors are unaware of which fees are applicable.
15. Whilst the introduction of a single piece of enforcement agent law and a revision of the fee structure will address some of the areas of malpractice, without increased regulation the impact of these changes would be diminished.
16. There is also a risk associated with continued low levels of debt recovery. It is estimated that there is currently £600 million worth of unpaid post-judgment debt per annum. Without increased access to information there is a risk of current levels of arrears persisting or rising, which carries a general threat to the integrity of the Civil Justice System, and may also lead to a general reluctance on the part of creditors to pursue debts through the courts if this method is perceived to be unsuccessful. Without increased access to information and the changes to attachment of earnings there are two similar risks but with potentially different effects. Creditors will continue to use the easiest rather than the most appropriate enforcement method, and debtors who are able to pay but seek to avoid paying will continue to evade their responsibilities.
17. Maintaining the status quo also carries the risk of possible future challenge by the ECHR. In particular, the process of distress is especially vulnerable to ECHR challenge due to the relatively broad discretion that can be exercised in the administration of most forms of distress. The possibility of such a challenge carries a great cost, in terms of the actual costs of defending the challenge, the possibly high levels of compensation payable if a challenge is successful and the major cost to the integrity of both the LCD and the Government. It is therefore desirable to remove uncertainties in the law and to clarify the grounds upon which distress can be levied. Change to the law is necessary and desirable to ensure greater equity and fairness to both landlords and tenants.
18. Risk assessments for each of the proposals are included in the individual RIAs.
Quantification of the issue
19. A statutory body will be regulating all enforcement services in the private and public sectors. We have been unable to obtain accurate figures for the number of enforcement agents and agencies. The RIA for Fees Reform contains tables that show figures that have been obtained and offer an indication of what we believe to be a reasonable estimate of those currently operating in the market. As such, there will be approximately 2,500 enforcement agents from the private sector applying for licences, and 900 enforcement agents in the public sector. Approximately 150 enforcement agencies in the private sector will be obliged to apply for approval as authorised service providers. There are six trade associations that we envisage will apply for accreditation as professional organisations that work with enforcement agents.
20. The debt streams covered include taxes, VAT and other duties, child support debts, council tax arrears, non-domestic rates, and road traffic and criminal fines. It has been estimated there is £600 million worth of unpaid post-judgment debt per annum.
Options
21. The measures modernise the existing legislation, structures and principles. All the main options relating to each of the proposals were considered and are set out in the individual RIAs for each proposal.
Costs and Benefits
22. The costs and benefits for the options of each proposal are addressed in the individual RIAs. The tables below summarise the costs and benefits.
| No change | |
| Costs | Benefits |
| Distress for rent
|
|
| Fees Reform
|
|
| Data Disclosure Orders
|
|
| Enforcement Agent Law
|
|
| AEOs Fixed Tables
|
|
| Tracking orders for AEOs
|
|
| Regulatory Body
|
|
| Other proposals considered | |
| Costs | Benefits |
| Distress for rent
|
|
| Regulatory Body
|
|
| Recommended options | |
| Costs | Benefits |
| General One-off retraining costs arising from informing various parties about changes to the system. These are common across all the proposals, and it has not been possible to disaggregate costs for individual proposals. Costs include:
|
|
| Distress for rent
|
|
| Fees Reform
|
|
| Data Disclosure Orders
|
|
| Enforcement Agent Law Costs are all implementation costs and consist of one-off training costs covered above in addition to costs of publicising new legislation - £2,000 |
|
| AEOs Fixed Tables Costs associated with fixed tables are all implementation costs and consist of:
|
|
| AEOs Tracking Costs associated with fixed tables are all implementation and running costs to LCD/Court Service:
|
|
| Regulatory Body
|
|
Competition Assessment
Issues of Equity and Fairness
23. The proposals address issues of fairness but also ensure that a balance is struck between the needs of the debtor, creditor, enforcement agent and the court. In particular the reforms will address situations where debtors are facing oppression from enforcement agents and facing mounting levels of debt. The fees reform will result in some kind of redistribution to enforcement agents in the form of up-front fees that creditors will have to pay, therefore removing the current situation where debtors who pay are subsidising those who don't. Distress for rent reforms will have a positive impact on residential tenants as it will no longer apply and business tenants will receive prior warning of action being taken.
Impact on Small Business
24. There are currently approximately 150 firms that employ certificated enforcement agents in the private sector. Some of these employ a small number of agents. Regulation through a statutory body will result in extra costs on small businesses as they will be required to obtain approval as an enforcement agency. The proposals outlined may have an impact on small businesses who operate as enforcement agents, since they will impose additional costs on them (although enforcement firms will bear these costs, not just those which are small businesses). However, as discussed in the competition assessment above, these additional costs are not significant in the context of the overall costs of enforcement, and small businesses will benefit from the greater success rate of warrants likely to accrue from clearer enforcement agent law and improved access to information, in addition to receiving up-front fees to cover costs of all enforcement work carried out. Furthermore, the new legislation will encourage the membership of a professional body, which will give them access to formal training.
25. Small businesses who are creditors will incur additional costs if they choose to make use of better information through the use of both DDOs and tracking orders for AEOs. However, these additional costs will be offset by the likelihood of improved debt collection, meaning that small businesses who are creditors will benefit from being able to recover a larger proportion of outstanding debt. The Small Business Service commented that the new legislation will assist small businesses who are unable to settle their debts but will also help businesses to collect debts which are owed to them.
