Wage growth puts big dent in insolvency numbers
Commenting on the quarterly insolvency statistics (for October – December 2015) published by the Insolvency Service, Phillip Sykes, president of R3, the insolvency trade body, said:
Personal insolvencies
“It’s welcome that insolvency numbers fell so far from their 2010 peak in 2015. Continuing low inflation and a growing economy have helped people pay down or service debts. The return of real wage growth has put a big dent in insolvency numbers.
“Quarterly insolvency numbers have been boosted by October changes to Debt Relief Orders, which have made the insolvency regime more accessible to people in financial trouble. A rise doesn’t only mean more people are becoming insolvent: more people are now able to access the formal insolvency regime.
“Increasing access is a good thing. There are hundreds of thousands of people using non-statutory debt management plans to deal with problem debts who might be better served using a formal insolvency process.
“Often, people can’t afford the government and court fees needed to enter bankruptcy, or they have too many assets and debts to use a DRO, or they just don’t know about their options. Making DROs easier to access may have allowed people to enter the formal regime for the first time. The rise in DROs looks like it has come more from people in this position, rather than switching from bankruptcy or an IVA.
“Debt management plans can work for some people, but they are not regulated in the same way as formal insolvency procedures, and they don’t provide the same level of protection from creditors.
“It’s very important that the FCA starts recording the number of debt management plans in operation. Without knowing how many people are using non-statutory debt relief mechanisms, we have no idea of the true scale of personal insolvency in England & Wales.
“Overall, personal finances are in a better shape than they have been for a while. R3’s regular survey of 2,000 British adults has found that the proportion of British adults who say they often or sometimes struggle to payday is at a record low of 36%. Two-in-five British adults say they are at least fairly worried about their current level of debt which is down from 2015.
Corporate insolvencies
“Corporate insolvencies are continuing their slow and steady decline since their peak in the recession.
“The falling price of a barrel of oil has helped businesses to bring costs down. However, it is causing a considerable degree of difficulty for those in the sector. While many oil and gas businesses are currently undergoing a period of restructuring, if they are unable to cut costs sufficiently we may see a wave of insolvencies in the sector in future quarters particularly among the smaller firms.
“Other businesses are continuing to enjoy favourable circumstances with the low interest rates and inflation. There has been reasonable growth in the economy and high levels of liquidity which will have helped buoy businesses along.
“R3’s latest research which tracks indicators of business distress, found levels at the lowest level since our study began in March 2012.
“However, these factors won’t last forever. Increasing volatility in the stock markets, driven by concern over China, lower growth in the developing world and geopolitical risk in the Middle East all contribute to a time of uncertainty and lower confidence amongst corporates which may impact growth in the foreseeable future.