Job losses will lead to 'spiralling debt crisis'

UNemployment would send an alarming number of Scots spiralling into serious debt difficulties within weeks, according to a new report revealing the extent of the squeeze on households north of the Border.

• With more Scots expected to join the dole queues, debt problems are bound to spiral Picture: Getty

With jobless numbers set to spiral over the coming months, research by insolvency trade body R3 exposes the precarious state of personal finances in Scotland. It found that more than one in four Scots believes they would be unable to pay their bills after a month if they lost their job. Another 57 per cent said they would start to default on their bill payments within six months of being made redundant.

The figures emerge days after the Fraser of Allander Institute think tank estimated that up to 113,000 jobs could be at risk in Scotland.

The bleak outlook is exacerbated by the scaling back of the welfare safety net, according to Shelter Scotland. It warned that government spending cuts, including last month's 40 per cent reduction in the rate at which support for mortgage interest is paid to struggling homeowners, would contribute to a rebound in repossessions next year.

It was revealed on Thursday that repossessions fell in the three months to the end of September to a two and a half year low, with record low interest rates helping homeowners maintain their mortgage repayments. But Shelter Scotland was one of several groups to caution that the trend was likely to be reversed next year.

Shelter published research this week that supported R3's concerns over the potentially dire implications for thousands of Scottish households of rising unemployment. It said one in six UK homeowners is constantly struggling to pay their mortgage, up from one in ten a year ago. One in three homeowners in Scotland is "worried" or "very worried" about meeting their mortgage payments, according to Shelter Scotland.

Graeme Brown, director of the charity, said: "We know from the cases we see every day that it only takes one problem, like a bout of illness, or redundancy, to tip people over the edge and into a spiral of mounting debt and arrears."

The survey by R3 also found that 16 per cent of Scots currently in work have unsecured debts of between 5,000 and 10,000, while 5 per cent have unsecured debts of between 25,000 and 50,000.

John Hall, Scottish R3 council member, said: "Given that the level of public-sector employment in Scotland is so great then it is of considerable concern to find so many people may be in serious trouble if they lose their jobs due to the cuts imposed by the comprehensive spending review."

High levels of personal debt in Scotland means job cuts will lead to a rapid increase in insolvencies."Given that we now know that serious cuts are to be made in the public sector, there may be a further wave of personal insolvencies over the next year as individuals lose their jobs and are quickly unable to meet their financial commitments," said Hall.

"It is always best to act before this happens and try to resolve your finances sooner rather than later."