Consultation
26. A Green Paper Towards Effective Enforcement: a single piece of bailiff law and a regulatory structure for enforcement was published in July 2001. The post-consultation report was published in May 2002. The responses showed overwhelming support for the need to rationalise, clarify and codify enforcement agent law. Several other consultation papers have been published which are related to the introduction of a single piece of enforcement agent law. An Independent Review of Bailiff Law was completed by Professor Beatson, which was published in July 2000. In the responses to Professor Beatson's Consultation Paper 86% of respondents, from a wide variety of sectors, supported the introduction of a single piece of enforcement agent law. In May 2001 LCD published a consultation paper on Distress for Rent and the responses to this consultation were published in May 2002. Both fee principles and the potential components of a fee structure were subject to further consultation. Many of the proposals for reform which comprise the basis of the new fee structure were first mooted in the Second Report of the Advisory Group on Enforcement Service Delivery, published in August 2002. Their Report was produced following extensive consultation and analysis, including an early discussion paper, Warrant Enforcement: Towards a New Fee Structure, which was submitted to a range of individuals and organisations active in the enforcement sector and discussed at a Stakeholders' Meeting in June 2002. The views of a range of creditors, debtors, and enforcement agents from the public and private sectors fed into the final Report.51 The Report itself was also subject to further responses from stakeholders, whose views, both in writing and through soundings taken at major enforcement conferences, have fed into the final proposals put forward in the White Paper. The First Phase of the Enforcement Review received overwhelming support for the proposal to introduce fixed tables.
27. A separate consultation was conducted with employers, through the Chamber of Commerce (on advice from the Small Business Service) and through payroll organisations. The results showed that out of 155 responses, 148 were in favour of the proposed change. The results of our consultation are shown in the Attachment of Earnings RIA.
Securing Compliance
28. Under primary legislation, it will be an offence for enforcement agents and agencies to operate without a licence or approval respectively. A person who operates as a service provider without approval, or holds himself out as approved when he is not so registered as approved, shall be liable to imprisonment and/or a fine. The Authority's Inspectorate will carry out spot checks on businesses to ensure that the new requirements are being complied with.
29. The responsibility for securing and monitoring some of enforcement agents' compliance with the new fees structure, enforcement agent law and data sharing will reside with the regulatory body. The powers enabling the regulatory body to undertake this role will be set out in primary legislation. The court will have some responsibility for securing compliance for enforcement agent law and data sharing. The Information Commissioner will also have some responsibility for securing and monitoring compliance with the data sharing aspects of the DDO.
Monitoring and Evaluation
30. As an NDPB, a regulatory framework through a separate Commission or through the SIA will be subject to quinquennial reviews, in line with Cabinet Office guidance. The reviews will evaluate the effectiveness of regulation, whether regulation is still required and whether it could be achieved through a more cost-effective means.
Contact point:
Anne Marie Harrington
Civil Justice Division
Lord Chancellor's Department
Room 3.23 Selborne House
54-60 Victoria Street
London
SW1E 6QW
Regulation of Enforcement Services
Issue and Objective
31. There is a general consensus that there is a need for the regulation of enforcement services in England and Wales. The Partial Regulatory Impact Assessment in the Green Paper considered the options of no change, court-based regulation, self-regulation and statutory regulation. The Green Paper assessed that in the absence of regulation there are insufficient sanctions to prevent oppressive behaviour by unscrupulous enforcement agents. Most respondents to the Green Paper favoured statutory regulation by way of a Commission. LCD has identified a statutory body whose functions and responsibilities have broad synergies with the stated intentions for the regulation of enforcement services: the Security Industry Authority (SIA). The SIA is being set up by the Home Office to regulate and license security operatives in the private sector including wheel clampers and private investigators. This RIA will therefore consider three options:
i. No change;
ii. Regulation through a separate Enforcement Services Commission;
iii. Regulation through the SIA.
32. The aim of regulation, through a statutory body, is to ensure that warrant enforcement is carried out appropriately, effectively and fairly in relation to both debtors and creditors. In accordance with the broadened remit of the Enforcement Review, announced by the Lord Chancellor on 6 March 2001, the Authority will regulate all public and private enforcement services. Therefore our principles apply across the following areas of warrant enforcement: High and county courts, magistrates' courts, parking charges, local and national taxes and duties, maintenance and child support. It will aim to maintain and raise standards across the profession, and promote best practice, fostering public confidence and creating a level playing field across the industry.
33. A regulatory body would regulate the public and private enforcement profession by:
Risk Assessment
34. The current enforcement profession is fragmented, with some individuals operating outside of any structures and some evidence of threats and intimidation being used against vulnerable people in their own homes. We do not have statistical information on the scale of the problem. Anecdotal evidence is contained in the report Undue Distress. Whilst the introduction of a single piece of enforcement agent law and a revision of the fee structure will address some of the areas of malpractice, without increased regulation the impact of these changes would be diminished. It has been suggested by the advice sector that the full scale of the issues are not apparent as debtors are not aware of their rights. The voluntary sector are responsible for advising debtors of their rights and are therefore paying the price. Ineffective and oppressive enforcement of debt by unscrupulous agents exacerbate the problems of escalating debt and social exclusion.
