A stark image of divided Britain was revealed yesterday as it emerged that a record number of people were made bankrupt, even as a tiny elite of City of London bankers were looking forward to £1m-plus bonuses.
The Government's own figures yesterday showed that more than 20,000 people were forced to file for bankruptcy in the three months running up to Christmas after being overwhelmed by their debts. The total of 20,461 was a 51 per cent jump on the previous year and the highest number for a three-month period since records began in 1960. The total for 2005 was almost 70,000, 57 per cent more than 2004.
Families struggling to make ends meet will take little comfort from a report by a leading think tank showing that City traders are set to share a staggering £7.5bn bonus pool after a bumper year for share prices and company takeovers. Some 3,000 people are on track for a seven-figure bonus, the Centre for Economics and Business Research (CEBR) said. Many lenders foreclosing on debts will be owned by the same financial giants that are paying individual employees up to £10m.
"The contrast between the financial situations of these groups of people is shocking," said Vince Cable, the Treasury spokesman for the Liberal Democrats. "While those in the City worry about whether they have chosen the trendiest location for their skiing holiday those recently insolvent will be worrying about how they will put food on the table.
"These figures demonstrate the hollow nature of Gordon Brown's rhetoric on social justice."
The jump in personal failures was accompanied by a surge in mortgage repossessions, triggering fresh fears that households were buckling under the weight of mounting debts and rising interest rates.
The number at least three months behind on their mortgage payments is up by 21 per cent. More than 10,200 people lost their homes last year - a 70 per cent increase on 2004.
"The underlying theme is the strain from high debt levels and high debt service payments," said Michael Saunders, a UK economist at Citigroup, the American banking giant.
Households are currently labouring under a record £1.16 trillion of mortgage and unsecured debt - credit cards, bank loans and overdrafts and HP deals. Although there are tentative signs that consumers are reining in their unsecured borrowing, experts believe that the number of personal failures will increase.
"The bankruptcy bubble is getting bigger but seems unlikely to burst for some time yet," said Steve Treharne, the head of personal insolvency at the accountancy firm KPMG. "The levels and availability of credit have been increasing for some time and recent figures from the Bank show that this trend is continuing. The more people use credit, it is inevitable this will be followed by increases in personal insolvencies."
Citizens Advice said its bureaux had seen a 26 per cent surge in the number of people seeking help over their debts, to 1.23 million last year. The latest figures, combined with bumper bonuses for top bankers, will fuel calls for a crackdown on profits made by high-street banks.
A spokeswoman for Citizens Advice said: "Our evidence shows that lenders are selling products without properly checking whether the borrowers can afford it." She said that the majority of cases were among the lowest income group. But Mike Gerrard, a personal insolvency expert at Grant Thornton, said: "We are also seeing greater numbers of individuals earning good salaries but borrowing proportionally more than people on lower incomes."
He said the "now culture" - people of all ages expecting things now and no longer wanting to save to buy them - was generating the highest volumes of insolvencies.
The figure was distorted by a doubling - 117 per cent - in the number of individual voluntary arrangements (IVAs), a recently introduced procedure to take the shame out of bankruptcy.
At the other end of the scale, £7.5bn in bonuses is due to be earned by City workers this winter, according to the CEBR, a 16 per cent increase over past year. The rise is due mainly to a 10 per cent rise in stock market trading and a 20 per cent surge in mergers and acquisitions.
At the top end, about 3,000 people, usually at boardroom level at such companies as Goldman Sachs and Morgan Stanley, will get bonuses of more than a £1m, with a handful nudging £10m. This includes people such as Michael Spencer, 50, chief executive of ICAP, the world's biggest money broker, who is said to be getting £5m this year, and Crispin Odey, 46, a hedge fund manager, said to be due £8.8m.
But there are also 330,000 City workers, usually traders, brokers and dealers, who are also getting bonuses, ranging from a few hundred pounds right up to the magic £1m figure; the average is around £23,000. Even relatively lowly workers on £35,000 might expect to double their salaries in their first year.
The art lover with a £5m bonus to spend
Michael Spencer, chief executive, 50
The British chief executive of the world's biggest money broker, Intercapital (ICAP), Michael Spencer, isestimated to have made a £5m bonus this year, which, if he continues his tradition of hospitality, may be partially spent on a party. Last year, he spent £1m to bring Robbie Williams over to his pad in St Tropez and sing to the 300 guests who had joined him for his fiftieth birthday.
"I'm the sad person you see reading the FT on the beach," he says. But it has paid off - Mr Spencer has homes in Holland Park, St Tropez and New York and is a collector of modern art with a penchant for Picasso and Jack Vettriano. He earned around £4.5m last year and has an estimated personal wealth of around £372m. His company operates from 26 offices across the globe and employs 2,900 staff to handle daily transactions of $1trillion. He lives with his wife Lorraine and three children. Mr Spencer got a taste for trading when he made a £300 profit dealing in GKN shares while at Oxford studying physics. He now controls 22 per cent of Icap.
The bankrupt forced to give up his home
Robert Power, 26
After the death of his father, Robert Power went "off the rails". He had a £43,000-a-year sales job, with a £40,000 inheritance. In two years he spent it all. He went bankrupt on 1 April 2004, having racked up a further £42,000 of debt.
"I used to be very frugal," said Mr Power, 26. "I think dad dying sent me over the edge. I lost sight of the future and saw it as my own money to spend. I went out to have fun knowing I had tens of thousands of pounds in my pocket.
"But it got out of control. You get calls and letters every day chasing you. I used to go and sit in the bus stop for an hour with my head in my hands."
Bankruptcy brought it to an end. He has to pay half of his disposable income - about £400 a month - to creditors until April 2007. Mr Power says his finances are back under control.
"There is no longer so much stigma attached to bankruptcy, but it is humiliating. I used to live on my own in a nice flat in Canary Wharf; now it is a grotty house with three other people in north London. I have less self-worth. But the calls have stopped."
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