Insolvency Service statistics published on Tuesday show the number of personal insolvencies in Britain in 2018 has reached its highest level for seven years with 115,299 people in England and Wales who went through insolvency proceedings, a 16.2% rise on 2017. Furthermore there were 16,090 company insolvencies being at its peak for four years.
What the Insolvency Service tables and charts don’t show is that behind many of these insolvencies are tales of personal tragedy, a failing to make ends meet, or a loss of a family business following months or even years of anguish and anxiety. The insolvency process sometimes provides a sense of relief but can be followed by more angst in losing a home or job.
For the third year running, pressure on household finances has forced even more individuals into formal insolvency than the previous year. This can take the form of a bankruptcy, a Debt Relief Order or an Individual Voluntary Arrangement (IVA), the latter of which account for 71,034 (61.6%) of insolvencies for last year. The reason behind IVAs ‘popularity’ is that they are often marketed, sometimes quite bellicosely, as a form of ‘soft’ insolvency – an easier option than bankruptcy to clear your debts. Therefore, consumers struggling to cope with household card debts may be encouraged by adverts to “Wipe out 85% of your debt” or “Get out of debt with an IVA” (type ‘iva’ in Google and you’ll see what I mean). However, a person in an IVA may end of paying more than if they went bankrupt, and the loss of credit rating is virtually equal for both, therefore one wonders whether an IVA was the right course for everyone who entered into it. Therefore sound financial advice from a licensed insolvency practitioner is required or else a difficult problem could become worse bearing in mind that if you cannot afford IVA payments, say 4 years down the line, you could even end up bankrupt anyway.
What the statistics also do not show is that personal insolvencies sometimes follow corporate ones. This is the case where an individual loses their job due to the insolvency of their employer and is unable to secure further employment before household bills become unmanageable. This is particularly disturbing when considering the result of a recent YouGov survey of over 2000 working adults which found that 35% would not be able to pay their rent or mortgage from savings for more than a month. This is an equivalent to 8.6 million people/families in the UK who would fall into arrears if they were made redundant.
We have previously blogged about the growing problem of personal debt, and how it has been precipitated by wages rising at a more modest rate than the cost of living. Recent government figures have showed that the weekly amount spent by households has hit its highest level since 2005. However, what becomes clearer on further analysis is that much of that expenditure went on housing and transport, with less left over for consumer outlay. This in itself has a knock on effect on consumer-facing businesses such as retailers and restaurants who are reliant on the spending power of customers.
There have been a number of high-profile high street retailers that have gone under in 2018. HMV, Toys R Us, Poundworld, and Maplin are among the 16,090 companies that collapsed last year. As well as constrained consumer spending habits, the high street has battled competition from online sellers, and the continuing uncertainty over Brexit.
Arguably, the company collapse that had the widest adverse effect is that of the construction giant Carillion which went into administration in January. This caused the downfall of 780 other firms in the first 3 months, with a 20% spike in the number of building firms calling in the Administrators, ‘domino effect’ within and beyond the industry. It also affected public sector finance with many unfinished school and hospital buildings, again having a negative effect on growth.
What does the future hold?
It is difficult to predict what will be next as there are a number of factors that could affect the economic climate. These include, most notably, the final deal (or not) on Brexit, whether there will be a change in government, and whether these various factors adversely affect interest rates, an increase of which (although perhaps unlikely) could cause personal and corporate insolvencies to soar even higher. Whatever the political outcomes, it is generally expected within the insolvency ‘industry’ that things will get busier this year, possibly much busier.
For retailers in particular, the future looks austere. The KPMG/Ipsos Retail Think Tank (a leading industry research body) warned that 2019 could be even more difficult for retailers after a gloomy Christmas, due to changing consumer behaviour, too many shops, high levels of debt and regulatory costs. A disorganised Brexit could make matters worse for this ailing sector.
I’m not waiting to sound like Private Frazer from Dad’s Army but the future does not look bright.
There are a number of options available to individuals and businesses who are struggling to cope with their debts and the earlier advice is taken, the better. If you require advice on solvency or cash flow problems please get in touch with our team of experts on 01392 667000.