Number of people and businesses going financially insolvent jumped in 2022

Personal insolvencies hit a three-year high and company insolvencies were at their highest since 2009 across England and Wales.

Figures show the number of people going financially insolvent across England and Wales hit a three-year high last year (PA) (PA Archive)

The number of people going financially insolvent across England and Wales hit a three-year high in 2022, according to official figures.

In addition, the number of company insolvencies jumped to the highest level since 2009 last year, in further signs of the impact of tough economic conditions on people and businesses.

Some 118,850 people went financially insolvent last year – an increase of 8% on 2021’s figure.

The Insolvency Service, which released the figures, said the annual total was slightly lower than the 122,150 personal insolvencies registered in 2019.

The number of personal insolvencies in the last three months of 2022 was 6% higher than in the third quarter of the year, and 7% higher than in the fourth quarter of 2021.

The figures are made up of bankruptcies, debt relief orders (DROs) and individual voluntary arrangements (IVAs).

IVAs accounted for nearly three-quarters (74%) of all personal insolvencies across 2022, while the number of bankruptcies was the lowest since 1982.

The number of DROs was higher than 2021 but remained below pre-pandemic levels, the Insolvency Service said.

DROs are available to people with up to £30,000 of debt, and IVAs are agreements whereby payments are shared out between creditors.

The Service also gave figures for the number of people using a breathing space scheme to give legal protections for people with problem debt.

The scheme protects people from their creditors for 60 days, with most interest and penalty charges frozen and enforcement action halted.

Because problem debt can be linked to mental health issues, these protections are also available for people in mental health crisis treatment, for the full duration of their treatment plus another 30 days.

The service said there were 70,546 registered breathing spaces in 2022 – 69,334 standard and 1,212 mental health breathing space registrations.

Average quarterly breathing space numbers were 14% higher than in 2021.

Since the start of the scheme in May 2021, more than 110,000 breathing spaces have been registered.

The service also said 22,109 company insolvencies were registered across England and Wales last year, which was the highest number since 2009 and 57% more than in 2021.

The increase compared to 2021 was driven by the highest annual number of creditors’ voluntary liquidations since comparable records started in 1960.

Christina Fitzgerald, president of insolvency trade body R3, and partner at Edwin Coe LLP, said: “2022 was the year the insolvency dam burst. After two years of being supressed by Government support programmes, corporate insolvency numbers hit a 13-year high last year.

“This was mainly due to creditors’ voluntary liquidations reaching their highest level in 62 years as more and more directors turned to this process to close down their businesses.

“After nearly three years of trading through a pandemic, and in the face of the end of Government support, rising costs and a cost-of-living crisis, many directors simply ran out of road this year and chose to close their businesses before the choice was taken away from them.

“The last 12 months have been tough for UK households. Money worries have been front of mind for many as the increased costs of heating, eating and fuel has meant budgets are stretched.

“People are anxious about the economy, their personal finances and rising prices, and are reluctant to make major purchases as the money they do have available goes to pay for necessities.

“Our message to anyone who is worried about their finances is simple: seek advice as soon as possible.

“It’s incredibly hard to talk about your money worries, but doing so will give you more options, more time and potentially a better outcome than if you’d waited till the problem worsened.”

Personal insolvency numbers peaked in 2009 and 2010, before decreasing over the next five years, the Insolvency Service said.

The relentlessly high demands of the cost-of-living crisis on people's finances are clearly forcing more and more people into difficulty

Richard Lane, StepChange

An increase in IVA numbers between 2015 and 2019 then pushed up overall insolvency numbers.

During the coronavirus pandemic, the number of bankruptcies and DROs decreased and the increase in IVAs slowed, the service added.

From the start of the pandemic until mid-2021, the number of company insolvencies had been relatively low, likely to have been driven in part by support measures in place at the time, the service said.

The figures were released as debt charity StepChange said it saw higher proportions of new clients struggling with gas bills, mortgage arrears, rent and council tax in December 2022 compared with the previous month.

The proportion of clients with a negative budget – meaning that after a debt advice session and budget counselling, their expenses still exceeded their income – also increased in December.

Richard Lane, director of external affairs at StepChange, said: “December’s rise in the proportion of new StepChange clients in arrears on priority debts like gas, mortgage payments and council tax, combined with a month-on-month increase in the proportion of new clients unable to make ends meet, is a real cause for concern.

“We have had an exceptionally busy start to 2023 and while January is always a busy month, the relentlessly high demands of the cost-of-living crisis on people’s finances are clearly forcing more and more people into difficulty.”

Joanne Wright, managing director at risk and financial advisory firm Kroll, said bankruptcies could see a sharp increase in the coming years.

She said: “This will likely be as a result of increased activity in Covid loan scheme fraud recoveries, increased enforcement activity of HMRC on winding up and bankruptcy petitions, and calls on personal guarantees following increased corporate failures stemming from the difficult economic and social environment.”