The number of people becoming insolvent across England and Wales leapt by a fifth in the third quarter of 2016, with experts warning that the numbers could continue to increase as the cost of living rises following the UK’s Brexit vote.
There were 24,251 personal insolvencies between July and September, marking a 19.3% increase compared with the third quarter of 2015 and a 6% rise on the second quarter of this year, the figures from the Insolvency Service show.
Insolvency experts said the rising cost of living had combined with changes to the rules on insolvencies to drive up the numbers, and that price rises resulting from the falling pound could push more people into difficulty.
Between July and September, the number of bankruptcies – often seen as a last resort – increased by 7% compared with the second quarter of 2016, with 3,844 new cases recorded in the third quarter, the figures show.
Despite the jump, bankruptcies are still down by 1.5% compared with a year ago.
The figures showed a sharp jump in the use of individual voluntary arrangements (IVAs), which are agreements whereby money is shared out between creditors. There were 13,917 IVAs in the third quarter of 2016, 10.9% higher than in the second quarter and a 28.8% increase compared with the same period a year earlier.
Brian Johnson, insolvency partner at HW Fisher & Co chartered accountant, said the rise in IVAs was down to the fact that people carrying debt were doing so in a largely resilient economy where jobs were still stable and they could still earn enough to make payments.
“How the economy performs in the next year or two, and the direction of interest rates, will have a material impact on personal insolvency levels moving forward,” he said.
Mark Sands, personal insolvency partner at accounting firm RSM, said: “The fifth consecutive quarterly increase in personal insolvency levels might suggest that consumers are entering a new period of problem debt. However, this latest increase, which is being driven by a rise in IVAs, may have more to do with developments in the insolvency market rather than the reality facing borrowers.
“However, with the current strength of the pound threatening more significant price rises next year, those consumers who find that their wages don’t keep up could begin to find themselves in difficulty.”
During the third quarter, there were 6,490 debt relief orders (DROs), marking a 3.7% decrease compared with the second quarter but up 15.3% compared with the third quarter of 2015.
DROs are often dubbed “bankruptcy light” as they are aimed at people with smaller amounts of debt but no realistic prospect of paying it off. The orders were reformed in 2015 to allow those with debts of up to £20,000 to apply for them.
Before the recent increases, personal insolvency rates had been on a downward path between 2010 and early 2016, the Insolvency Service said.
The figures also show company insolvencies increased overall. An estimated 3,633 firms entered insolvency in the third quarter of 2016, which was 2.2% higher than in the second quarter and 1.1% higher than the same period a year earlier.
Source: The Guardian