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Crunch time as personal insolvencies rise

Personal insolvencies have risen sharply, though this should not come as too much of a surprise in view of the tightening of household budgets as a result of rising prices in the shops and slow wage growth.

There have been worrying reports of a return to high consumer debt levels, most recently from the Bank of England. 

The latest data together with sluggish GDP figures is likely to persuade the Bank to leave interest rates unchanged when the monetary policy committee meets next week.

However, the long period of low interest rates has lulled consumers into a false sense of financial security. It has never been easier to finance big purchases through borrowing.

Accountants at RSM note that this is clearly evident among car buyers where nearly four out of five car purchases are now made by PCP deals compared to one in five in 2006, just before the credit crunch.

In addition, outstanding credit card balance transfers and personal loans have increased by 10% in the last year; and RSM points out that credit scores are, on average, lower than two years ago – highlighting a potentially worrying situation if, and more likely when, interest rates start creeping upwards.

Once again the SNP government in Scotland is being urged to “do something” about the 17% rise in personal insolvencies in the first quarter, though its ability to tackle the problem is limited, just as it has little scope to tackle wider economic problems.

Murdo Fraser the Scottish Conservatives finance spokesman legitimately calls on the Holyrood government to go easy on tax hikes in order not to punish households further.

But urging ministers to “do all they can” is perhaps an acknowledgement that they cannot do much. He will be well aware that his Tory colleagues at Westminster are better placed on this than those running affairs in Edinburgh.

This is a UK-wide issue related to the the value of the pound, interest rates, credit flows and – frankly – individual decisions on whether to carry on spending or learn to say no to the next “must have” item.

Laying down the law

One rather excitable news service “reveals” why Scots law firm Maclay Murray & Spens sought a merger with US firm Dentons. Apparently it was not because its managing partners had a penchant for all things American.

It turns out that it was facing a flat market and wanted more UK and overseas work. Mmm…not much of a revelation then, particularly to anyone who read about the deal and the current market conditions here last weekend.

CEO Kenneth Shand said last week that the merger “gives us the scale we need in London”. This may be spun as a growth story, but it’s also the case that there has not been so much work in Scotland in recent years, made worse by the loss of local decision making at the two big banks.

Things have not been easy in the sector and Maclays last year suffered one of the biggest drops in revenue per lawyer – 10% – while revenue per partner dropped by 4%.

The firm’s net profit fell by 20% last year to £10m, putting it 31.5% lower than it was in 2011/12 and 37.54% lower than in 2007/8.

So maybe that merger couldn’t come soon enough.

The drift of big ticket work to London has forced a number of firms into mergers, and a number of others have gone to the wall, among them Semple Fraser, Tods Murray and McLure Naismith.

Take the case of the latter firm. On the back of a steady stream of work from RBS and Bank of Scotland, McClures relocated to purpose-built offices in Edinburgh’s Ponton Street in 2006.

In the 2007/08 financial year the firm, which also had offices in Glasgow and London, allocated the equivalent of 5% of turnover to its property costs, rising to 7% by 2011/12.

By then the banks were no longer supplying a reliable turnover stream. Instead, they were calling in their debts. As the administrators moved in some of the fortunate few found jobs at Maclays and Harper MacLeod.

Since then others have tied up deals, notably HBJ Gateley with Addleshaw Goddard, a one-time potential merger partner for Maclays.

We’re now left with a diminishing pool of larg(ish) independent law firms, but there is the prospect of some of the mid-tier firms making a breakthrough.

It will mean a change of focus, away from currying favour with bankers towards finding new clients among Scotland’s emerging technology, food & drink and creative industries.


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