The Insolvency Service has published the latest personal insolvency statistics for Q3 (July to September 2018) for England and Wales. The statistics show that total personal insolvencies fell by11% from a six-year high in Q2 2018 and are 2% lower than in the same quarter in 2017. This was driven by a decrease in individual voluntary arrangements (IVAs) and was partially offset by increases in bankruptcies and debt relief orders.

Commenting on the statistics Richard Haymes, Head of Financial Difficulties at TDX Group, an Equifax company,  has called for enhanced regulation to improve debt advice services. “Despite figures released by the Insolvency Service today, showing a fall in personal insolvencies from a six-year high in Q2 2018, increased regulatory oversight of debt advice and personal insolvency is still required. Continued economic uncertainty and stalling growth, driven largely by Brexit, unprecedented levels of unsecured debt, and the increasing reliance of low-income workers on earnings from the ‘gig economy’ have the potential to create a perfect storm for personal insolvencies.”

“Exacerbating the issue is the forceful marketing approach used by some insolvency providers to target people in financial difficulty, and the limited resources available in the debt advice sector, for example when it comes to charitable funding. In this environment, it’s vital that people are able to access high-quality debt advice. We don’t believe the fall in Individual Voluntary Arrangement (IVAs) is attributable to a drop in consumer demand but may just be a short-term effect, specifically driven by market activities and regulatory intervention. The Insolvency Service recently raised significant concerns around both the provision and regulation of IVAs and in October, the Financial Conduct Authority issued a ‘Dear CEO’ letter to firms involved in debt packaging.”

“Yesterday’s Budget provided grounds for optimism, with the government announcing plans for collaboration with debt charities to design a no-interest loan scheme for those who can’t access affordable credit,  and a consultation to extend breathing space for people in debt to 60 days. It’s encouraging to so see clear and meaningful action but more is needed to ensure people can resolve complex, problem debt in a way that’s fair for them and their creditors.”

“If people are struggling with their debt payments we urge them to speak to their creditors as early as possible, as there are options available to help manage repayments more effectively.”

Duncan Swift, Vice President of insolvency and restructuring trade body R3 said“The sharp drop in personal insolvency numbers is welcome, although it’s worth paying attention to the increases in Debt Relief Orders and bankruptcies. These figures tend to be a better indicator of serious indebtedness than Individual Voluntary Arrangements, which account for the bulk of personal insolvencies. Debt Relief Orders (DROs) help those unable to pay even very low value debts, while bankruptcy tends to be used when there are significant debts to be repaid. Individual Voluntary Arrangements (IVAs) are useful for repaying consumer debts, although IVA numbers can be affected by changes in the debt management market.”

“A decade of non-existent or sluggish real wage growth has clearly had an impact on people’s finances. Low unemployment levels are a bright spot, but are only half the picture when work doesn’t pay enough to cover even the basics. There are signs that more and more people are hitting the limit of what their budgets can stretch to. And although rates of consumer lending growth have slowed, outstanding personal debt is still heading towards record levels.”

“While the headline rate of inflation has fallen recently, there is a lot of variation within this. The inflation rate for food has, until recently, been higher than the headline inflation rate, for example. The cumulative effect of rises in the cost of groceries will have hurt those on low incomes the most, and might explain the gradual rise of DRO numbers. “There was an interest rate rise in the middle of the last quarter, although this was so small that it is unlikely to have had a significant impact on insolvency numbers. However, continued incremental rate rises will eventually see those in debt facing much higher debt servicing costs than would have been the case a year or two ago. A generation of borrowers has never experienced interest rates over 1%, so could be in for a shock.

“Plans announced in the Budget for zero-interest loans for indebted individuals may help, but they won’t be enough by themselves to get people back on their feet after facing financial trouble: they must be accompanied by high-quality, unbiased and professional advice, from a qualified and reputable source. The earlier such advice is sought out, the more options people have available to them.

“The Budget Red Book contained welcome confirmation of plans to introduce a ‘Breathing Space’ from creditor enforcement for people unable to pay their debts. However, it is important to keep in mind that a ‘Breathing Space’ should not be a debt solution in itself, and should be used to help people get advice on which of the many existing procedures would work for them.

“As ever, it’s important to remember that the official personal insolvency figures do not tell the whole story. Personal insolvency numbers can be affected by how easy each procedure is to access, while thousands of people are using a non-statutory debt management plan. These plans aren’t recorded by government, but are a key, unseen part of UK personal indebtedness. The official insolvency statistics are just the tip of the iceberg.”

“Talking to a regulated, qualified, and professional advisor is vitally important for anyone who is concerned about their personal financial situation. Grasping the nettle and opening up to a third party may feel impossible, but once done can bring a sense of relief. There are lots of good sources of free, unbiased advice out there, and we urge all those who are worried to seek out support as soon as possible.”