This article is more than 2 years old

This article is more than 2 years old

The number of people declared insolvent hit a six-year high in the three months to June as the squeeze from high inflation, meagre wage rises and benefit cuts hit the finances of low-paid workers.

Individual insolvencies totalled 28,951 in the second quarter, a jump of 4.4% on the previous quarter and 27.3% on the same period last year.

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The Insolvency Service, a government agency, said it was clear the trend had been rising steadily since 2015 to reach the highest quarterly total since the first quarter of 2012.

It said the upswing was driven by a record number of people taking out individual voluntary arrangements (IVAs), where debtors agree to repay creditors some or all of what they owe.

Stuart Frith, the president of the insolvency trade body R3, said: “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 figures come only weeks after Stoke-on-Trent was shown to have the highest rate of personal insolvencies in 2017, followed by Plymouth, Hull and Scarborough.

Earlier this week the Office for National Statistics said analysis of income and spending figures showed that last year Britons spent more than they earned for the first time since 1988. Researchers at the ONS found that British households spent around £900 more on average than they received in income during 2017, with those on low incomes the most likely to borrow extra cash to boost their finances.

David Birne, an insolvency partner at the chartered accountants HW Fisher, said that people struggling to pay bills faced a bleak future should interest rates begin to rise.



“Just days before the Bank of England is expected to pull the trigger on an interest rate rise, this is a stark reminder of how many Britons are in the firing line,” he said.

“Those who’ve been relying on credit to fund a more comfortable lifestyle – who are often the poorest and most vulnerable – are sitting ducks to interest rate rises.”

Personal insolvencies fall into three main categories – bankruptcies, IVAs and debt relief orders (DROs) – but exclude the thousands of debt management plans people agree with their banks.

The Insolvency Service said nearly two-thirds (62%) of personal insolvencies in the second quarter of 2018 were IVAs, around a quarter (24%) were DROs and 14% were bankruptcies.

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There were 17,987 IVAs, marking a 5.7% increase on the first three months of this year – and “the largest quarterly number of IVAs since they were introduced in 1987” – the report showed.



The figures also revealed a fall in company insolvencies in England and Wales in the second quarter from a spike last year when a number of retailers filed for bankruptcy.

A total of 3,918 companies entered insolvency in the second quarter of 2018, consisting of 2,731 creditors’ voluntary liquidations, 752 compulsory liquidations and 435 other insolvencies.



