The Insolvency Service has released the latest numbers personal insolvency in Quarter 1 (January to March 2018). The figures show that individual insolvencies reached the highest quarterly level since Quarter 3 of 2012. This was driven primarily by an increase in individual voluntary arrangements, which reached a record high, while the number of bankruptcies and debt relief orders also increased.

Commenting on the  Richard Haymes, Head of Financial Difficulties at TDX Group, an Equifax company, calls for stricter rules when promoting insolvency services online. “The figures released by the Insolvency Service today, showing an increase in both company and personal insolvencies, support our expectation that the number of individual voluntary arrangements (IVAs) and Trust Deeds will grow by around 17% in 2018. Our latest research reveals a similar trend; with the number of cases continuing to rise. March saw a record volume of IVAs and Trust Deeds issued (around 6,500), up by 20% on the same period last year.”

“One of the main drivers of this growth, along with increases in consumer borrowing, is the contraction of the debt management sector due to some large providers entering administration and tighter Financial Conduct Authority (FCA) regulation. As providers of debt management services exit the industry, insolvency service providers are stepping in to fill the void. Some of these companies use persuasive online marketing via Facebook and other social media platforms to target those suffering from financial stress.

Jane Tully, director of external affairs at Money Advice Trust said “The rise in insolvencies compared to this quarter last year is a worry and reflects the financial difficulties many households are still facing in making ends meet. With this increase mainly driven by individual voluntary arrangements, we remain concerned that too many people in debt are being led down a route that is unsuitable for their circumstances when perhaps other debt solutions are more appropriate.

“Lead generation companies are driving some of this. We know this is on the Insolvency Service and the Financial Conduct Authority’s radar and would urge them to strengthen regulation and put robust practices in place.

Duncan Swift, vice-president of insolvency and restructuring body R3, said “This latest rise in the number of personal insolvencies is in line with the upwards trend since 2015, and has, again, largely been driven by a rise in numbers of Individual Voluntary Arrangements [IVA]. IVAs are typically associated with consumer debts. Given the pressures people’s personal budgets have been under, this is perhaps not a surprising result. Although wage rises are starting to outpace inflation again, this will have come too late for some who have gone a long time without a real pay rise. And, as we’ve said before, while employment rates are high, there are thousands of people in insecure roles, which can make it hard for people to budget.

“The continued availability of cheap credit has made a build-up of consumer credit affordable for some, but not everyone is able to service their debt, even with such low interest rates. Incremental interest rate rises over this year and next will prove a test for personal finances, especially for those who have never known a Bank rate higher than 0.5%. Interestingly, bankruptcies, which are associated with larger debts or sudden financial shocks, have started to shift upwards for the first time in a long time. Most of the increase is down to individuals’ applications for their own bankruptcy. This may be down to increasing indebtedness, although growing familiarity with the new, simpler online process for bankruptcy applications may have played a part, too. Previously bankruptcy applications had to be made in court.”

“It’s worth remembering that the official insolvency figures aren’t a perfect measurement for the state of the UK’s personal finances: they don’t include the unknown tens of thousands of people repaying parts of their debts through a non-statutory debt management plan. The insolvency figures are just the tip of an iceberg, and until the government starts to record numbers of debt management plans, which are FCA-regulated, we’ll have little idea of the true scale of UK personal insolvency. Looking forward, the rise in the National Minimum and Living Wages earlier this month will give millions of people a welcome pay bump, although the higher minimum contributions to auto-enrolment pensions, rising from 1% to 3% of people’s earnings, will take a bite out of paycheques at the same time.”

Alec Pillmoor, Personal Insolvency Partner at RSM said “The availability of unsecured credit decreased significantly in the first quarter of 2018 as lenders tightened their credit scoring. Accordingly, some people that were already at their credit limits found that they were unable to take on additional debt, effectively leaving them with little choice but to enter an insolvency process. ‘The increase in personal insolvencies is despite pay rates beginning to rise above inflation, the unemployment rate being at its lowest level for over three decades and the governor of the Bank of England hinting that the previously predicted interest rate rise for the beginning of next month may be delayed.”

“The figures indicate that there are still many households that are having difficulty in paying their monthly bills, possibly due to the post-Christmas hangover or longer-term historic debt issues and are now having to enter a formal insolvency process.”

Clive Lewis, ICAEW Head of Enterprise, comments said “Insolvency figures for 2017 were relatively low in comparison to previous years, but this is not expected to continue throughout 2018. The Q1 figures are as anticipated, with the retail sector seeing more insolvencies in the New Year and we have also seen an increase in production cutbacks by many motor manufacturers which are likely to cause difficulties in their supply chains. It isn’t unusual for spending to slow following the Christmas period, but these figures are not expected to improve much for 2018 and with interest rates expected to rise in May, it is unlikely that consumer spending will increase significantly. Insolvency solutions can generate good outcomes for consumers and creditors as a last resort but early identification of problems can help to avoid personal insolvency, which has serious and long-lasting consequences for people’s ability to access credit in the future. Enacting an IVA or Trust Deed can have a detrimental effect on; an individual’s credit rating, the cost and access to rental accommodation, the affordability and cost of mortgages.”

“More needs to be done to regulate and keep pace with changing ways insolvency solutions are marketed. At present, the regulation of the debt and insolvency industry is fractured. The FCA is responsible for debt management and debt collection while the Insolvency Service oversees personal insolvency. We are calling for a single body to provide end-to-end regulation covering quality of consumer advice, obligation of creditors, as well as ongoing oversight.”