The number of people facing a financial crisis has hit the highest level on record, thanks to a 46 per cent surge in bankruptcies over the past year, government figures showed yesterday.
More than 17,500 people were declared bankrupt or voluntarily insolvent over the three months to September in the latest sign that consumers are struggling to cope with record debts. The jump means 64,000 people - one in 700 adults - has been made insolvent in the past 12 months.
The Department of Trade and Industry said a little more than 12,000 were made bankrupt over the three-month period, almost one-third more than the same period a year ago.
In addition, those taking out Individual Voluntary Arrangements, under which debtors strike agreements with creditors, nearly doubled to 5,500.
Mike Gerrard, the head of personal insolvency at the accountants Grant Thornton, said: "The staggering rise in people overwhelmed by financial difficulties is indisputably a direct consequence of consumer debt levels."
The total volume of household debt hit a new record of £1.13 trillion in September, Bank of England figures show. Meanwhile interest rates have risen by almost one-third - 3.5 to 4.5 per cent - since November 2003.
The figures come a week after it emerged the number of repossession orders against homes in England and Wales had surged 66 per cent over the same three-month period.
Experts said the continuing economic slowdown, the impact of interest raterises and rising unemployment meant the numbers would continue to rise. Steve Treharne, the head of personal insolvency at KPMG, said: "If recent house repossessions and consumer lending are considered, this problem can only get worse." John Butler, at HSBC, said: "The fact bankruptcies are rising at a time when unemployment and interest rates are low raises the probability there is an underbelly of weakness in the UK. That is a risk that should not be ignored."
Opposition politicians said the blame for the rise should be laid at the Treasury door for its economic policies and failure to control the banking sector. David Willetts, the Conservative trade and industry spokesman, said: "Too much of the economy's growth over the past few years was fuelled by personal borrowing, and now families are paying the price for Gordon Brown's mismanagement of the economy." Vince Cable, the Liberal Democrat Treasury spokesman, urged the Government to "work actively" with the financial sector to roll out independent advice centres.
Separate figures on corporate insolvency showed the number of companies going to the wall hit a 45-year high, indicating the slowdown in consumer spending was hitting businesses' profits. Company liquidations in England and Wales edged up 0.3 per cent on the quarter to 3,389 - 14.2 per cent higher on the year.
But the CBI, the employers' organisation, warned against an "alarmist" reaction to the rise in corporate and personal financial failures. Ian McCafferty, its chief economic adviser, said: "I would not see it as particularly alarming given the backdrop of the low rates [of insolvency] we have seen in recent years."
David Hillier, the chief UK economist at Barclays Capital, said the insolvency numbers did not give an "accurate steer" on the economy. He asked: "Does it really feel like the economy is doing worse than in the early 1990s?. In our view it does not."
Meanwhile annual house price inflation rose for the third month in a row to 3.9 per cent October, Halifax bank said. But it added that the slowdown in growth and continued high prices would prevent a return to price boom conditions.
A Treasury spokesman said: "The rate of business insolvencies remains at a record low. As a result of economic stability and wider economic reforms to encourage enterprise, there are more than 4 million businesses in Britain, 575,000 more than in 1997, with 4,000 new ones starting up every week." It added this was a sign of an enterprising economy as some personal insolvencies were among the self-employed, showing people were confident to start up a business.Reuse content