Only the dead have seen the end of war
The Scottish AiB insolvency statistics came out at the end of April, and make mixed reading. The BBC reports "corporate failures soar", whilst R3 leads with "The fall in new personal insolvency cases is welcome".
To be fair to R3, they do go on to say that the official statistics do not tell the whole story, and that over 200,000 Scots have used payday loans recently. 39% of Scots often or sometime struggle to make it to payday, which suggests many people struggling with the cost of living.
What should be shocking is the Wealth and Assets Survey 2008-10, which shows that 30 per cent of children in Scotland live in households which do not own property, have an occupational pension or savings, or own items such as cars or household goods. So a third of children are living in families that have no financial security.
The stark numbers from the AiB show a 14% fall in personal insolvencies for the fourth quarter when compared to the same period a year before. It can be taken as good news that the trend since 2008 has been falling numbers, but equally it indicates that there is perhaps a pressure there which is not being relieved.
Insolvencies include trust deeds, where the numbers are skewed just now. How can you advise a debtor to sign a four year trust deed when a three year sequestration is available? Trust deed numbers are down 24% on the previous quarter.
The AiB continues to treat the Debt Arrangement Scheme as a panacea – the Scottish financial health service’s cure for all ills. Whilst there was a fall on the previous quarter, the numbers were still up on the previous year. As we have commented, the number of people in DAS Debt Payment Plan continues to rise, but as it matures you would soon expect as many DAS arrangements to be finishing as are starting, and we are still a long way from that being the case. In the 2013/14 financial year 4,575 people went in and only 529 came out of DPPs. Judging from the cases that have been finished you are four times more likely to be in a DPP that fails as you are to successfully complete one. A life support machine rather than a wonder drug, it seems. And always remember – following the AiB’s specious argument - DAS isn’t a kind of insolvency.
On the corporate side, there were 244 corporate insolvencies in the first quarter of 2014 plus another 89 solvent members voluntary liquidations. Again that is well up on the previous year but well down on the previous quarter.
Two well known insolvency practitioners - Brian Jackson in the Courier and Tom MacLennan in the Herald – are both warning of what is to come. Mr Jackson warns of the effect when "the most benign interest rate ever" is overtaken by rate rises and what that will do to the level of personal insolvencies. Mr MacLennan feels firms are rebuilding too quickly with the property market in particular - buoyed by the Help to Buy scheme - running ahead of itself.
We will find out over the next year or two if the lessons of the past have indeed been learned. We fear they have not. We could have chosen something lighter – Aristophanes “The Clouds” has a character (unable to sleep because of his debts) who sends his nerd son off to The Thoughtery from whence he returns as an intellectual bum who can bamboozle those who claim they are owed money. But we are not in the mood for comedy. Hence our quote, which is often attributed to Plato.
Only the dead have seen the end of war. (Plato)
or if you prefer
Those who cannot remember the past are comdemned to repeat it. (George Santayana).