Quantification of the Issue
35. A statutory body will be regulating all enforcement services in the private and public sectors. We have been unable to obtain accurate figures for the number of enforcement agents and agencies. The RIA for Fees Reform contains tables that show figures that have been obtained and offer an indication of what we believe to be a reasonable estimate of those currently operating in the market. As such, there will be approximately 2,500 enforcement agents from the private sector applying for licences, and 900 enforcement agents in the public sector. Approximately 150 enforcement agencies in the private sector will be obliged to apply for approval as authorised service providers. There are six trade associations that we envisage will apply for accreditation as professional organisations that work with enforcement agents.
Options
36. As described above, we have identified three options which we will consider in this RIA:
Option 1 - No change. This option was considered in the Green Paper, and respondents were resolutely against it as an outcome.
Option 2 - Regulation through a separate Commission. This option was considered in the Green Paper and gained support from a range of stakeholders as detailed in the Post-Consultation Report.
Option 3 - Regulation through the SIA.
Benefits
Option 1 (No change)
37. The status quo would remain, therefore there would be no extra cost to business. The enforcement agents are familiar with the current system and have developed working practices to deal with the number of warrants issued. A table setting out a breakdown of the estimate of 2,277,959 warrants per annum is set out in the Impact Assessment for fees reform. We are unable to ascertain how much debt is covered by these warrants, but as an indication the current level of debt recovered in 1999 in county courts was £46 million of £196 million.
Option 2 (Commission)
38. A separate Commission to regulate enforcement services would ensure that all enforcement agents, as officers of the court, would be required to balance their duties to the court, the creditor and the debtor. A regulatory body will embrace enforcement services in the public and private sectors, applying uniform standards and sharing best practice, ensuring a level playing field across the profession. Under a regulatory framework, enforcement agents and service providers will raise standards and operate on a professional level through:
39. The oppressive activities of unscrupulous enforcement agents could be effectively curtailed by imposing appropriate penalties, such as a fine or licence revocation, for misbehaviour and ensuring that all enforcement agents are licensed and meet the licence criteria. As we are unable to quantify the level of unscrupulous activity we are unable to estimate the reduction on change.
40. Those in debt, who are often among the most vulnerable and socially excluded, would have protection and better information about their rights and advice about coping with their responsibilities.
Option 3 (Regulation through SIA)
41. Regulation through the SIA would achieve the same benefits as Option 2, namely that debtors would benefit from a regulated system where there is a proper complaints procedure to guard against unscrupulous activity, creditors will have access to licensed enforcement agents, and enforcement agents who do not abuse the system are not undercut by those acting in an unscrupulous manner.
Costs
Option 1 (No change)
42. This option would incur no costs to debtors or creditors. There would, however, be a continuing cost to voluntary and charitable organisations, as there is widespread concern that the present unregulated system allows the unscrupulous to exploit the vulnerable, as identified by Citizens Advice.
Option 2 (Commission)
43. Regulation through an Enforcement Services Commission would incur costs through the establishment and running of a new NDPB. As such they are likely to be:
44. Total estimated cost for regulation through Enforcement Services Commission of £1,460,000 plus one-off set up costs of £1 million.
Costs on Business
45. It is proposed that a separate Commission will be self-financing. Therefore, the costs will be shared between the approximate 3,000 enforcement agents that will apply for a licence - at a licence fee of £500 each, giving a total of £1.5 million. Enforcement agencies will also be obliged to pay for approvals, which we estimate would need to cost £750 each. Businesses may wish to pay for the licence of employees but they will not be obliged to do so.
Option 3 (Regulation through SIA)
46. Regulation through the SIA would invoke fewer additional financial burdens, as many of the staff, buildings, systems and structures will already be in place, and the cost will be borne by a combination of those sectors that are already to be regulated by the Authority and by the Enforcement Services sector.
47. There will also be additional costs to the Authority if it were to regulate enforcement services. There are necessarily tentative at this stage but indicative figures are as follows:
48. Total estimated additional cost for regulation through SIA of £326,000.
Costs on individual agents
49. All enforcement agents will be required to obtain a licence. The SIA is developing proposals for a uniform licence fee across all sectors. The licence fees will be cheaper, as the cost of additional functions to the SIA would be cheaper than a separate Commission. The licence fee for enforcement agents would need to be set on the basis that it recovered both an appropriate share of the SIA's core costs and the additional costs to the Authority of regulating this sector.
50. Individual agents will also have to undergo training to the required standard, acquire the appropriate qualifications and obtain adequate insurance. All of these costs will be taken into account when the fee scales and charges are developed, based on the recommendations of the regulatory body. The costs will be explored further when the level of training and insurance has been decided.
Costs on business
51. Authorised service providers will also be required to pay a fee to the regulatory body. The actual fee will need to be explored fully with the SIA. The cost will be explored further when the regime has been developed further.
Costs on any charities
52. The debt advice sector will be encouraged to foster a close relationship with the regulatory body. Debt advisors will need to undertake training on the new procedures for a regulated enforcement profession. The specific cost will be explored further when the level of training has been decided.
Costs to courts
53. Under a new regulatory regime, the county court will no longer have to administer the certification process. Direct regulatory control of enforcement agents is not a part of the core business of the courts or the judiciary. Judges' core skills lie in adjudication, not administrative tasks. These skills are a scarce resource. The appeal route for non-granting of licences, approvals and accreditation will be through the magistrates' courts, and then the normal routes of appeal will apply.
