Financial help website, Scottishtrustdeed.co.uk recently created a report on the state of insolvency in Scotland, based on figures from 2018. In this post, we look at some of the key findings from the report, which may help you to identify liabilities in your business and in your personal circumstances.
The latest report from the Accountant in Bankruptcy (AiB) outlines that 4,664 people were declared bankrupt in 2017/2018, representing a 1.8% increase year on year. In addition, 73% of bankruptcy applications were made by individuals as opposed to creditors. Glasgow and Edinburgh had the highest numbers of bankruptcies, but this is to be expected given their higher populations, and doesn't give an accurate reflection of where the highest risk for bankruptcies lie. It is, in fact, more rural or 'fringe' areas such as Dundee where the biggest risk is concentrated.
The figures show that of the five areas with the highest numbers of bankruptcies, three are major cities; Glasgow, Edinburgh and Dundee. This is to be expected, given that these cities hold more people than the next top 10 most insolvent areas combined.
On the other hand, what is surprising is that population doesn't seem to have as much of an impact on insolvency numbers as it would seem. Aberdeen, Scotland's third-largest city, barely even placed in the top 10 most insolvent areas.
Fife is conveniently placed between Edinburgh, Dundee, Stirling and Perth, and almost everyone living in the area is less than an hour away from a major urban area. However, Fife has an unusually high level of insolvency - in spite of boasting generally higher levels of employment than other areas in Scotland.
Scottish Business Minister Jamie Hepburn told The Scotsman about Fife:
“The ongoing uncertainty around EU exit, alongside the challenges of the roll out of Universal Credit, bear much of the blame [for Fife’s insolvency issues].”
This, however, seems unlikely as insolvency isn’t a new issue for Fife. Back in 2011, before the problems of Brexit and Universal Credit came into play, The Herald reported that Kirkcaldy, Dunfermline and Glenrothes held three of the four top spots as the most insolvent places not just in Scotland but in all of the United Kingdom. Even more concerningly, the insolvency rates had actually improved considerably from the year before, with the Glenrothes rate being 29% higher in the previous year.
Looking firstly at Fife, West Dunbartonshire and West Lothian, as well as other areas on the fringes of large cities, geography appears to be a major factor. These areas have very buoyant economies with those living in the area having high earnings. However, the high-earners living in these areas don’t actually work there, and when you deduct the salaries of those commuting to Edinburgh and Glasgow, the situation is far less secure.
The second reason concerns rural Scotland. Looking at North Ayrshire, Angus, Moray and the Highlands, all of these areas have insolvency rates almost twice that of Edinburgh, which indicates again that there is significant economic inequality between urban and rural areas in Scotland. The 2018 Scottish Government report 'Understanding the Scottish rural economy' outlines that there are "distinct differences [between urban and rural areas of Scotland], often related to distance and scarcity."
Another distinct concern is Dundee. People living in Dundee are four times more likely to be insolvent than those living in Inverclyde. The percentage of people living in Dundee claiming Universal Credit or Job Seekers Allowance is far above the Scottish national average, but these figures are slowly falling. The recently completed V&A museum on Dundee’s waterfront proved to be controversial, at a cost of £70 million, many people pointed to the areas of deprivation across the city, suggesting that there were far better ways to spend. However, Chief Executive of Dundee City Council, David Martin told the Financial Times of the benefits of building such a major national attraction:
“There are 14 sites around here with commercial interest in them. Ten years ago, we were struggling to get anyone interested in anything that didn’t involve the council underwriting the risk,”
Dundee is the number one insolvency hotspot in Scotland, but investment in the city may change that in years to come.
Bankruptcy, known as sequestration for individuals in Scotland, is often the only realistic option for those unable to pay their debts. However, for many, there are more realistic options that allow them to pay back their creditors over an extended period of time.
David Baddeley at Scottishtrustdeed.co.uk commented:
“Bankruptcy can feel like the nuclear option, and alternatives such as a protected trust deed can help individuals out of debt with fewer restrictions, and often with far less stigma, than sequestration.”
A recent report from AiB outlines that the number of protected trust deeds in Scotland was much higher than the number of bankruptcies in the last year, but there are still clear regional differences. Dundee had the highest proportion of bankruptcies; however, the city placed 16th for trust deeds. This suggests a problem with awareness for alternative options to bankruptcy than in other cities such as Glasgow or Edinburgh.
“As the AiB’s data demonstrates, there's a big difference in the way Scots in different parts of the country are dealing with their debt. I suspect that is less a matter of choice, and more a case of some Scots getting better access to debt help than others."
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