Scotland in the Red: 2019 data exposes Scotland’s debt problems — the pandemic just makes them starker

By Lawrie Morgan Klein, Public Affairs Officer, StepChange Scotland

This week, we’ve released Scotland in the Red, our annual compendium of key statistics based on the characteristics of our clients in Scotland.

Based on 2019 data, it reveals the problems Scots were already experiencing before Covid-19 emerged to exacerbate the financial pressures facing households.

Even pre-pandemic, it was clear that there is continuing and growing need for urgent action to address key policy issues which affect those in or at risk of problem debt in Scotland.

Life shocks are the main driver of problem debt among our clients, on both sides of the border. Manageable and sustainable levels of debt can swiftly turn, due to a ‘life event’ such as illness, unemployment or reductions in income, into complicated and costly burdens which can have a huge impact on individuals and on wider society.

In Scotland, 24% of clients last year experienced debt because of a reduction in income or benefit income, and 14% as a result of result of employment change or redundancy.

We already know that when people have suffered a life shock within the past two years that disrupted their income — even temporarily — it exposes them to the risk of problem debt by a multiplier of three.

The report shows the extent to which households have been just keeping their heads above water, struggling to make ends meet and lacking enough resilience to deal with the smallest of financial shocks that can happen to all of us.

On average, Scottish clients were in deficit by £13.73 per month after just paying for the essentials, leaving no flexibility to deal with day-to-day problems or to pay their debts.

Polling we conducted last year suggested that over 1 million Scots showed at least one sign of financial distress, with 800,000 showing 2 or more signs. This indicates the precarious financial position of many thousands of households. This will only worsen under the pandemic.

Last year, 27% of our Scottish clients with mortgages were in arrears, as were 27% of renters.

Already we’re hearing that 1 in 7 UK homeowners have taken a mortgage holiday during the pandemic.

There is real risk that pressure with council tax will mount up too, as after a first missed payment, the full year’s council tax is then due. Over 42% of Scottish clients were behind on council tax in 2019, so the next few months could be a real point of crisis for people who fall behind this year.

As we know, the current crisis poses a huge new financial challenge to people across Scotland with over 100,000 new claims for Universal Credit in March this year alone. Vulnerable people will be even more vulnerable; poorer households will be even poorer.

But we’re also going to see many new cohorts of people who need debt advice for the first time, as well as greater need among those who were already financially vulnerable.

For many workers being furloughed, 20% of their income might be the difference between falling into arrears and staying afloat.

In these times of economic uncertainty and difficulty, in Scotland — as across the whole of the UK — we’re going to need more capacity in the debt advice sector.

Last year, we helped over 40,000 people in Scotland, but there are many thousands out there who need help and who may not know that support is available to them.

The long-term impacts of COVID-shock will be felt over months and years as well as the immediate impacts. Pressingly, we need to think about what happens over the next few months, when payment holidays and lender forbearance approach conclusions, so that we have exit strategies in place to help people recover without hardship wherever possible.

As such, it’s very welcome that the Scottish Government’s second piece of emergency legislation, before Holyrood this week, will reduce application fees to access bankruptcy.

It will also increase the maximum debt level to £25,000 for the Minimal Asset Process (MAP) bankruptcy and will scrap the MAP fee for those in receipt of certain income-related social security benefits.

But the Scottish Government must give thought now to how they will boost capacity in the advice sector, and how to signpost free debt advice for those that need it.

It is vital over the next 18 months that the Scottish Government ensures that the path is as smooth as possible for people who trying to get back on their feet.

Contemplating what is facing us on the other side of the hill is fraught with difficulty at the best of times and the scale of the economic crisis is daunting. Yet advisors across the country have shown huge flexibility and resilience as they have adapted to the new normal.

We’re still here for our clients and we will bring them through the difficult times ahead, because no one should have to face problem debt alone.