Record Numbers of Britons Declared Insolvent
Recent economic data has emerged to reveal that, despite the UK emerging from recession, increasing numbers of Britons are being declared financially insolvent each day.
The research firm RSM Tenon recently announced figures that showed the number of people declared insolvent in the month of March reached a new peak of 14,000 across the UK. This figure is the highest level for insolvencies since bankruptcy records were first collected back in 1960, and breaking the previous monthly record established in November 2009.
The UK's Culture of InsolvencyMarch’s increase means that the number of people declared insolvent in the first three months of the year was a worrying 35,0000, or 388 people each day.
So why the increase in insolvency numbers, if the economy is believed to actually be improving? Economists call it the ‘debt lag’, meaning that financial problems experienced by large numbers of people tend to happen over time.
Once people are made redundant or suffer unemployment, it can often take a few months before their redundancy payments are used up or their reduced level of earnings really starts to have a damaging impact. As a result, insolvency numbers usually continue to increase as these effects filter down to families, even as the economy starts to improve.
The economy might be improving, but clearly we are not out of the woods yet. Perhaps more worrying then, is the growing fear that insolvencies are still on the rise. Families are still facing up to high levels of debt.
Many city analysts have been expressing concern that the climate of low interest rates (the UK base rate was at a level of just 0.5% for two years) may have helped the economy pull out of recession, but also simply provided a temporary solution to families living close to the edge of insolvency. Now that interest rates have begun to rise, families could quickly find their mortgage payments are unmanageable, which could lead to an even faster spread of insolvency.
What Triggers Higher Interest Rates?The setting of interest rates is usually linked to efforts to control inflation, the rising cost of goods and services throughout the country.
Recent Retail Price Index figures released showed that the cost of UK goods had risen to 4.0%.
Unemployment is also a concern. The most recent jobless numbers revealed unemployment to be at 2.4 million in the first three months of the year.
There has also been a demonstrable increase in the numbers of people who are classed within the statistics as ‘economically inactive’. This group includes those who are out of work, but are not actually seeking work. The numbers within this category had risen over the same period by a further 100,000, to a new high of close to 8.2 million.
Clearly then, the coalition Government will have its work cut out to reduce the number of people out of work, and they will hope that this will also help limit the number of new insolvencies.
They face a difficult balancing act, however, as they have already made a commitment to reducing public spending to help reduce the Government’s own financial deficit. Britain’s insolvency problems start right at the top of government, and are seemingly embedded in a modern culture used to living beyond its means, so it will take a long time before personal insolvencies are back to healthy levels.