In 2017 insolvencies in the UK reached the highest levels since the financial crisis. Bankruptcies soared with a rise of 9.4%.
The Insolvency Service said 99,196 people been declared bankrupt and record numbers of households turned to IVA’s (individual Voluntary Arrangements) to try to clear their debts with a record high approvals rate of 59,220 in 2017, a rise of close on 20% on the previous year.
According to a study by the think-tank, the RSA, (Royal Society for the encouragement of Arts, Manufactures and Commerce) whose mission is to enrich society through ideas and action, economic insecurity has become the “new normal” in the UK with at least 70% of the UK’s working population “chronically broke.”
Car finance and credit card use were the main worries, People are using credit cards for everyday living and the mountain of personal debt in 2017 rose to a staggering £1.6 trillion.
The Insolvency Service said, “One in 467 adults (0.21% of the adult population) became insolvent in 2017, up from 507 in 2016. ” There was a slight improvement in the insolvency numbers in the final quarter of 2017. “Individual insolvencies decreased 0.2% compared with the previous quarter. There was also a small decrease in IVAs, which fell by 0.9% compared with Q3 2017. IVAs however remained high and the three highest quarterly levels of IVAs since their introduction in 1987 were all recorded in 2017,” they said.
Corporate failures also rose in 2017 amid a slowdown in the economy. An estimated total of 17,243 companies entered insolvency in 2017, a rise of 4.2% on the year before, said the Insolvency Service. The figures do not include the impact of Carillion’s failure, which is expected to force some smaller suppliers into bankruptcy.
Duncan Swift, of the insolvency practitioner’s trade body R3, said that while the official figures are worrying, the real extent of debt problems in the UK may be even worse.
“With personal insolvencies, it’s always worth noting that the official statistics don’t tell the full story: there is a lot of ‘hidden’ insolvency out there. There are potentially tens of thousands of people in non-statutory debt management plans. Although these plans are regulated by the FCA, there is no record of exactly how many there are. This makes it impossible to grasp the full scale of serious indebtedness.”
The rise in personal insolvency is unprecedented during a time of rising employment. Usually bankruptcy peaks when unemployment soars, but insolvency is now hitting the working poor.
Alec Pillmoor, personal insolvency partner at RSM, predicted that if, as expected, interest rates rise this year “even more over-indebted households may find themselves in difficulty.”
Economic insecurity has become the “new normal” in the UK with at least 70% of the UK’s working population now described as “chronically broke”,