The country has been so busy lately arguing over the future of the UK economy that some disturbing signs at ground level have been largely ignored. Personal insolvencies are at their highest level since the worst of the economic crisis, while figures suggest that a staggering proportion of households are operating on a financial knife-edge. So what’s gone wrong?
The Income Crisis
According to figures from R3, the insolvency trade body, 20% of households in the UK are operating within such a tight budget that an unexpected bill of just £20 would be difficult to manage. Finding an extra £500 (to repair a boiler, for instance) would be impossible without resorting to loan sharks.
This seems strange, when unemployment is supposed to be at a record low. The explanation appears to be that, while wages have risen 21% over the past decade, cumulative inflation has been 24%. Even though the percentage figures may seem low, they add up to a substantial amount in real terms. According to the Office for National Statistics, in 2017 the average household was spending £900 more than its total income. That suggests a large proportion of us are relying on debt.
Personal Insolvencies on the Rise
According to government figures, personal insolvencies in 2018 totalled 115,000. That equates to one in 400 people, whereas in 2017 the figure was only one in 466 — a disturbing change.
Part of this can be put down to IVAs (individual voluntary arrangements) being easier for people on lower incomes to access. These are arrangements under which unsecured debts (including credit cards) can be paid back over five years from any surplus income — though even this might be difficult for those who’d find an extra £20 difficult.
The majority of personal insolvencies, though, are DROs (debt relief orders), under which someone with no more than £1,000 in assets can be protected from creditors in return for providing full financial information and undertaking to pay what they can if their position improves. These too are soaring in numbers.
What Does It Mean for You?
Even if you’re not in this kind of position yourself, the crisis could still affect you. If you’re in business, for instance, you’re more likely to find sole traders you deal with running into trouble. This risk becomes even greater if you’re a landlord, with the likelihood of tenants getting into positions where they default on their rent.
If you’re worried about tenants or trading partners who are showing signs of problems, you’re very welcome to give me a call and discuss your options.