Competition Assessment
54. The establishment of a regulatory body with the powers to ensure that warrant enforcement is carried out by licensed enforcement agents, whether introduced by means of either Option 1 or Option 2, should not have a significant effect on competition within the enforcement industry.
55. The enforcement industry consists of a number of different market segments, which consist of High Court and county court warrants, magistrates' court fines, parking charges, local and national taxes and duties, maintenance and child support. Each debt stream has its own characteristics in terms of the nature of competition, number of firms operating and the nature of competition. Based on a snapshot of the industry as at the beginning of 2002, it is estimated that there are generally three firms with larger market shares within each debt stream, holding a combined market share of at least 50%. The leading firms generally hold a market share of at least 20%, indicating a high level of concentration across the industry as a whole.
56. Under the regulatory schemes proposed by both Option 1 and Option 2, licence fees would be payable by individual enforcement agents and by enforcement agencies. However, the anticipated level of such licence fees is sufficiently low that it is considered unlikely to significantly affect either the number of individual enforcement agents, or the number of agencies, operating in the market. The increase in costs would not represent any significant increase in barriers to entry.
57. If enforcement agencies choose to cover the cost of the licence fees for the individual enforcement agents employed by them, this could potentially create significant new costs for those employing large numbers of enforcement agents. However, such costs would be proportionate to the size of the firms involved and would, nevertheless, represent a very small part of agencies' total costs of retaining the enforcement agents employed by them.
Impact on small business
58. There are currently approximately 150 firms that employ certificated enforcement agents in the private sector. Some of these employ a small number of agents. Regulation through a statutory body will incur extra costs on small businesses as they will be required to obtain approval as an enforcement agency.
Consultation
59. Options 1 and 2 were submitted for public consultation in the Green Paper Towards Effective Enforcement (July 2001) and the responses were published in the post consultation report (May 2002). The overwhelming majority of respondents favoured the statutory regulation of enforcement services in the form of a Commission. Since the consultation, policy officials have identified the possibility for regulation through the SIA, which would carry out the same functions as a statutory Commission through an existing NDPB. Officials have proceeded with informal consultations with the enforcement industry on the possibility of regulation through the SIA. The industry has been supportive of the proposals, in the light of cheaper fees for licences, approvals and accreditations.
Securing Compliance
60. Under primary legislation, it will be an offence for enforcement agents and agencies to operate without a licence or approval respectively. A person who operates as a service provider without approval, or holds himself out as approved when he is not so registered as approved, shall be liable to imprisonment and/or a fine. The Authority's Inspectorate will carry out spot checks on businesses to ensure that the new requirements are being complied with.
Monitoring and Evaluation
61. As an NDPB, a regulatory framework through a separate Commission or through the SIA will be subject to quinquennial reviews, in line with Cabinet Office guidance. The reviews will evaluate the effectiveness of regulation, whether regulation is still required and whether it could be achieved through a more cost-effective means.
Enforcement Agent Law
Issue and Objective
62. The activities of enforcement agents are governed by a combination of common law and statute law. There are currently nine different forms of distress undertaken by distrainors on behalf of county courts, High Court and magistrates' courts, landlords, local authorities (council tax, non-domestic rates and road traffic penalties), Customs and Excise, Inland Revenue and Child Support Agency. The current law is antiquated, diverse and complex and it is therefore a prime candidate for rationalisation.
63. There have been several reviews of enforcement procedures which have resulted in minor changes (in 1992 and 1999). The need for wholesale reform of the law was identified by Professor Beatson's Independent Review (2000) and was supported by 86% of the respondents to his consultation. Subsequent consultations during the Enforcement Review, across all sectors involved in enforcement, have agreed upon the need for the introduction of a single piece of enforcement agent law. There is overwhelming consensus that simplification and clarification of the law is necessary. This can best be achieved through legislation.
64. The objective is to introduce a single piece of legislation for enforcement agents to replace existing bailiff law. This piece of legislation will set out clearly the powers for effective enforcement on behalf of creditors and standardise the powers, responsibilities and conduct of enforcement agencies. The aim is partly to codify existing practices and harmonise the law. The new legislation is not intended to dilute the powers of any enforcement agents but to retain the powers that they currently have, whilst allowing other types of agents to obtain those powers once they meet minimum requirements, thus eventually resulting in a unification of powers.
Risk Assessment
65. Potentially, the confusion arising out of various pieces of case law and legislation could lead to a number of risks:
66. The single piece of enforcement law addresses these risks in conjunction with a regulatory body and the reform of the fees structure.
Quantification of the issue
67. The new law will affect all those who undertake taking legal control of goods. We have been unable to obtain accurate figures for the number of enforcement agents. The RIA for Fees Reform contains tables that show figures that have been obtained and offer an indication of what we believe to be a reasonable estimate of those currently operating in the market, which is approximately 4,000 individuals. It will also affect all of those who have enforcement action taken against them. Enforcement action through taking legal control of goods is used significantly more than any other enforcement method. The table below sets out the number of enforcement proceedings for debt by different methods and types of debt.
| Enforcement Action taken in the year 2000-2001 | |
| Warrants of execution against goods issued in the county court | 394,611 |
| Writs of fi-fa (fieri facias) in the High Court | 53,248 |
| Inland Revenue Collection | 250,000 |
| Inland Revenue (distress warrants issued by the magistrates' courts) | 20,000 |
| Distress for Rent (approximately) | 60,000 |
| Local Authorities - Council Tax | 1,175,147 |
| Local Authorities - NNDR | 131,012 |
Source: Judicial Statistics 2001, Inland Revenue, ESA Survey, Revenue Collection Statistics 2000-2001
68. From these tables it is clear that taking legal control of goods is regularly used by the courts. Currently, different enforcement agents have separate rules governing their particular actions which often leads to confusion, particularly for debtors. Therefore the clarification and codification of the existing case law into a single piece of legislation is going to have a significant and positive impact on a large number of people.
