The language of accountancy can often appear dry and dull, but the latest report from Accountant in Bankruptcy (AiB), the Scottish Government agency that administers the process of bankruptcy and insolvency, is anything but.
It reveals that almost 380,000 debtors have been the subject of court action in 2013/14, which is a rise of 20% in one year. More shockingly, that amounts to 1000 people a day being taken to court over personal debt. There is nothing dry or dull about the personal worry and struggle those figures represent.
We should probably have seen it coming. The number of personal bankruptcies has been relentlessly rising for years and has doubled in less than a decade (in 2004, there were 9321 cases, but that has now risen to around 20,000 a year). About one-fifth of Scots are also paying, or trying to pay, very high rates of interests on pay-day deals or other similar loans. It amounts to personal debt at crisis levels.
The Accountant in Bankruptcy is further evidence of the crisis, although at least some of the figures can probably be explained by recent changes to how council tax debt in particular is pursued. Council tax debt represents around 80% of the cases recorded in the report, but recently local authorities have been making more use of summary warrants, which involves no court hearing and minimal legal fees. It is a procedural change that has made chasing council tax debt easier which, in turn, has probably contributed to the increase in the number of cases recorded in the AiB report.
However, today's figures should not be dismissed as a legal procedural blip but rather should be seen as evidence of a much bigger problem. People usually get into trouble with their council tax payments because they are struggling more generally. As Keith Dryburgh of Citizens Advice Scotland says today, the reasons for council tax arrears include the impact on income of benefit changes or low wages, which means that the AiB figures are evidence of the bigger, grim economic reality for many Scots.
Some limited action has already been taken to tackle it. On pay-day loans, for example, new rules have been introduced which mean that there is now a cap on the interest charged on pay-day loans as well as any fees. This should mean lenders never have to pay back more than twice what they borrowed and should help limit some of the exploitative practices which have forced some lenders into deeper debt.
But in the longer term, only sustained growth, and tackling the shortfall between the minimum wage and the living wage, will begin to transform the national economic outlook and reduce personal debt, and in the meantime, as the economy continues to struggle to recover, local councils should be careful not to contribute to the problem further. Councils are entitled, indeed they are duty-bound, to pursue council tax arrears, which represents money that could be spent on public services, but Citizens Advice Scotland believes council debt collection procedure is being ramped up at the same time as families are less able to pay. What councils must do is use legal action only as a last resort and encourage council tax payers towards the kind of free, independence advice that could help tackle personal debt and reverse the disturbing figures revealed in the AiB report.
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