Personal insolvencies in UK at lowest point since 2008

Personal insolvencies in the UK have dropped by 12.9% over the first quarter of 2013 – but industry bodies warn this is not a true reflection of the difficult environment businesses and consumers still face. Does the drop in bankruptcies indicate an improving economy? Or is it a false dawn?

4 May 2013

Personal insolvencies in Britain, including bankruptcies, debt relief orders and voluntary agreements, have dropped to a rate not seen since 2008, with recent UK Insolvency Service statistics showing that there were 25,006 individual insolvencies across England and Wales in the first three months of 2013, the lowest figure since early 2008. The figure represents a drop of 12.9% since the beginning of 2012.

These statistics are released despite the ongoing troubles in the British and EU economies, and an almost nationwide tightening in household budgets.

In the 12 months since the first quarter of 2012, statistics show that one in 419 people declared insolvency, which is down from one in 405 in the previous period. Despite the fall in numbers, the Insolvency Service still maintains that the current personal insolvency rate is ‘elevated’ compared to the annual average of about one in 1,600 adults recorded over the last 25 years.

The number of bankruptcies had decreased by 27% on the first quarter of 2012 at 6,663, while individual voluntary agreements (IVAs) were down 4.9%, at 11,124.

Interestingly, the proportion of bankruptcies initiated by creditors has increased significantly – whilst 14% of bankruptcies were initiated by creditors in the first quarter of 2009, latest figures show that percentage has risen to 19%, possibly indicating that tightening economic conditions are causing creditors to enact stricter lending conditions and are becoming more vigilant in their approach to recovering late or doubtful debt.

The number of corporate insolvency appointments has also declined since 2012, with figures showing there were 3,619 compulsory liquidations and creditors’ voluntary liquidations in the first quarter of 2013, representing a decrease of 5.3% on the previous quarter and 15.8% on 2012.

Nick O’Reilly, an insolvency practitioner at insolvency firm Fisher & Company, said “the economy is resilient, if not quite rebounding”, suggesting these figures do not represent a cause for celebration, adding: “The fall in individual insolvencies is encouraging too, but what we must not forget is that many households remain excessively leveraged. When interest rates rise there is every chance the individual insolvency rate will rise again – and potentially sharply.”

The high amount of personal debt held by UK consumers is still an enormous cause for concern – and with the current UK government implementing strict austerity measures, the slow growth of the economy means that it’s difficult for consumers head-high in debt to keep up with ever-increasing council taxes, energy bills and rent.

This is a sentiment shared by Charles Turner, the president of the Insolvency Practitioners Association, who released a statement: “The figures released this morning do not, in my opinion, reflect the reality of life for a great number of consumers who are undoubtedly struggling as wage growth flatlines and their household costs continue to increase.”

He mentioned it was likely that many people were turning to debt management plans instead of the last resort of insolvency, adding: “Indications are that numbers (of people involved in debt management plans) have grown significantly, partly because they are perceived to be a more cost-effective alternative to a formal insolvency process.”

The question arises from these latest statistics is, how far does the UK economy need to rebound before the devastating effects of the global financial crisis are finally escaped from? Small growth rates of between 0 and 1%, as seen by the UK in the last several years, combined with the strict austerity measures implemented by the Cameron government, could mean that figures such as these actually don’t represent a significant improvement in the economy at all; merely a slight reprieve before the spluttering economy stumbles once again down the slippery slope of recession.

photo credit: jwinfred via photopin cc

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