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INSOLVENCY UP SLIGHTLY AS AUSTERITY MEASURES BITE

Published on:August 10, 2011Author:The Debt Advisor

Figures published today by the Insolvency Service show that personal insolvencies were up to 30,513 in the second quarter of 2011 reversing the recent decline but still a decrease of 12.2% on the same period a year ago.

Bev Budsworth, managing director of multi award-winning debt management company, The Debt Advisor, commented: “Levels of personal insolvencies are up slightly this quarter, reversing the trend over the last 12 months. However, 2010 was record high for insolvencies and with over 330 people a day being declared insolvent or bankrupt, I doubt that the average family considers the outlook to be rosy!”

Bankruptcy figures still remain relatively high over the last 12 months, Bev points to an ‘outdated’ threshold as a contributing factor. “Creditors with debt of £750 or more can petition to bankrupt an individual. This level was set in 1986 and, since then, times have moved and this figure is now too low. R3, the trade body for business recovery professionals, is currently campaigning for this to be raised to a more realistic level of £3,000.

“I believe there also may have been a ‘rush’ toward bankruptcy as the cost increased by £100 to £700 at the start of June. Making yourself bankrupt just got more expensive and this factor is likely to affect the estimated 60,000 bankruptcies that are predicted this year.”

According to recent Credit Action figures, total UK personal debt stood at over £1,451bn, with the average adult owing nearly £30k, inclusive of mortgage, or 123% of their average earnings. The average UK household debt is nearly £56k inclusive of mortgage but according to The Office for Budget Responsibility (OBR), household debt will total £2,126bn by the end of 2015 with the average household owing nearly £82k.

 

‘Sluggish’

 

Bev’s comments follow a relatively flat nine months for the UK economy with the CBI predicting a ‘sluggish’ growth rate for the remainder of the year. Bev continued: “Although a surprise, it’s good news that unemployment and inflation both dropped recently but we’re not out of the woods yet and these figures may well be on the rise once again. The situation is on a knife edge and if you have significant levels of debt, it certainly won’t feel like things are getting any better!

 

“The Government’s austerity measures are really starting to take a hold now with the International Monetary Fund (IMF) recently warning that the average family will be £1,500 per year worse off until at least 2016. The cost of living is spiralling with families facing their biggest peacetime squeeze on household finances since the 1920s, through a combination of higher prices, higher taxes and lower benefits.

 

‘Could be worse’

 

“The outlook is certainly depressing for many of us but we have to remember that we are where we are, there’s no going back to the good times and we need to face the future positively and sensibly.

“Big cuts are essential and the IMF has again shown its support by rubber stamping the Government’s ‘Plan A’. However, we need to make sure that we are making the cuts in the right places and making sure that the people who can afford to take a bigger hit, do so.

“Although it may not seem it now, it could be worse. The US economy nearly ran out of money this week when it had to raise its debt limit to over $14tn or around 98% of its Gross Domestic Product (GDP). With over 9% of the population without a job, our American friends are in for some long-term severe cuts far worse than ours.”

 

Tough love

 

Bev prescribes a dose of tough love to ease our pain: “We need to go back to basics and instil a bit of tough love in our daily lives. We all need to set a budget as to what we can reasonably afford and stick to it. We don’t need to do without all of life’s little luxuries but we do need to be sensible and cut back where we can.

“It’s a bitter pill to swallow but one that we need to nonetheless. We are faced with the third largest budget deficit in Europe and so we all need to take steps to save money and avoid slipping into higher levels of debt.”

 

Corporate woes

 

Corporate insolvencies in the second quarter of this year were up again rising 2.7% on the previous quarter to 4,233.

This quarter has seen a number of high-street names including TJ Hughes, Jane Norman and Habitat go into administration and the outlook for the next quarter continues to be bleak with sluggish growth, consumers reluctant to spend and debt-laden businesses unable to access working capital.

Bev explained: “Since the recession, some of the high-streets biggest names have been forced to close stores or have fallen by the wayside completely. Unfortunately, I see this trend continuing as businesses struggle to come to terms with these austere times.

“Caution is the watchword at the moment with the banks only lending to credible and viable businesses and even HM Revenue and Customs (HMRC) taking a tough new stance on tax collection.

“Businesses or individuals in trouble that work with HMRC and really try to keep to payment plans will be treated far more favourably than those who simply ‘bury their heads in the sand’ and ignore their tax obligations.

“The outlook is, at best, uncertain and it remains to be seen whether Government schemes like project ‘Merlin’ or a rise in the cost of creditor’s deposit to wind up companies will influence future liquidations.”