The number of individual bankruptcies has shot up to an all-time high with nearly 1,000 people a week buckling under the weight of the country’s £1trillion debt mountain. With interest rates set to rise further, analysts are warning that bankruptcies will continue to increase.
Last week the Bank of England revealed that the total debts held by Britons had topped the £1 trillion mark for the first time, having doubled in only seven years. Official figures released yesterday by the Department of Trade and Industry showed there were 11,214 personal insolvencies in England and Wales in the second quarter of this year, 8% more than in the first quarter, and a 29% increase on the same quarter of 2003. The figure is the highest quarterly tally since records began in 1960 and comes in spite of unemployment being at record lows and the economy growing strongly.
A DTI official said the relentless rise in insolvencies was down to consumers rather than the self-employed. Patrick Boyden, a partner at PricewaterhouseCoopers, said bankruptcies were heading above 40,000 for the year as a whole, which would top the previous record of 36,000 set during the recession of the early 90s. UK consumers are buckling under the weight of a mountain of personal debt, he said. Record personal insolvency figures reveal the pressures on people who have borrowed to the extremes and are struggling to repay their debt. Mr Boyden said he thought the rise in bankruptcies was going to worsen because of the recent increases in interest rates, which would make it even more difficult for people to service their debts. These figures are at a level not seen before and the upward trend is likely to continue. In a rising interest rate environment the pressures on those who have borrowed to the hilt are unlikely to disappear soon.
Robert Pick, a personal insolvency specialist at Grant Thornton, said: Personal insolvencies have now reached epidemic proportions. He said the typical bad debtor had a mortgage of between £50,000 and £100,000, and credit and store card debt of £50,000, often at interest rates of 20-30%. The Citizens Advice Bureau said its offices had never seen as many bad debt cases as they were experiencing now. Almost one in five of our cases concerns debt and that number has risen 44% over the last six years, even though that was a period of very low interest rates, said CAB spokesman Dan Levene. It is a problem which is snowballing, he said, pointing to credit offers with which banks bombard households everyday. We are particularly concerned about how people who don’t have a chance of paying back the debt are being targeted by some lenders, he said, adding that people should think very carefully about whether they could afford it before taking on more debt.
By contrast, the latest government figures showed that companies were doing well from the strength of the economy. Company liquidations in the second quarter were 3,151, very similar to the first quarter’s level and 17% down compared with a year earlier. We are seeing fewer businesses struggling as a benign economic climate sets in and companies are able to make use of vibrant private equity and lending markets, said David Hargrave, a partner at PricewaterhouseCoopers.
(The Guardian 7th August 2004)