Options
Benefits
No change
69. The main benefit of the current system is that the judiciary, barristers, solicitors, the voluntary sector and enforcement agents are familiar with the system. There would be no extra costs to business if the status quo was maintained.
Enforcement Agent law
70. Currently, the law is open to interpretation and largely based on case law. This means that disputes frequently take place and these can be expensive and time-consuming. Having a single piece of enforcement law with all legislation relating to enforcement action set out in one place would greatly reduce the number of court cases which query the law on enforcement action, although there may be an initial increase in complaints. As set out in the Risk Assessment, the Court Service has explained that there are no figures available for the number of complaints received by the courts about enforcement agents. However, a sample trawl will be undertaken to try to obtain these figures.
71. The new legislation will also decrease the number of complaints which are made directly to the Enforcement Agencies or their Associations. The Association of Civil Enforcement Agencies (ACEA) provided some statistics outlining the number of complaints they receive on an annual basis. However, their figures are not representative of the number of complaints made, as debtors will first complain to the enforcement agent and then only to the association if they do not receive a satisfactory outcome. ACEA indicated that they received 75 official complaints in the year 2001. The Enforcement Services Association, as with the ACEA, only receives complaints that are redirected to them by their members. They reported 66 complaints during 2001 and received 56 complaints between January and the end of October 2002. LCD regularly receives complaints from members of the public. Between January and the end of October 2002 LCD had received 12 complaints directly from members of the public, and a further eight complaints from MPs on behalf of their constituents.
72. By simplifying and harmonising the legislation much court time would be saved and the legislation would be significantly simpler to understand for all parties concerned. There will also be increased clarity for the debtor and the enforcement agent in relation to illegal and irregular behaviour. This should result in less complaints against enforcement agents and greater public confidence in the system. By ensuring that enforcement agents abide by the new legislation, they will as a result appear less threatening to the public and there will be an improvement in the public image of enforcement agents. The new legislation will bring about increased regulation of enforcement agents which will make the new law easier for enforcement agents to comply with, benefiting both the agent and the debtor. It will also make the training of enforcement agents simpler and less time-consuming, thus reducing the costs to the enforcement agencies in the long term.
Costs
No change
73. There would be a continuing cost to voluntary and charitable organisations, as there is widespread concern that the present unregulated system allows the unscrupulous to exploit the vulnerable. Citizens Advice received nearly 900 reports of cases where clients experienced problems with enforcement agents between January 1998 and January 2000, as highlighted in the Risk Assessment. Allegations included the use of intimidation, abusive and threatening behaviour, and exceeding legal powers. Information provided by the two major enforcement agents associations indicate that complaints cover several areas of enforcement including over-charging, the types of goods seized and incorrect information, as well as allegations of threatening behaviour.
74. At present, enforcement agents have been portrayed in a negative light and have been subject to much negative publicity. This has much to do with the lack of clarity in enforcement law, where there is a lack of understanding as to what actions enforcement agents are able to take and the fees that they can charge. As indicated in the Risk Assessment, a cost of continuing with the present system will be that enforcement agents will continue to be subject to negative publicity and criticism, and this could escalate if the level of debt in this country continues to increase.
Enforcement Agent law
75. By introducing a new piece of enforcement agent law set out in one place costs will be incurred in the private and voluntary sectors, primarily in relation to training and education. Solicitors, barristers and members of the judiciary will need to be well informed about the new regulations. Court Service estimates that the costs of retraining their staff will be £57,600, including the training of their 600 enforcement agents. Retraining of other enforcement agents will also be necessary to guarantee that they are all aware of the new regulations and that they abide by them from the implementation date. There are approximately 2,500 enforcement agents who will be applying for licences to undertake enforcement work, all of whom will need to be trained in the new legislation. There will be a further 900 applicants likely to come from public sector enforcement agents.52 Training of these agents will take two days and will cost £250 per day, resulting in an overall cost of approximately £1,700,000. The Security Industry Training Organisation (SITO) is introducing an NVQ for Enforcement Agents and therefore any changes to this will be borne by SITO. Their costs will include the retraining of the NVQ tutors and the reproduction of teaching materials incorporating the changes to the legislation. We are investigating the actual costs which will be incurred by SITO as a result of the new legislation. The publicity and training costs cover all the new proposals relating to enforcement agents. It has not been possible to disaggregate the figures to provide an estimate for the publicity for each of the legislative changes.
