According to figures from the AiB, Accountant in Bankruptcy, Scotland’s insolvency service, the number of personal insolvencies rose in Scotland between April and June.
The AiB reported 3,208 bankruptcies and protected trust deeds (PTDs), similar to an IVA in other parts of the UK, during the first quarter of the financial year.
This showed a 26.6% rise on the previous quarter and up from 11.8% on the same quarter of last year. PTDs rose year-on-year by 27.5% to 1,972, and were up by 34.7% from the January to March period.
Similar to an IVA, A PTD is a legally binding agreement where those in debt can make reduced payments over four years.
Compared with the first three months of 2017-18 bankruptcies fell by 6.5% to 1,238. However, they were up from 1,069 in the previous quarter.
The Scottish government’s Debt Arrangement Scheme (DAS), similar to a debt management plan in the rest of the UK, which allows people to repay their debts without facing insolvency or further action, rose year-on-year by 8.5%, with 648 debt payment programmes approved.
A total of £9.5m was repaid through the scheme in the quarter, slightly more than the previous year.
What the AiB had to say.
AiB chief executive, Richard Dennis: –
“While the number of individuals entering insolvency continues to be very much lower than 10 years ago, these figures clearly illustrate personal insolvencies remain on an upward trend from the first quarter of 2015-16.”
“With consumer borrowing now surpassing the levels seen before the 2008 crash, we are leading an ambitious programme of reform to make sure the debt solutions offered by the Scottish government remain relevant in today’s society.”
Tim Cooper, from insolvency and restructuring trade body R3: –
“The impact of the new, higher rates of the national minimum and living wages introduced in April would have helped many people bear higher costs for essentials like food and fuel.”
However, he added that the latest insolvency numbers suggested that “for many, it may not have been enough, especially following a long period when wage growth was outstripped by inflation”.
Meanwhile, the latest figures on corporate insolvencies showed a year-on-year rise. From 200 in the first quarter of 2017-18 to 245.
The number was down on the 259 reported in the final quarter of the last financial year.
Recently published figures show the number of Scottish corporate insolvencies in the same period. April to June saw a substantial rise of 22.5% on the same quarter last year.
R3, the trade association for the UK’s insolvency, restructuring, advisory, and professional turnaround, who represent insolvency practitioners, lawyers, turnaround and restructuring experts, flagged up weak consumer spending power. This creates troubles for the retail sector and other companies reliant on it. They say this is a factor in the upward trend in Scottish corporate insolvencies since the start of 2017.
Meanwhile, AiB figures show there were 245 corporate insolvencies in Scotland between April and June. This was up from 200 in the second quarter of last year. This is a comparison which strips out the impact of seasonal variations. There were 259 Scottish corporate insolvencies in the first quarter.
Households under pressure.
Businesses are increasingly looking at ways in which to engage with their consumers. UK household finances have come under even greater pressure over the last two years. A surge in consumer prices index inflation fuelled by sterling’s post-Brexit vote weakness has taken its toll.
The squeeze has been compounded by weak nominal pay settlements, at a time when business confidence has been hit by Brexit-related uncertainty.
This is causing an impact on businesses, particularly those which are consumer led. Businesses such as retail and household services companies. With households struggling to pay for essentials, they are ‘making do’ and having to spend less. The knock-on effect is obvious.
What are the experts saying?
Tim Cooper, of R3 in Scotland:-
“The troubles in the retail sector in particular have been widely reported, with consequences for companies in other sectors, from shop outfitters to recruitment agencies supplying shop floor staff.”
Mr Cooper flagged “weak” growth of only 0.2% in Scotland in the first quarter, the same rate as that UK-wide, as well as construction sector contraction. He noted the AiB figures did not include administrations or company voluntary arrangements so “do not quite tell the whole story”.
“The larger number of corporate insolvencies in January to March 2018 may have been boosted by directors deciding to wind up their businesses at the end of the financial year, while the bigger picture shows corporate insolvencies have been trending upwards since the start of 2017.”