Wage Fall In Scotland “Unprecedented”
12th June 2013
The Institute for Fiscal Studies (IFS) has reported that real wages (adjusted for inflation) have fallen more than ever before since the economic downturn began.
Scotland appears to have been hit comparatively hard. Real wages in Scotland have fallen by 9.7% since the financial crisis in 2007. The average around the UK was a fall of 7.5%. Only the north-west and south-west of England fared worse than this (10.6% and 10.1%).
Economists are pointing to these figures as an explanation for unemployment figures that are less severe than might normally be expected following a recession. Workers, worried about losing their jobs, may have been more prepared than usual to accept stagnant or reduced wages. Many businesses have preferred to keep wages down rather than to let go of some of their skilled staff.
Wages decline (in real terms) can have a number of effects in terms of the difficulty that many will experience with debt.
Many people built up debts when credit was freely available. Declining real incomes quickly shrink disposable income. This can place pressure upon maintaining debt repayments. For most people this can be managed by economising elsewhere, but for a minority of households previously affordable debt repayments might become unaffordable. This may result in the need for some to consider debt measures such as debt arrangements schemes or protected trust deeds in Scotland.
Shrinking real incomes may also leave people more inclined to take on new debts in order to maintain their previous lifestyle. This may be workable in the short-term, but in the longer-term spending beyond means (fuelled by credit-usage) is likely to store up a problem. Unless circumstances improve the debts will eventually reach an unmanageable level. Once again this can result in the contemplation of debt measures like DAS, though trust deeds or sequestration may be appropriate in more serious cases.
There may also be an effect upon people that entered into Scottish trust deeds in recent years. If their wages have fallen (adjusted for inflation) it may become increasingly difficult to carry on meeting the trust deed payments that were originally agreed. In these circumstances some trustees will expect that the arrangement should be extended so that creditors can eventually receive the sum pledged at the start. Others may extend some discretion and still allow the protected trust deed to finish when expected (provided that any changes in circumstances were beyond the control of their client).
There are few signs that real wages are likely to increase substantially any time soon. Until that happens it’s likely that those in debt will continue to find it harder to service their repayments, that some will be inclined to get into further debt to meet lifestyle expectations, and that a minority of those already in debt arrangements (like trust deeds) may experience challenges in maintaining their agreed payments.
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