76. The voluntary sector will also need to be informed and re-educated to make certain that they are prepared to offer accurate and appropriate advice following the implementation of the new legislation. Citizens Advice and the Federation of Independent Advice Centres estimate that there are 10,000 volunteers working in the area of debt advice who would need to be informed of the changes. This would involve amending their current training courses and re-educating those already providing advice in the area of debt enforcement. It is estimated that the organised training will last for one day. All training is free to the volunteers and is funded by the Royal Bank of Scotland, who are the sponsors of the Federation of Independent Advice Centres contributing £1.5 million over two years. We are unable to separate the cost of training for each of the legislative changes. The new legislation will also need to be publicised to ensure that the general public are fully aware of their rights, and therefore the costs of this increased publicity will need to be met. It is likely that leaflets will be produced which can then be distributed to the general public. We estimate that 3,000 leaflets will need to be printed and distributed resulting in a provisional cost of £2,000.
| Summary | |
| Costs of enforcement agent law Costs associated with the enforcement agent law are all implementation costs and consist of:
|
Benefits of enforcement agent law
|
| Cost of no change
|
Benefits of no change
|
Competition Assessment
77. We do not expect that either the retention of the existing law (Option 1) or rationalising it as a single piece of legislation (Option 2) will have a significant impact on competition. The proposals under Option 2 seek to eliminate legal uncertainty and prevent inadvertent or deliberate over- or under-charging by enforcement agencies. Whilst improved clarity over the charges made by enforcement agencies may reduce the profits of some agencies, albeit slightly, this is not expected to affect competition in the enforcement agent market.
78. Although there will be training costs for solicitors, barristers and enforcement agents, who will need to be familiarised with the new legislation, these are anticipated to be one-off costs of £500 per head. These costs are not considered sufficient to alter the numbers of players in the affected markets, nor to represent any significant barriers to entry.
Impact on small business
79. There may be a significant impact on small enforcement firms, but the new legislation will encourage the membership of a professional body which will give them access to formal training. The Small Business Service commented that the new legislation will assist small businesses who are unable to settle their debts but will also help businesses to collect debts which are owed to them.
Consultation
80. A Green Paper Towards Effective Enforcement: a single piece of bailiff law and a regulatory structure for enforcement was published in July 2001. The post-consultation report was published in May 2002. Responses were received from members of the judiciary, governing bodies of the legal profession, enforcement agents and their trade organisations, money advice groups, Government Departments and other interested parties. The responses showed overwhelming support for the need to rationalise, clarify and codify the law. Several other consultation papers have been published which are related to the introduction of a single piece of bailiff law. An Independent Review of Bailiff Law was completed by Professor Beatson, which was published in July 2000. In the responses to Professor Beatson's Consultation Paper, 86% of respondents, from a wide variety of sectors, supported the introduction of a single piece of enforcement agent law. In May 2001 LCD published a consultation paper on Distress for Rent, and the responses to this consultation were published in May 2002.
Securing compliance
81. Compliance with the new legislation will be secured through the regulatory body and through the courts. Debtors will be able to make complaints to the regulatory body in instances of irregular action. The regulatory body will then have the power to revoke the licence of the enforcement agent involved or award compensation. Similarly, in cases of illegal action, the debtor will be able to complain to the court and may be awarded damages.
Monitoring and Evaluation
82. Securing and monitoring compliance with, and evaluating the effectiveness of, the single piece of enforcement agent law will be a role for the regulatory body for enforcement. The powers enabling them to undertake this role will be set out in primary legislation.
Distress for rent reforms
Issue and Objective
83. In broad terms, distress for rent permits landlords to enter a property without a court order in order to seize goods in lieu of rent arrears. In 1991, the Law Commission recommended the abolition of the practice of distress for rent when improvements to the Court Service made the other remedies available to landlords effective alternatives to distress. Concern has been expressed that distress for rent might breach the right to a fair trial, the right to respect for privacy and family life, and the right to quiet enjoyment of possessions and could therefore be challenged under the Human Rights Act 1998 (HRA).
84. The objective is to secure methods of rent recovery which are both efficient and strengthen compatibility with the HRA through the modification or abolition of distress for rent.
Risk Assessment
85. LCD accepts that there are defects in the current law in the context of a modern rights-based society. Change to the law is necessary and desirable to ensure greater equity and fairness to both landlords and tenants.
86. The HRA came into force just over two years ago and there have been no direct challenges to distress for rent (that LCD are aware of). However, both the Law Commission's Report Landlord and Tenant Distress for Rent (1991) and Professor Beatson's Report acknowledged that there existed many problems with the remedy. There has also been speculation in the enforcement profession's media that distress for rent may breach some of the ECHR articles. LCD acknowledges that there may be a need to make some changes and it would be useful to do so through any forthcoming general enforcement legislation. If there were to be a successful ECHR challenge, there would be a potential (currently unquantifiable) number of compensation claims. In addition the integrity and reputation of LCD and the Government would be affected.
87. Currently, tenants against whom this remedy is used do not receive fair treatment when compared to many other types of debtor who have a chance to defend themselves in court if they wish, and therefore may have little chance to challenge the landlord's claim.
88. There will be potential continued loss to tenants whose goods are removed and sold (at relatively low prices). Following a survey by the Enforcement Services Association (ESA) the last known figure is that £3.2 million worth of rent arrears (in a 12 month period) were cleared in this way.53 It is likely the goods were worth substantially more than this.
89. In addition there will be changes to the fee system as part of the Enforcement Review. Currently, the fee system continues to be open to abuse as the agents often rely on the tenant paying their fees and the landlord is not required to pay the agent to undertake the work.
