Personal insolvencies in England and Wales up for the first time in a year raises concerns over struggling households
Concerns have been raised that households in England and Wales are struggling with debt, even before interest rates rise, as results show an increase in people being declared insolvent for the third quarter, up for the first time in a year. The rise was driven by an increase in individual voluntary arrangements, whereby money is shared out between creditors, official figures show.  Experts say this is concerning, especially since the Bank of England will begin raising borrowing costs next year.  

The number of people being declared insolvent in England and Wales has risen for the first time in a year, prompting warnings that households are struggling to with debt even before interest rates rise.

Official figures show individual insolvencies rose 2.8% in the third quarter compared with the previous three months, but they were still down 18.5% from a year ago. The rise, the first since the second quarter of 2014, was driven by an increase in individual voluntary arrangements (IVAs),in which money is shared out between creditors, the Insolvency Service said



Changing trend?

Individual insolvencies are down on a year ago but rose between the second and third quarters of this year, as shown on this chart of individual insolvencies in England and Wales. Photograph: Insolvency Service

The number of people being declared insolvent has been declining since a peak during the economic downturn in 2009. But experts said the latest uptick was a worrying sign, especially given the prospect of the Bank of England starting to raise borrowing costs next year following more than six years of record low interest rates at 0.5%.

A rise in unsecured borrowing was also cause for concern, said Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline. “With household debt rising and higher interest rates on the horizon, there is no room for complacency,” said Elson.

“Overall household debt is now forecast to pass its pre-recession peak of 169% of household incomes in 2020. Many households will be able to cope with this extra borrowing, but we are concerned that others are turning to credit to make ends meet.”



The Insolvency Service said there were 19,683 individual insolvencies in England and Wales in the third quarter, of which 3,857 were bankruptcies, 5,629 debt relief orders (DROs) and 10,197 IVAs.



The number of personal bankruptcies in England and Wales peaked during the financial crisis in 2009, but has fallen dramatically and now stands at the lowest level for 25 years.

Part of the reason is that individuals are opting for other forms of insolvency – such as IVAs and DROs. IVAs comprised 51.8% of individual insolvencies in the latest quarter.

Lowest rate in a decade

Adjusted for the estimated adult population, the insolvency rate was the lowest since the end of 2005. Photograph: Insolvency Service, Office for National Statistics

The Insolvency Service also provided figures adjusted for a growing population and those showed the individual insolvency rate continued to fall in the third quarter to its lowest for almost a decade.

One in 550 adults, or 0.18% of the adult population, became insolvent in the 12 months ending in the third quarter. That was down from 1 in 522, or 0.19% , in the 12 months ending in the second quarter and the lowest since the end of 2005.

The individual insolvency rate has been falling since mid-2010, but it is still high compared with rates of less than 0.1% seen before 2004, the Insolvency Service said.

Phillip Sykes, president of insolvency trade body R3, expressed concern about how well some borrowers would cope with higher interest rates, saying that a “rise, whenever it does come, will be a test for many household finances”.

The debt charity StepChange said the official figures served as a reminder that personal debt remains a persistent problem but it noted they only told part of the story. “Insolvency figures don’t reflect the full extent of problem debt. More than 600,000 people contacted us for debt advice last year and insolvency was the right option for just 20% of them,” said its chief executive, Mike O’Connor.

“We need to focus on the root causes and solutions related to debt, not just the figures. We know from our research that 14m people suffered an income shock last year and nearly half of them used credit to cope. Better protections from temporary financial difficulty would help people get back on their feet quickly and prevent them from falling into problem debt.”

