By Alan McIntosh

AS the Covid-19 public health crisis unfolds, it is still too early to know the extent to which the crisis will also impact on the personal finances of Scots; however with one million new claims being made across the UK for benefits and Scotland’s Chief Economist predicting economic output will fall by one-third during the emergency, it is clear the effects will be severe and lasting. Particularly as almost 700,000 Scots were already struggling with problem debt before this crisis began.

It is also fair to say that although a number of mitigating measures have already been put in place by the UK and Scottish Government and the Financial Conduct Authority, collectively they will not prevent a sharp increase in the number of people seeking help with problem debts after this crisis is over.

The furlough payments and payment breaks will only last so long, and for those who cannot return to some normality after that, the ending of those schemes will be like falling off a cliff edge.

However, the lessons of the last economic crisis can help inform how we respond to this one.

First, we need to ensure our free money advice services are adequately funded, like they were last time. Back then, our money advice services faced the credit crunch with the benefit of £3 million per year additional funding from the Scottish Executive between 2003-2005; and then £5 million per year from 2005-2007. At a local level how funding was spent was also coordinated by local authorities, to avoid unnecessary duplication and gaps in services.

Today, we enter this credit crunch with local authority funding for free money advice services having been cut by 45 per cent in the years 2014-17, and a fragmented approach to funding having being adopted by the Scottish Government, with no co-ordination at a local level.

Secondly, we need to roll back what has been 10 years of regressive debt reform, which has taken Scotland from the revered position of having one of the most progressive systems of personal debt laws in Europe, to a country that now has the longest bankruptcy payment period in these islands, including the Republic of Ireland.

After the credit crunch, between 2009-15, there were more than 140,699 personal insolvencies, across Scotland and 21,364 Programmes under the Debt Arrangement Scheme. This should give people an idea of the scale of the task we are now facing, considering it is widely accepted this crisis will be as severe, if not more severe, than the last one.

However, those figures shouldn’t be interpreted as failure. Back then they allowed us to respond to that crisis in a way that other countries weren’t able to. Take Ireland, for example. Over the same period they only had 1,163 personal insolvencies and enter this crisis with much of the historic debt from the last crisis still remaining.

The lesson is clear, if Scotland wants to recover from this financial crisis, then it must adopt a clear strategy of properly funding money advice services and ensuring how we spend that funding is coordinated; secondly, it must adopt a radical agenda of law reform that will allow people to access debt solutions, regardless of their ability to pay, so we don’t sleepwalk into the next crisis carrying the baggage of this one.

Alan McIntosh is a Senior Money Adviser. His views are his own