The latest results Insolvency statistics from The Insolvency Service for Quarter 2 (April to June 2017 (Q2 2017) reveal that total individual insolvencies decreased in Q2 2017, driven primarily by a decrease in individual voluntary arrangements, which decreased from a record high back to the level seen in 2016.
Commenting on the statistics Joanna Elson OBE, chief executive of the Money Advice Trust, said: “After several steep rises in recent quarters, this fall in insolvencies in the last quarter is welcome news. However, we should remember that insolvencies are still 21 percent higher than they were just two years ago. There is a significant risk that this long-term trend could continue.”
“Household debt continues to surge, and a renewed squeeze on incomes is eating into budgets that in many cases are already stretched. We expect demand for free debt advice to continue to rise over the rest of 2017.
Adrian Hyde, president of insolvency and restructuring trade body R3 “The latest figures show personal insolvencies falling significantly, bucking an upward trend which started two years ago. Notably, the decrease has been driven by Individual Voluntary Arrangements – a type of procedure typically associated with consumer debts – which make up the bulk of the numbers of personal insolvencies.
“The fall appears somewhat counter-intuitive, given that personal finances are being squeezed with wages rising more slowly than inflation, household savings rates are tumbling, and consumer confidence is shaky, while the Bank of England has recently raised concerns about the sustainability of consumer borrowing.
“Cheap credit remains available and plenty of zero-percent introductory offers on credit cards are still around, which may be exerting downward pressure on the personal insolvency rate.
“The statutory personal insolvency numbers should be treated with a touch of caution, however, as they don’t tell us about the number of insolvent people repaying debts using non-statutory options, such as debt management plans. Access to statutory debt solutions can be just as important a factor in driving the numbers up or down as improving or worsening finances.
“For example, since FCA regulation of non-statutory debt management plans began in 2014, a key factor in rising insolvency numbers has been the movement of people from these plans into IVAs, but this shift isn’t always constant and IVA numbers can drop dramatically when these movements stop. The level of ‘surplus income’, from which debt repayments are made, accepted by IVA providers is also an important factor in IVA numbers.
“The effects of improved access won’t last forever though, and the fact that Debt Relief Orders and bankruptcies have levelled off following declines is important to note.
“Bankruptcies are linked to insolvencies with higher value assets and debts, and can often be triggered by the failure of a person’s business or the loss of a job. Although bankruptcy access improved with the switch to an out-of-court process last year, the procedure hasn’t been affected by the same market changes as IVAs and may give a better look at underlying insolvency trends.”
Peter Tutton, Head of Policy at StepChange Debt Charity, said “A small decline in the numbers of people going insolvent should not provide any false comfort over the risks to household finances. The levels of personal insolvency in the UK remain high by historical standards, the level of consumer borrowing is high by historical standards and the numbers of people seeking help from StepChange Debt Charity are at record levels. With the Bank of England raising concerns over the growth of lending, now is the time for Government to acknowledge that debt is a major public policy issue.
“With 2.9m people in the UK struggling with severe problem debt and only a relatively small fraction taking up insolvency options, there remain questions as to whether the current legal help is really meeting the needs of people in financial difficulty. Both the Conservative and Labour Party manifestos included provisions for a ‘Breathing Space’ scheme that would see those with temporary financial difficulties given protection from spiralling debts and enforcement action. As a proposal with cross-party support, we urge the Government to bring forward proposals and ensure that people struggling with debt get the right support and protections.”