90. Potentially, the loss from lack of clarity in the extensive common law for distress for rent (as it is for enforcement agent law) can be outlined as follows:
Quantification of the issue
91. Distress for rent is a self-help remedy, used by landlords on almost exclusively commercial properties. Its use in residential properties is, according to informal soundings of landlords and enforcement agents, very limited. The ESA's survey and information received from the British Property Federation and other commercial companies, indicates there are at least 22,000 procedures each year, of which just over 20,000 are successful. LCD estimated (in 1993) that the figure could be as high as 170,000 procedures.
92. In the absence of any firm evidence concerning the frequency of the use of distress against business tenants, and having regard to the age of the previous estimate and the ESA survey, we have assumed that there may be 60,000 procedures a year, of which an estimated 56,000 result in the successful collection of debt (this includes 1,200 cases resulting in the removal and sale of debtors' goods). These procedures have a typical value of £3,000. This market could be worth about £180 million a year, of which around £167 million is successfully collected.
93. There are an estimated total of 684,000 commercial tenancies in England and Wales. Of these, an estimated 121,000 tenancies (18% of the total) were in rent arrears, based on an LCD survey of landlords. Taking the average amount of rent arrears as £3,000 (based on ESA survey) this suggests that the total level of rent arrears is approximately £363 million. Twenty property companies responded to the questionnaire. Fifteen respondents provided information broadly in the format requested but not all provided details in all categories. Four respondents comments were couched in a manner as to make them unsuitable for the purpose of statistical analysis. One respondent provided useful figures, but not in a compatible format, therefore these figures have been analysed separately.
Table Summarising Responses to Landlords Questionnaire
| Figures for 12 Months to December 2000 | |
| Question | Answer |
| Number of tenancies with rent arrears (13 companies responded to this question) |
121,000 |
| Percentage of tenancies with rent arrears (14 companies responded to this question) | 17.7% of total commercial tenancies |
| Total amount of rent arrears by value of total rental
income (12 |
£363m |
| Total percentage by value of total rental income (14 companies responded to this question) | 8% of total rent income |
| 15 companies responded to the following questions in a |
|
| Percentages and amount of arrears successfully recovered |
45% successfully recovered £163m |
|
43% of arrears successfully recovered £71m |
|
12.5% of arrears successfully recovered £20.4m |
|
0.87% of arrears successfully recovered £1.4m |
|
1% of arrears successfully recovered £1.8m |
94. Distress for rent is used by both large and small landlords/property companies. Through face to face discussions, landlords of all sizes have said that they make use of this system. Examples ranged from railway arches at £10/week, just to make sure they are occupied, to large property companies who have used it against major high street chains.
95. It is also possible that some of these figures are repetitions of those earlier supplied by the ESA. The ESA did not supply individual company names in their response, and it is possible that the enforcement agent companies who supplied the figures could have been employed by the company British Property Federation (BPF). However this is unlikely as BPF stated the average amount of arrears collected without recourse to enforcement agents was £27 million. There are further limitations in the figures on the percentage of arrears successfully recovered. There were only three respondents to this question and therefore it makes it difficult to use as a comparison with other figures.
96. As distress for rent is used almost exclusively by commercial landlords and business tenants, most of the costs and benefits arising out of any proposals for change will be transfers between the two sectors, i.e. the cost to landlord will be to the benefit of the tenant. It is proposed that an up-front fee to undertake enforcement action will be collected by the enforcement agent (to be collected from the tenant, any refund due to the landlord). We believe this would be the single most effective way to discourage exploitation by landlords and bring greater simplicity and clarity in the law for all.
Options
97. Whilst it is accepted that there are defects in the current law, and that retaining the status quo is not a viable option, we should acknowledge that the current remedy is quick and effective for landlords and does not require a court procedure.
Issues of equity and fairness
98. The practice of distress for rent allows recovery of rent arrears by landlords, without prior warning of the consequences of non-payment of rent, subject to a number of provisions. It allows landlords to seize goods on tenants' premises without regard to the claims of other creditors not precluding the effect of certain third party acts such as bankruptcy or compulsory winding up. This mechanism has historically been conferred to landlords since 1689.
99. A modified procedure would mean that tenants would receive warning of an intention to carry out distress, and that residential tenants no longer face distress action. The modified procedure would allow a transfer of benefits from enforcement agents to tenants.
Benefits
Option 1 - No change
100. The present system as it stands confers a number of benefits to landlords in terms of collecting rent arrears:
Option 2 - Abolish the practice of distress for rent in both residential and commercial property without creating a replacement
101. If the practice of distress for rent were abolished, then recovery of rent arrears would be placed on the same footing as the recovery of other debts. Such an approach would confer the following benefits:
Option 3 - Distress for rent retained and modified to improve ECHR compliance
102. It is not intended to retain distress for rent for residential purposes but there is a case for treating commercial properties differently. Firstly, according to some landlords and enforcement agents, the remedy is rarely used in residential tenancies. Secondly, during consultation, it was suggested that where distress is currently being used in residential situations, it is illegal or has been done in an inappropriate manner. Abolition in the residential sector would clarify that this should never take place in a residential property.
103. However, legislation for a modified remedy for commercial properties would improve access to justice by making procedures clear to both commercial landlords and business tenants. Retaining but modifying distress for rent would allow many of the social and economic benefits which arise from the current remedy, as outlined under Option 1.
