Record number of UK insolvencies anticipated after Christmas spree

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The Independent Online

The number of people declaring themselves insolvent over the next three months will soar following Christmas over-spending, a leading firm of accountants predicted yesterday.

Grant Thornton said it expected 30,000 individuals to become insolvent during the first quarter of 2007. It predicted a third of such cases would be a result of excessive spending in the festive season.

"Last year, during the period straight after Christmas, when bills started to hit the doormat, we witnessed the highest ever number of people going into personal insolvency and this year things could be even worse," said Mike Gerrard, head of the accountants' personal insolvency service.

"Since last Christmas, several developments such as interest rate rises, sky-high utility bills and increasing unemployment have pushed more people into financial trouble."

There were 27,644 personal insolvencies during the third quarter of last year according to the most recent figures published by the Department of Trade & Industry. Once fourth-quarter figures become available, the total number of insolvencies for the whole of 2006 is expected to have been above 100,000.

However, a total figure of 30,000 insolvencies for the first quarter of this year alone would represent a marked acceleration in the rate at which borrowers are getting into trouble. The figure is almost 9 per cent higher than the third quarter total and 25 per cent up on insolvencies recorded during the first quarter of last year.

There is already some evidence that the Bank of England's decision to twice raise base rates by 0.25 percentage points in the second half of last year has caused problems. The Bank warned last month that 7.7 per cent of mortgage borrowers had reported difficulties staying on top of repayments, the fourth year in succession in which the figure rose.

In addition, many households have been hit by 50 per cent increases in home energy bills over the past 18 months. Joblessness has also had an impact, increasing by 197,000 to 1.7 million during 2006.

A spokeswoman for Citizens Advice said: "We do see evidence of a Christmas debt hangover, and this month we expect to exceed the 140,000 debt problems that Citizens Advice bureaux dealt with in January 2006," she said.

However, some debt advice charities believe many borrowers have heeded warnings in the run-up to Christmas about over-borrowing. Malcolm Hurlston, of the Consumer Credit Counselling Service, said: "We think people have started to be more cautious about borrowing."