Scots lead UK in bankruptcies with public sector job cuts yet to be felt

Experts have predicted a further acceleration in Scottish personal insolvencies as public sector job cuts and the full impact of the government's austerity regime take effect.

There was a 12.2 per cent year-on-year fall in the number of people being made bankrupt in England and Wales in the three months to the end of June, the government's Insolvency Service revealed yesterday, compared with a drop of just 1.1 per cent in Scotland.

And while the bankruptcy rate south of the Border rose 1.2 per cent from the first three months of the year, the number of Scots going bust rocketed by almost 25 per cent over the same period, according to the Accountant in Bankruptcy (AiB).

Personal insolvencies in Scotland reached 5,319 between April and June, the AiB reported, up from 4,262 in the previous three months. The increase - the biggest since 2008 - was blamed on several factors, including rising utility, food and fuel prices and low wage inflation.

But yesterday's figures shed new light on the stark discrepancy between bankruptcy levels in Scotland and south of the Border. The rate of personal insolvencies in Scotland is now 0.37 per cent of the population, above the 0.23 per cent proportion in England and Wales. The difference is due largely to changes in Scottish legislation last year making it easier to go down the bankruptcy route. But Bryan Jackson, corporate recovery partner at PKF, believes there are other reasons for the trend.

"Scotland is much more dependent upon the public sector for employment which could, in part, explain why there are an increasing number of bankruptcies. Given that redundancies in the public sector have only just begun this does not bode well for reducing the number of personal insolvencies in the future," Mr Jackson said.

Scotland's greater dependency on small employers, hit harder during the downturn, is also behind the country's rising insolvency levels, he claimed.

"The second quarter figures show record numbers of corporate failures, predominantly among smaller firms, and the effect of such closures is often personal insolvency for the owners and employees in such firms."

More people are turning to payday loans in a bid to ease their financial worries, only to spiral deeper into debt, said R3, which carried out the research. And Iain Fraser, Scottish spokesman for the insolvency trade body, claimed the latest figures suggest Scotland's economic recovery is lagging behind. "It would appear that there is a gap of perhaps a year between the Scottish economy recovering compared to England and Wales," he said.

More people in Scotland will be forced to go bankrupt as public sector job cuts escalate, Mr Fraser predicted. "There is greater dependence upon the public sector for employment and this is also likely to be a factor in the current, and indeed future, levels of personal insolvency."

"There is no doubt that we are still bumping along the bottom of this recession and that there is more personal and corporate failure to come in the months and years ahead," he warned,