104. Potentially, further benefits which would accrue from greater clarity in the law for distress for rent can be outlined as follows:
105. Amendment of the remedy would stop any successful challenges for ECHR purposes, thereby ensuring no adverse effect on the integrity and reputation of LCD/Government. In addition, there is a saving of potential (unquantifiable) claims for compensation if there was a successful challenge.
Costs
Option 1 - No change
106. There will be a number of general costs accruing from maintaining the present system:
Option 2 - Abolish the practice of distress for rent in both residential and commercial property without creating a replacement
107. The key to understanding the additional costs is the relative effectiveness of the threat, of which we have no quantifiable measure. Information from the ESA survey shows that 91% of distress for rent warrants debtors paid without the need for seizure of goods, indicating that the threat of using distress is very effective, although there is no similar indication of the impact of the threat of court action. If court action did prove to be less of a deterrent, the following effects will be borne by the landlord:
Costs to landlords (We are unable to estimate these in terms of probable ranges of outcomes)
Costs to commercial landlords of court action
108. The costs of seeking arrears through the courts would fall to commercial landlords. Fixed court costs are £80 (for a debt of £500-£1,000) or £115 (for a debt of £1,000-£5,000) for issuing proceedings, plus £45 for issuing a warrant. The ESA survey indicated that the average distress for rent claim is £3,000 and therefore we are assuming that most claims will cost £115. We assume that most claims (87%) will not proceed to full hearing.54 If the claim is challenged the costs begin to rise. The average length of hearing is expected to be between one and two hours. Although in theory costs will be recoverable from tenants, if debt is not paid this cost remains with the landlord. We have also assumed that most commercial landlords would wish to use the small claims procedure to recover debt, although some landlords might wait until arrears reach a higher threshold.
109. Assuming that 52,200 proceedings (87% of 60,000) do not proceed to full hearings, and that these are worth on average £3,000, the cost of these claims would be about £6 million. The remaining 13% (7,800 cases) would proceed to full defended hearings and this would cost approximately £6.8 million.55 This means that the additional court costs for commercial landlords would be approximately £12.8 million. This is the total additional cost to commercial landlords since under distress for rent they do not incur enforcement agent's fees, as these are currently charged to those tenants who are successfully enforced against.
110. This would be the cost before any warrants are issued. If 2% (1,200 cases) of the 60,000 cases remain unpaid and so have additional warrants issued at £45 per warrant, the additional cost would be £50,000. This gives the total cost from additional court hearings of £12.854 million. This will be payable by the landlord initially but will be recoverable from business tenants who pay. It appears that 34.9% of court hearings result in the successful recovery of debt, which indicates that the costs to landlords of additional court hearings is £8.4 million.
111. If distress for rent were abolished, in certain cases, insolvency proceedings would be used. In company cases, the petitioning creditor would have to pay £650 petition costs (£500 to the Official Receiver and £150 to cover court costs). In bankruptcy cases, the petitioning creditor would have to pay £450 (£300 deposit and £150 court fee). The costs for insolvency proceedings may outweigh the costs of a distress for rent action (£76 charge on a £3,000 debt).
Costs to business tenants
112. As with landlords, the additional costs to business tenants of abolition would be the costs of court procedures minus the costs they would incur under distress for rent procedures. The typical value of rent arrears is assumed to be £3,000. Under the distress for rent procedures the tenant is currently liable for the debt plus a maximum of £76 (for a debt of £3,000) - if legal control of goods is actually taken (plus 45 pence a day if goods taken by agreement). If goods are not taken, the enforcement agents can only charge the £76 as a maximum for reasonable costs and charges. In some cases landlords might use forfeiture rather than pursue rent arrears through the courts.
113. The minimum cost under the alternative procedures will normally be £115 (for arrears of £3,000) plus £45 for the issue of the warrant if debt is still not paid - minimum £160. The costs of court action including warrants issued (£6.0544 million) would fall to commercial landlords in the first instance but would be recoverable from business tenants.56 This does not include any other costs such as solicitors' fees which the commercial landlord might seek to be awarded or the distress charges to the business tenant. As mentioned earlier, the costs of a full defended hearing are estimated to be in the region of £6.8 million. This would mean that, as mentioned earlier, the total cost of additional court hearings would be £12.854 million, payable by landlords in the first instance and recoverable from tenants who pay. Of course, this cost depends on the proportion of tenants who actually pay after court hearings have taken place. It appears that 34.9% of court hearings result in the successful recovery of the debt, indicating a cost to business tenants of £4.47 million which is a transfer cost from landlords to tenants out of the total cost of court action.
114. Other costs could be:
* tenants would have the opportunity to challenge distress before it took place. The availability of distress enables landlords to dispense with other forms of security (such as rent deposits);
Costs to Enforcement Agents
115. ESA figures indicate that the removal of distress for rent procedures would result in a loss of around £4 million in fees to enforcement agents. However, the loss of fees for enforcement agents will be a transfer benefit to business tenants, who will no longer face the burden of the £4 million fees from distress for rent actions.
116. There are unlikely to be wider social economic consequences. In the Partial RIA we estimated that fees from distress for rent may account for between 4% and 20% of an agent's income, depending on their speciality. If distress for rent were abolished, agents would continue to undertake a wide range of work. This work includes council