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Insolvency Service statistics released today: Charles Turner comments

6 May 2011

Insolvency Service statistics: comment from Charles Turner, deputy vice-president of the Insolvency Practitioners Association and head of the personal insolvency division at FRP Advisory LLP

“Although the number of individual insolvencies in England and Wales has dropped again in Q1 2011 – to 30,162 compared with 35,682 in Q1 2010, according to the Insolvency Service – it is worrying that the proportion of bankruptcy orders for the self-employed, as opposed to consumers, has increased considerably to 18.9% in Q4 2010, from 13% in Q4 2009.

“Until Q4, the percentage of bankruptcies declared by traders and the self-employed in 2010 had remained low, and was just 11.9% of all bankruptcy orders in Q3 2010. As a result, we have seen a significant number of small businesses owners becoming bankrupt, as well as seeking alternative personal insolvency solutions, such as Individual Voluntary Arrangements. This is a trend I expect to continue in the short term.  

“It appears that small businesses were sharply affected by the UK economy contracting by 0.5% in Q4 2010, resulting in self-employed business owners finding themselves struggling with solvency. Self-employed traders are particularly vulnerable to changes in the economy, with increases in petrol, tax and inflation all affecting their businesses, as well as their personal finances.

“However, more than 80% of all bankruptcies still involved consumers in 2010, highlighting that many individuals are dealing with an enormous amount of personal unsecured debt which, in total, remains persistently high. The Office for Budget Responsibility predicts that household debt will rise from £1.6 trillion in 2011 to £2.1 trillion in 2015. It is also worth noting that just a small increase in the Bank of England interest rates later this year will lead to big jumps in mortgage interest payments.

“By prioritising daily expenses that are also becoming more expensive – such as petrol, food and utility bills – alongside increased mortgage payments, people may not have enough cash left over to pay their unsecured debts, such as credit card bills – leading to personal insolvency.”

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