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Published on:November 3, 2010Author:The Debt Advisor

Figures published on Friday by the Insolvency Service are likely to show that, despite a growing economy, rates of personal and corporate insolvencies are on the rise again.

According to Credit Action, total UK personal debt stood at just over £1.45 trillion by the end of September, meaning that individuals still owe more than the whole country produces in a year. Couple this with a record level of peacetime public borrowing, and £43 billion a year in debt interest and it clear that this is a large-scale problem.

Bev Budsworth, managing director of multi award-winning, The Debt Advisor, commented: “Over the last decade, personal debt in the UK has increased by over £800 billion and the level of insolvencies has risen from 30,000 per year to over 133,000 last year. In the first half of this year, the number of people declared insolvent was 70,425 – that’s already far more than the total for 2006.”

Following the emergency Budget and the long-awaited Comprehensive Spending Review (CSR) which aimed to repair the public sector finances and reduce borrowing, the country is now facing the prospect of lost benefits, higher taxes and the threat of job losses.

Bev continued: “I feel that the worst may be yet to come. The effects of the CSR will be a slow burn. The increase in VAT next year will have an immediate impact but the deeper effects are likely to ‘trickle’ down over the next three to six months.

“Insolvency takes months to materialise, due to the inevitable debt and redundancy processes. I fear that levels of insolvency will steadily increase, peaking in the second quarter of 2011.

“Whatever the final impact, it’s clear that help needs to be there for those affected. There has never been a greater need to ensure that individuals and businesses alike can survive through what will be a very difficult time financially.

“In some ways, we need to adopt a post-war mentality and really ‘dig deep’. Employers and employees need to support each other, entrepreneurs need to drive their businesses forward, create jobs and support apprenticeship schemes and banks need to continue supporting troubled businesses and increase lending to robust industries.”

As the levels of insolvencies increase, more and more people are likely to turn to the free sector for advice as well as the multitude of private debt management companies. A minority of these firms have recently been marred by reports of non-compliance and are currently under investigation by the Office of Fair Trading (OFT).

Bev explained: “We have an excellent rescue culture in the UK. While you’ll always get the odd ‘rogue trader’ in any industry, organisations like the Debt Resolution Forum (DRF) and the Debt Management Standards Association (DEMSA) are working tirelessly with the OFT to maintain trust in our industry and root these people out. As a result, non-lending solutions such as Individual Voluntary Arrangements (IVAs) and debt management plans are fit for purpose.

“Severe debt carries a number of serious impacts for households and on the country’s finances as a whole. However, the biggest burden on the public purse is from the actual funding of ‘free’ debt advice. The taxpayer currently foots the bill for a plethora of schemes to help people with serious levels of debt. While some of these have been rationalised under the CSR, the majority are still state-funded and swallowing up between £70 million – £100 million to give face-to-face advice.

“The irony is that while these schemes are set-up to help people out of debt, they are costing the country millions at a time when we can least afford it. Many of these schemes simply don’t have the capacity and already have growing waiting lists – these people need help now!”

Bev concluded: “It’s the private sector that will lead the march in the UK’s growth. By using the properly-accredited private sector, the Government can help reduce the financial burden on the taxpayer and, at the same time, provide much-needed invigoration and support to our fragile economy.”