Scotland faces 'personal debt time bomb' with over one in four concerned about repayments

The poll of over 1000 people carried out at the end of June was for Citizens Advice Scotland which is warning that as the furlough scheme is lifted, payment holidays end and job losses become more significant, this will lead to a large increase in the numbers of people with unmanageable debts.

It comes after the Herald revealed that some of Scotland’s rural and most affluent areas are being badly hit by the coronavirus economic crisis, with unemployment nearly trebling in parts during lockdown as concerns grow about the future financial shock from Covid-19.

Data from the end of June shows nearly one in three Scots able to work were unemployed or on furlough.

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CAS said there was grave concern about the fourth in a series of polls which shine a light on the financial difficulties facing many households in Scotland as a result of the Coronavirus pandemic.

CAS financial health spokesman Myles Fitt said: “Temporary measures to protect income during Covid-19 have been welcome and broadly successful, but it’s clear that Scotland is facing a personal debt time bomb as we emerge from lockdown and slowly begin to restart the economy. Managing this situation will require thoughtful and significant intervention from policy-makers.

“The Citizens Advice network in Scotland is one of the biggest providers of free debt advice in the country and, prior to lockdown, debt was the second biggest issue seen by our advisers. The issue is most often a result of insecure or low incomes which are simply not able to keep pace with the cost of living.

“While concerns about unemployment have understandably replaced it for the time being, the issue of personal debt will become a real challenge in the coming months and years. An income shock from a job loss or reduced pay, combined with the cost of arrears such as council tax, housing or energy bulls built up due to Covid-19 payment holidays, will put individual and household finances under extreme pressure."

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It also found that around one in four were concerned about paying utility bills and rent, while one in five were concerned about mortgage repayments, paying for council tax and even affording food and essentials.

"Our fear is that many households will fall into unmanageable debt, causing financial hardship and pushing more people into poverty, or exacerbate existing poverty," said Mr Fitt.

“There are a range of measures policymakers could take to help people, specifically maximising incomes and minimising the cost of living. Efforts to pursue arrears must take into account people’s ability to pay and ideally repayments should be spread as thinly as possible, while local authority debts over five years old, such as council tax or rent, should be written off altogether."

It comes as the Chancellor set out a list of measures in his emergency summer statement including a VAT cut for hospitality and tourism sectors, a UK-wide half-price dining out offer, and a £1000-per-worker bonus for firms who keep on staff after furlough ends.

But he rebuffed SNP demands for increased borrowing powers for Holyrood and the ability to use £500m of unspent cash for projects to boost the Covid-19 recovery, after forecasts of 160,000 job losses north of the border.

Mark Diffley, who conducted the latest poll said: “Whilst we noticed in the last wave that levels of concern about paying for life’s necessities had fallen a little after the initial impact of the virus was felt, it is now notable that those levels of concern have largely stabilised, leaving a significant minority of the population in financial hardship.

“Of additional concern is the finding that, once again, it is apparent that the highest levels of concern are recorded from those in the poorest socio-economic groups who are least likely be able to bear the financial burdens which they are facing as a result if the virus.”

A Scottish Government spokesperson said: “A package of financial support has been announced in a bid to stimulate the Scottish economy. We recognise the stress and strain debt can create and we would encourage anyone with concerns to contact organisations such as CAS to get advice and support.”