The Insolvency has published the latest personal insolvency figures for England and Wales which indicate that total individual insolvencies continued to increase in Q2 2018, reaching the highest quarterly level since Q1 2012.  The Insolvency Service says that this was driven by increases in individual voluntary arrangements (IVAs), which reached a record high, and debt relief orders.

Commenting on figures, Stuart Frith, president of insolvency and restructuring trade body R3, said “Personal insolvency numbers have been on the rise since the second half of 2015, so while the latest quarter-on-quarter rise isn’t too surprising, it does underline that, for many people out there, financial stability is out of reach. The comparison with last year’s Q2 figures is especially stark. There are plenty of reasons why people might be feeling the pinch. Wage growth is barely higher than inflation, after a long period of real wage falls. Although unemployment is low, there are more people earning variable amounts in the gig economy, which can make budgeting difficult. Meanwhile, outstanding consumer credit volumes have been growing, as has the average amount of debt per head.”

“The household saving ratio was lower in the first quarter of 2018, according to the latest statistics, and has been falling for the last couple of years. Across 2017 as a whole, the average household spent £900 more than it received in income – people’s safety nets are getting thinner. It’s important to remember that these statistics don’t tell the full story of personal insolvency as they don’t include the number of people in non-statutory debt management plans.”

“Debt management plans are an agreement between an individual and their creditors to repay debt or a portion of debt over a set period of time, but, unlike statutory insolvency procedures, the agreements don’t automatically bind all creditors, there isn’t the automatic debt write-off you would get in bankruptcy or a Debt Relief Order, and the procedure isn’t necessarily overseen by a licensed insolvency practitioner. While debt management plans can be the best way of dealing with some people’s debts, little is known about the scale of their use. Although providers of these debt solutions are monitored by the FCA, there is still no reliable way of knowing how many people are in a debt management plan – and what the true extent of personal insolvency is in England and Wales.”

“Although not yet near the highs seen a decade ago, the rise in personal insolvency numbers should make the Government sit up and take notice – the Q2 number is the highest it’s been for over six years. A long-mooted ‘breathing space’ is currently in the works, which would provide people in serious debt with a period where they are protected from creditor action, and where they can seek unpressured advice from an accredited source about their situation and possible solutions. This breathing space can’t come soon enough and there is widespread support for its introduction, so it’s unfortunate that the Government has decided to wait for the views of its new Single Financial Guidance Body before moving ahead. The new body is still in the process of being set up and won’t be properly up and running for some time yet.”

Richard Haymes, Head of Financial Difficulties at TDX Group, an Equifax company, said “The figures released by the Insolvency Service today, showing increasing personal insolvencies, support our expectation that the number of Individual Voluntary Arrangements (IVAs) and Trust Deeds is set to grow by 17% or more in 2018. Our own research shows the financial profile of people using personal insolvency to actively manage their debts has worsened in the last six months, with average monthly income decreasing to £1,899, average monthly contributions towards unsecured debt falling to £145 and average total of unsecured debt remaining between £24,000 – £26,000.”

“The main drivers of the rise in individual insolvencies continue to be consumer need (fuelled by the current record levels of consumer borrowing), marketing by insolvency providers, and limited capacity in the debt advice sector. With a likely Bank of England (BoE) interest rate rise on the horizon on 2 August, as well as the prospect of rising inflation and limited wage growth, additional support and advice for people living on low incomes or in financial distress is urgently required. Companies need to be aware of the extra pressures their customers may face, and treat them appropriately when they are struggling to meet payments. We encourage individuals who are in, or feel they’re approaching financial difficulty to speak to their creditors as early as possible, as they can provide support to help manage repayments more effectively.”

Joanna Elson OBE, Chief Executive of the Money Advice Trust, said “The continued rise in individual insolvencies, with numbers now at their highest level in six years reflects the wider issues facing many households. As the Treasury Select Committee report out yesterday highlighted, many people across the UK are faced with a range of challenges putting pressure on already stretched budgets.

Alec Pillmoor, a Personal Insolvency Partner at RSM said: “These figures are surprising, as you wouldn’t expect such a significant year-on-year rise in insolvencies at a time when interest rates are so low, employment levels are at a record high, and wage inflation is tracking above price inflation.”

“People appear to be taking pro-active steps to commit to paying down their debts over a five-year period using an IVA rather than going down the bankruptcy route. New data published this week by the Insolvency Service revealed that the most common reasons cited by people for filing for bankruptcy were living beyond their means, relationship breakdowns, a reduction in income or a loss of job.”

“Unexpected life events can of course happen to anyone, but too many people fail to consider the risks when they are applying for credit. Borrowers will be keeping a close eye on the Bank of England’s decision on interest rates in August.”

“If rates do rise, the uplift is likely to be modest, but for those already struggling to meet repayments when they fall due, this could push them over the edge.”