Figures published today by the Insolvency Service show that personal insolvencies in England and Wales decreased again in the fourth quarter of last year to 22,433, a reduction of 7.4% on the same period 12 months ago and the lowest annual total since 2005. This figure comprises 4,267 bankruptcies, 6,325 debt relief orders (DROs), and 11,841 Individual Voluntary Arrangements (IVAs). Company liquidations in the fourth quarter of last year went up slightly by 2.2% on the previous quarter at 3,458 and but down 2.6% on the same quarter in 2013 and the lowest annual total since 2007.
Bev Budsworth, managing director of The Debt Advisor, commented: “Today’s further decrease in the figures is clearly good news and shows that personal and corporate insolvencies are decreasing as people get access to help and the economy is growing. However, unsecured debt is on the rise and November 2014 saw the biggest rise in over six years, according to recent figures. Rates on loans are plummeting meaning that credit is becoming more and more affordable. With wages seeing only a marginal increase, people in previously non-deprived areas are really feeling the pinch and the risk is that they will turn to easy credit to get them through.”
Bev’s comments are supported by recent statistics from The Money Charity that show that personal debt in the UK reached £1.463 trillion at the end of November 2014, up by over £590 per every UK adult since November 2013. This equates to an average debt of nearly £30,000 per adult 115% of average earnings. Outstanding consumer credit lending was nearly £169 billion in November last year, up £10 billion over 12 months and an increase of £199 for every adult in the UK.
North South divide
“Although not a new phenomenon, the current economic recovery is highlighting the gulf that is emerging between prospects and growth in the South compared with that in the North.”
According to the Centre for Cities, which was set up as an independent research organisation in 2005, the number of jobs created in London rose by more than 17% between 2004 and 2013. However, in Blackpool and Rochdale, there was a reduction of 10%. Similarly, the number of business start-ups in Swindon saw a rise of third compared with a fall in Grimsby of over 5%.
“The North is clearly not experiencing the same growth spurt as its Southern counterparts. According to the Citizens Advice, they are experiencing an unprecedented demand for their services in areas like West Lancashire, since the Christmas period. They go on to say that this ‘festive hangover’ means that 2015 could be one of the worst in recent times.
“Payday loans have taken their toll but the majority of people we are seeing have got into debt due to changes in the benefit system such as the so-called bedroom tax and council tax changes. These people are clearly struggling to cope because their income has stagnated while they are facing rent arrears or, even worse, eviction.
“Lancashire has also seen an upsurge in the number of food banks being created. There are at least 30 established food banks across the county and, although most are in deprived areas, an alarming number are now being set up in areas traditionally not seen as deprived areas such as Clitheroe and Lytham St Annes.”
Bev’s comments are echoed in a recent report from Unison which reported an increase in the need for all food banks over the last two years and in 2013, Community Solutions, which operates one of the largest food banks in Lancashire reported an increase in referrals of 277% compared to the year before.
Brighter outlook
Bev continued: “There is some good news for people with little or no surplus income. The government is proposing to make big changes to the qualifying criteria for DROs and bankruptcies. DROs will become far more useable as the maximum level of debt is being increased from £15,000 to £20,000 and the cap on the maximum value of asserts will also rise from £300 to £1,000. Bankruptcy changes will mean that creditors could no longer bankrupt someone unless they are £5,000 in debt – up from £750. These changes are still open to parliamentary scrutiny but are likely to mean an increase in DROs, maybe by as much as 50% per quarter, and a subsequent decline in the rate of bankruptcies.
“This is welcome news for debtors who have found themselves facing bankruptcy for a relatively low level of debt – especially those facing council tax arrears where we have seen debtors having to raise nearly ten times the amount owed in arrears in order to get out of bankruptcy and make a full and final payment.”
Tougher stance
Bev concluded: “IVAs will continue to increase throughout 2015 however, we are seeing an increasingly tougher stance being adopted by HMRC with IVAs for self-employed professionals falling into tax arrears. These people are being treated much more harshly than individuals with credit card or loan debts, with HMRC pushing hard for professionals to sell their properties instead of using an IVA to repay their debts. In my view, this is undue pressure and HMRC will lose out as professionals opt for bankruptcy.”