Individual
insolvency figures in England and Wales are at their highest since records began in 1960. The figures released today showed that there were 15,394 between April and June 2005. They represent an increase of 11.7 percent on the preceding three months and 36.8 percent higher than this time last year.
Steve Treharne, head of personal insolvency at
accountancy firm KPMG said "These figures do not paint a pretty picture and cannot be unrelated to the huge rise in
mortgage repossessions and the increasing
bad debts reported by consumer
lenders recently."
"We have a major consumer
debt problem and, if current trends continue, we could see annual
bankruptcy rates at double the present level before we see any improvement."
Howard Archer, chief UK economist at consultancy firm Global Insight, linked the sixth rise in quarterly insolvency figures in a row to the five
interest rates increases up to August 2004.
The Bank of England's decision last week to cut interest rates might not be enough to stop the rise in insolvencies, he added.
Mr Archer said "While Thursday's [0.25 per cent] cut in interest rates will provide some very modest relief to debtors, there is the danger that it could encourage people to
borrow more. This is something the Bank of England will need to keep a close eye on."
He added "Furthermore, the recent overall signs that the labour market has started to soften means that there is a growing risk that individual insolvencies will climb markedly further over the coming months."
Individual insolvencies consist of bankruptcy orders and individual voluntary arrangements.
A debtor or one of his creditors will ask a court for the granting of a bankruptcy order if the court is satisfied that the debt will not be paid. Individual voluntary arrangements gives those in debt a chance to reach a formal agreement with their creditors to settle their debts.
The record insolvency figure is made up of 11,195 bankruptcies, up by 27.5 percent in 2004, and 4,199 individual voluntary arrangements, up by 69.6 percent in 2004.
Steve Treharne of KPMG saw this rise in individual voluntary arrangements as key to the surge in insolvencies.
"A quiet revolution has happened here. Filing for bankruptcy has quickly become the easy way out for many people with unmanageable debts - aided by technology and changes in the law. The Enterprise Act which came into force in April last year has, in many people's eyes, made bankruptcy a far simpler and attractive proposition particularly as it has removed some of the stiffer penalties previously meted out to bankrupts in the UK," he said.
"This situation is at risk of spiralling out of control. Whilst we welcome government initiatives to address the debt time-bomb, these solutions will take years to show any impact. Consumer lenders and individuals need to take stock of this black cloud of debt and act now to do something about it."
