29th April 2015
The number of people becoming insolvent has dropped to its lowest level in nearly a decade, official figures show.
Insolvency Service data reveals that 20,826 individuals became insolvent in the first three months of 2015, which is the lowest figure since the autumn of 2005, and a reduction of 18.6% on the number a year ago
The number of companies going bust also dropped.
In the first three months of 2015, 4,052 companies became insolvent, a reduction of 11.3% on the same quarter last year and the lowest figure since the autumn of 2007.
Analysis: Personal insolvencies
Peter Tutton, head of policy at StepChange Debt Charity, says: “The continuing decline in the levels of personal insolvency is welcome news. But with levels of personal borrowing growing rapidly once again, the next government and lenders must ensure that the mistakes of the pre-crisis credit boom are not repeated. Our concern is that growing levels of consumer credit will be followed by growing numbers of people falling into problem debt.
“Insolvency is only meeting the needs of the small segment of the indebted population who have long-term intractable financial difficulties. Last year, we advised over 300,000 people and insolvency was the right course of action for just 20%. The majority of our clients who have suffered a financial shock need time and space to get back on their feet.
“The Treasury’s recent announcement that it would consult on measures to give people in debt breathing space by freezing interest and charges when they take action to tackle their debts was a welcome step forward. The next government must commit to completing this review and ensuring that people struggling with debt get the right protections.”
Brian Johnson, insolvency partner at the chartered accountants HW Fisher & Company, adds: “GDP growth in the first quarter may have been underwhelming, but at least the number of economic casualties is falling fast.
“With individual insolvencies down by 18% and company insolvencies dipping by 11% in a year, the economic precipice appears to be receding for many of those who are struggling with their debts.
“Credit is still cheap and the banks continue to cut substantial slack to those who fall behind on their debt repayments.
“In part this forbearance is due to the increased costs faced by creditors who push a bad debtor into bankruptcy. But it’s also down to pragmatism – in many cases creditors are choosing to get something back rather than nothing.
“Nationwide, the individual insolvency rate has fallen to its lowest level for nine years – but the benefits of Britain’s economic growth are being shared unequally across the country. The number of people being pushed into insolvency in the South East of England is far lower than in much of the North.
“But despite the huge strides that have been made, there is nothing to say that the progress cannot be reversed. The current consumer boom is being fuelled in part by cheap credit, and many people risk taking on debts they will struggle to pay when interest rates eventually rise.”
Analysis: Company insolvencies
Johnson says: “While company liquidations are thankfully back down to pre-crisis levels, seven years of pain mean some sectors remain very fragile.
“Many SMEs who supply large firms are being forced to accept ever longer payment terms for their work, especially in the construction and retail chain sectors.
“This is putting a severe strain on cash-flow for businesses that are already under pressure. The army of “zombie” companies – which are essentially dead but continue to survive in suspended animation thanks to low interest rates and bank forbearance – is unlikely to ever return to rude health.
“With deflation and a further period of ultra low interest rates on the cards, many of Britain’s weakest companies will limp on for some time yet. But the fall in corporate insolvencies shows only that fewer companies have gone to the wall – and tells us little about how many more fatally weakened firms are lurching towards it.”