Bankruptcy rate set to double by 2009, predicts government report

Up to 28,000 people each quarter will declare themselves bankrupt by March 2009, almost twice as many as the record numbers currently going bust, the Government predicted yesterday, as ministers faced accusations that they have failed to tackle Britain's mounting debt crisis.

The Department for Trade and Industry's third annual report into over-indebtedness warned that, even without an economic downturn, the number of people going bankrupt each quarter would rise from about 16,000 today to 28,000 in three years.

However, the report rejected claims that a relaxation in bankruptcy laws had resulted in the significant increase in the number of insolvencies recorded this year. While the number of bankruptcies and individual voluntary arrangements totalled 26,000 in the second quarter - 74 per cent more than a year previously - the report said most borrowers did not even know restrictions on people becoming insolvent had been relaxed.

The Ministerial Group on Over-indebtedness, which includes MPs from the DTI, the Treasury, the Department for Work and Pensions and the Department of Education, claimed the Government had begun to tackle debt-related problems.

A spokesman for the group said: "Since our first report in July 2004, we have made considerable progress in putting in place measures to help people avoid becoming over-indebted and to provide support for those who get into difficulty."

The group said reforms of the Consumer Credit Act would protect borrowers, while the introduction of financial education into GCSE maths courses would give future borrowers a better understanding of money.

However, leading debt advisers said more action was needed. Frances Walker, of the Consumer Credit Counselling Service, a leading debt-advice charity, said: "No one could argue with these initiatives, but they will only have an impact over the very long term."

Anne Kiem, of the Institute of Financial Services, said there had been "insufficient government action on over-indebtedness". She said: "Plans to make financial education part of the curriculum from 2008, however well-intentioned, are wholly inadequate."

The DTI's own report said the number of people facing serious debt problems was likely to increase. It said: "Even in the current benign economic environment, there is a small but growing number of consumers who are showing growing signs of financial distress." The report said the number of mortgages in arrears at the end of the first quarter of 2006 was 4 per cent up on the same period of 2005.