UK debt crisis deepens as insolvencies hit record high

Click to follow
The Independent Online

The true extent of Britain's consumer debt crisis came into focus yesterday, as statistics revealed a near 50 per cent rise in the number of people taking out Individual Voluntary Arrangements (IVAs) in the first quarter, after finding themselves unable to keep up repayments on their loans.

The number of people in England and Wales taking out IVAs, whereby creditors allow an individual to write off a proportion of their debts without declaring themselves bankrupt, rose 47.6 per cent to 13,233 during the first quarter, compared with less than 9,000 during the same period last year. Bankruptcies rose 10 per cent to 16,842; corporate insolvencies fell more than 11 per cent to 3,113 during the quarter. In Scotland, the number of individual insolvencies rose almost 12 per cent, but in Northern Ireland, they fell by almost 16 per cent.

Politicians seized on the figures to lambast Gordon Brown's record as Chancellor. Conservative shadow chancellor George Osborne said the figures "tell us a lot about Gordon Brown's poor management of Britain's finances. An economy built on debt is not an economy built to last."

The Liberal Democrat's treasury spokesman, Vince Cable, added: "These figures equate to more than 300 people being declared insolvent every day - a truly astonishing number. But these are not freak figures. Sadly, they are likely to get even worse, especially with families feeling a further pinch on their budgets when interest rates almost certainly rise next week."

In spite of growing demand for IVAs, the debt management company Accuma yesterday issued its second profits warning in less than four months.

The company said continued pressure from lenders was likely to force down the fees which debt management companies can take on IVAs, adding that it had seen a reduction in the level of IVAs being approved. The agreements must be passed by at least 75 per cent of creditors, by value, for them to become legally binding. But the banks have been turning down an increasing number of IVAs, concerned that they are being sold to consumers as a way of escaping their debts, rather than a means of last resort for struggling individuals.

However, the company said further talks between the debt management industry and lenders would ensure creditor acceptance levels rise again.

Accuma's shares fell more than 40 per cent to 40.5p on the back of yesterday's trading statement, leaving the company with a market value of just £13m. Its stock has fallen more than 80 per cent since the start of the year. Shares in Accuma's rivals also fell.