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THE BIG SQUEEZE

Published on:May 6, 2011Author:The Debt Advisor

Figures published today by the Insolvency Service show that corporate insolvencies in the first quarter of this year were up again rising 3.7% on the previous quarter to 4,121. Personal insolvencies dropped again in the first quarter 2011 for the fourth time in a row and were 15.5% less than 12 months ago.

Bev Budsworth, managing director of multi award-winning debt management company, The Debt Advisor, commented: “Levels of personal insolvencies have been reducing throughout 2010 but I believe that we may be on the verge of seeing levels rise again to around 130,000 by the end of this year – quadrupling the levels we saw a decade ago – as the Government’s austerity measures start to bite.

“Total UK personal debt stood at over £1,453 billion, with the average adult owing nearly £30K, inclusive of mortgage, or 128% of their average earnings. It’s clear that this is an issue that isn’t going away with The Office for Budget Responsibility predicting that household debt will top £2,126 billion by the end of 2015 with the average household owing over £84K.”
‘Tipping point’
Bev’s comments follow a flat six months for the UK economy with a marginal decrease in unemployment. Bev continued: “Unemployment and inflation might be starting to go in the right direction but with nearly 1,400 still being made redundant daily, the situation is still pretty dire and if you have significant levels of debt, it certainly won’t feel like things are getting any better!

“Unfortunately, I feel it’s likely to get worse as the Government’s austerity measures, mostly introduced from April, begin to be felt in people’s wallets. The spiralling cost of living is being felt by everybody with food, fuel and energy costs rising rapidly.

“The real fear of unemployment and daily price rises mean that people are keeping their pounds in their pockets which is not what the economy needs.

“The squeeze on people’s personal budgets and the threat of losing your job are the biggest factors hitting people at the moment and likely to be the main drivers for the 8,000 new debt problems dealt with by Citizen’s Advice on a daily basis.

“These are the circumstances that are not really controllable and are at most risk of sending people over their financial ‘tipping point’ and into debt and insolvency. Historically low interest rates are going some way to cushion the blow but with many analysts predicting a rise later this year, any surplus income a household may have will be eroded further. According to some reports, the average family will be £910 worse off this year and face its biggest peacetime squeeze on its finances since the 20s.”

Individual Voluntary Arrangements (IVAs)

10,835 people in debt opted for an IVA in the first quarter of this year, a figure that has been steadily falling for most of 2010.

Bev commented: “IVAs are down but are still a popular form of structured debt repayment which is largely due to the excellent co-operation between creditors and IVA practitioners which has made the process more user-friendly and transparent.  Increased support from financial institutions has meant that the vast majority of consumer IVAs are now accepted. The industry continues to work with creditors’ to support voluntary arrangements for traders and limited companies, especially where there is a history of missed taxation payments.

“The IVA is an effective rescue solution which offers more certainty for all parties involved and affords significant relief to debtors while keeping a roof over their heads. The process is a great deal fairer to the debtor and avoids the nightmare and uncertainty of bankruptcy.

“Support for both consumer and trader IVAs is essential. We need to support the self employed and help them to make their significant contribution to GDP. For every ‘statistic’ there is a real person on an IVA or debt management plan that is determined to pay back what they can. These plans are not a ‘cop out’, they are a structured way to get that individual back on their financial feet.”

Depression

England’s financial woes are increasingly being blamed for a rise in the rates of depression. Data obtained from the BBC show that prescriptions for anti-depressant drugs such as Prozac have risen more than 40% since the credit crunch.

Recent reports from Citizens Advice have blamed the rise in depression and mental illness on money worries and debt and said that it could be the ‘trigger’ to depression. According to the Royal College of GPs, “in times of economic problems we would expect mental health problems to worsen.”

Bev explained: “Rising debt can lead to a rise in anxiety and this can have a profound impact on a person’s mental health. I have been campaigning for years to highlight the link between debt and ill health and The Debt Advisor offers a more holistic approach to its clients to not only treat the practical problems but also the mental ones.”

The figures from the Insolvency Service consisted of 10,835 Individual Voluntary Arrangements (IVAs), a decrease of 8.0% on the corresponding quarter in 2010, 12,539 bankruptcies, representing a decrease of 31.3% on the corresponding quarter of 2010 and 6,788 Debt Relief Orders (DROs), up 20.3% on the corresponding quarter in 2010.