Scots bankruptcies to hit a fresh high, say experts

Accountancy and business advice firm PKF has estimated that 23,000 Scots will be made bankrupt this year compared to 22,000 in 2010.

The prediction has been taken by opposition parties as confirmation that the coalition's 81 billion cuts to public spending over the next four years is being done too fast.

But the government has insisted that its policies are putting right the problems of the past Labour government's economic record, while accepting that its decisions will bring significant pain this year.

PKF said that the rise in personal bankruptcy would come despite expected improvements in the economy.

Bryan Jackson, corporate recovery partner with PKF, said: "Although we appear to be emerging from the recession, it is clear that the after effects will continue to be felt in the wider economy for several years to come. Indeed the full impact of the CSR (comprehensive spending review) has yet to be implemented and is likely to result in job losses in the public sector and a consequent dampening of what is already a fairly weak recovery."

He went on: "There is also a further issue among the more indebted affluent in society. Many people are only able to cling on to their homes as long as their mortgage payments are being kept at an historicallly low level due to the 0.5 per cent base rate. Once interest rates start to rise I believe we will begin to see a considerable growth in, what might be termed, the middle-class insolvent."

He added that there would also be problems caused by a continuing stagnant housing market, which means that a quick sale will not be an option for those wanting to pay off debts as it has been in the past.

He also suggested that increased VAT on items coupled with rising utility costs means that many "may now find themselves caught in a financial hole with no means of escape".

CBI Scotland director Iain McMillan said that the rise in bankruptcies also reflected problems business was having in the current environment.

He said: "While we should not throw good money after bad, there is still a problem of getting credit from the banks and this needs to be looked at again."

But the report has also fuelled a political argument over the effects of the coalition's cuts.

Labour's shadow Scottish Secretary Ann McKechin said: "This report makes devastating reading for many Scots who are worried about their jobs and incomes.

"This is the human face of the Tory and Lib Dem cuts. Although we have different legal systems, it is alarming that the rate of bankruptcy here in Scotland is so much higher."Cutting the deficit at this speed is economic vandalism which will ruin people's lives."

However, a Conservative spokesman said: "Whether or not this prediction comes true everybody knows that the country is having to get to grips with the economic legacy left by Labour.

"Securing the recovery will not be pain free, but at least we have a coalition government putting Britain and Scotland back on the road to recovery."

Bankruptcy law is still devolved in Scotland and the SNP administration in Holyrood said it was trying to mitigate the effects of the UK cuts.

A Scottish Government spokesman said: "Figures released in October show a 4 per cent drop in personal insolvencies and a 19 per cent drop in corporate insolvencies in Scotland.

"However the Scottish Government continues to do all that it can to protect the financial and community health of Scotland through vital debt relief services and legislation such as the Housing Bill and Debt and Family Homes Bill.

"We have also introduced the Home Owners Support Fund to assist homeowners facing repossession.

"In addition to this by allowing people to repay their debt over an extended period of time, an increase in Debt Payment Programmes, along with lower numbers in personal bankruptcies is a possible indication that people are seeking advice at an earlier stage and getting the right help they need to recover."