Scottish Insolvency Statistics (Jul-Sep 2018): Comment from R3

24 October 2018

Commenting on the Scottish Insolvency Statistics, July to September 2018 (Q2 2018-19), Tim Cooper, Chair of R3 in Scotland, the insolvency and restructuring trade body, says:

Personal insolvencies

• The number of personal insolvencies (bankruptcies and protected trust deeds) in Scotland fell by 5% in Q2 2018-19 (July-September 2018) compared with Q1 2018-19 (April-June 2018), but rose by 23% compared with Q2 2017-18 (July-September 2017).

"The small fall in Scottish personal insolvencies over the last quarter is in some ways unsurprising, as the total in the April-June period was unusually high. However, the underlying trend in personal insolvencies is still an upward one, as the comparison with the same quarter in the previous year shows.

"The recent real-terms growth in wages when measured against inflation has helped ease the pressure on many people's budgets, but the growth in wages has hardly been spectacular, and people's incomes have not fully recovered since the global financial crisis of ten years ago. The considerable rise in the cost of living over the last decade means that strains on personal finances are still common. There are, however, signs that the unemployment rate has bottomed out, which may cause further rises in pay, and which could reduce some of the underlying upwards pressure on insolvency numbers.

"Once again, it is worth mentioning the rise in fuel prices, which are currently at their highest point for four years, and which will be causing headaches for many Scots. Consumer debt levels are still high, and although consumer finance is still relatively easy to access, future interest rises could cause lending to be tightened, while a higher cost of servicing debt will wipe out much of the relief gained from any growth in wages. This in turn could lead to a reckoning for many people who have no choice but to rely on rolling over their debts, paying only the interest but not reducing the amount they owe.

"Overall, there is a feeling of uncertainty in the air, and many people will be feeling that their finances are outside their control. Our advice for anyone in this situation, and for anyone who feels that their personal financial situation isn't giving them any room for manoeuvre, is to seek qualified, professional and expert advice, as the sooner problems are addressed, the more can be done to help."

Corporate insolvencies

• The number of corporate insolvencies n Scotland fell by 5% in Q2 2018-19 (July-September 2018) compared with Q1 2018-19 (April-June 2018), but rose by 4% compared with Q2 2017-18 (July-September 2017).

"The quarter-on-quarter fall in the number of corporate insolvencies is the second decrease in a row in the quarterly figures, but it is still too soon to say whether this fall will be sustained in coming months. There were still, however, more corporate insolvencies than in the same quarter last year, which underlines that many parts of the Scottish business community are experiencing difficult trading conditions.

"The July-September numbers are coming off the back of a relatively strong performance for the Scottish economy in the April-June period, when GDP grew by 0.5%, which will have helped many companies. The construction sector in particular will have breathed a sigh of relief as its output grew by 1.8%, rebounding from the poor performance in the first three months of 2018.

"Consumer sentiment has been in negative territory in Scotland since the second half of 2016, while house price growth has been positive but not outstanding; both of these factors will have constrained consumer spending, which underpins a large portion of overall economic activity, and shows that no company reliant on consumer spending can afford to be complacent.

"The predicted rises in interest rates will restrict the budgets of home owners and consumer debtors, with debt servicing costs possibly outstripping further wage growth; businesses will feel the knock-on effects of decreased consumer confidence, and tighter household finances.

"In precarious times, being prepared for different scenarios is always a smart move, and seeking professional advice from a qualified and regulated source can help companies stay nimble, and geared up for whatever is thrown at them next."