Commenting on how the Comprehensive Spending Review, which estimates that up to half a million public sector jobs will be cut over the next four years, is likely to affect the number of personal insolvencies, Alec Pillmoor, Head of Personal Insolvency at Baker Tilly Recovery and Restructuring says:
“The number of personal bankruptcies and those seeking IVAs is likely to rise sharply again over the next two years as a result of the spending review. I estimate that by the end of next year the total could reach 40,000 in a quarter for the first time in history.
“Union estimates of 30,000 public sector job losses in the North East look like a reasonable guess, even if some will be lost through natural wastage rather than forced redundancies. In towns like Hartlepool, Newcastle and Middlesborough where public sector jobs account for over a third of the workforce it will be extremely tough to find alternative employment as a large number of companies already have a recruitment freeze. And how many of those people made redundant will have the necessary skills to match their salary in the private sector.
“There will be similar pockets around the country including those towns that have learned to survive on jobs supporting the armed forces, particularly around naval bases.
“There will also be a ripple effect upon those businesses that may seem ‘safe’ from the impact of the public sector cuts. Retail, leisure and travel for example. It is already estimated that that the half million public sector job cuts could result in a high number of job losses in the private sector, particularly in those businesses currently reliant on public sector spending. Combining this with over one million people currently in part-time work because they cannot find full time employment, together with a VAT increase in January will further put strain on personal expenditure which is likely to increase.
“The changes in welfare benefits are complex but overall they are to reduce in real terms over the next four years. The changes to Working Tax Credits may result in those households suffering unemployment or enforced part-time work in having a reduced safety net of benefits to see them through those hard times.
Act now to lessen the impact
- Assess your current income and expenditure; look at all savings and debts. Be realistic. How long can you be comfortable over a 3-6 even 12 months period? It may be wise to clear off your debts as much as you can now to take the extra pressure off in a job loss scenario.
- Where can you minimise your outgoings now? For example, with a hike in commuting fares and a decrease in benefits – where can you absorb that extra spend. Can you organise your travel or childcare differently?
- Look at your household expenditure – this extends beyond utilities. Many fixed rate mortgage arrangements are coming to an end so shop around for the best package to suit your individual circumstances.
Should you become unemployed
- Re-assess your outgoings and talk to your creditors to agree reduced payment terms, for example by agreeing to mortgage payments being interest only or perhaps a six-month repayment holiday if you need to seek alternative employment.
- Don’t be afraid to seek advice and talk to your creditors. The ripple effect of these cuts will affect everyone, even your banks, lenders and insurers. It is in their interest as well that you stay solvent as your inability to spend will affect their books as well.
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