Thousands of Scots braced for rates rise chaos

With the Bank of England Monetary Policy Committee (MPC) expected to raise interest rates for the first time in a decade this week, experts are issuing dire warnings that such a move could spell financial chaos for thousands of Scots.

The last time the MPC raised rates was before the financial crisis of 2008 when the committee had met in July the year before and increased them a quarter of a point to 5.75 per cent.

However, following the global crisis, rates were then slashed to hit a then record low of 0.5 per cent in March 2009.

Having stayed there for more than seven years, they were then halved after the Brexit referendum to a new all time low of 0.25 per cent.

But with inflation recently climbing to 3 per cent, well above the MPC’s two per cent target, it is now expected the post-Brexit vote move will be reversed on Thursday this week.

If such a rise transpires, it is expected it will mark the beginning of an upward trend for interest rates.

But it comes as British households are increasingly struggling with debt, with alarming official figures giving the starkest indication yet of the UK slipping into the red.

Government statistics for England and Wales show that applications for individual voluntary arrangements (IVAs) – a means of managing personal debt – reached their highest level since they were introduced in 1987. The spike has occurred amid a 10.6 per cent increase in wider insolvencies since the end of June.

Meanwhile, figures also show the growth of personal loans, credit cards and car finance now outstrips the rise in earnings by almost five times.

Bank of England data shows that personal debts have risen to levels unseen since the financial crisis – reaching more than £200bn.

There were 15,523 IVAs recorded in England and Wales in the third quarter, rising from 13,290 in the same period a year ago.

The voluntary means of repaying an individual’s creditor some or all of the money they are owed, with the help of an insolvency practitioner, made up two thirds of all insolvencies.

There was a 2.1 per cent increase in debt relief orders – available to those who have a low income, low assets and less than £20,000 of debt – from June to 6,274.

However, the number of bankruptcies – whereby an individual’s assets may be sold to pay their debts – fell slightly to 3,682.

Adrian Hyde of the insolvency and restructuring trade body R3, said: “Falling real wages and exhausted credit limits may have helped to push personal insolvencies up again.

“Some people have trouble paying for basics, let alone luxuries.”

Meanwhile, in Scotland more than one-third of Scots’ personal debt is at its highest level for five years.

Figures from the Money Charity show the average household now owes £56,460, which is equivalent to more than 144 per cent of their annual income - the worst picture since mid-2012.

While the voices calling for for rates to go up to protect savers and pensioners who have investments have gotten increasingly louder, Mike Dailly of the Govan Law Centre, who is a former member of the Financial Conduct Authority’s Consumer Panel and a member of the European Banking Authority’s expert group has warned that thousands of Scots could be tipped into the financial abyss by any increases.

He said: “There would be a lot more losers than winners from a base rate rise. We have 8.3 million people across the UK with problem indebtedness.

“They’ve had to borrow to cope with low wages, the gig economy and exponential household prices for food and bills. A rate rise right now could tip them over the edge when they’re already seriously struggling and financially squeezed”.

“It’s understandable that the Bank of England wants to put a brake on inflation running at 3per cent this year.

“But increasing the cost of borrowing won’t calm inflation. The reality is Scotland and the UK relies on imports, and you get inflation when the pound is devalued.”