A jump in personal insolvencies in the fourth quarter of 2018 sent the total number of people going bust last year in England and Wales to the highest level since 2011.
Debt advisers blamed Brexit uncertainty, weak wages growth and tighter credit rules for forcing more people to declare themselves insolvent in the run-up to Christmas.
Money Advice Trust, the charity that runs National Debtline, said the figures reflected “the challenging times many people continue to face”.
Individual insolvencies rocketed by 34.7% compared with the previous quarter to 34,108, taking the total number for the year up by just over 16% to 115,299, according to figures from the Insolvency Service.
A rise in company insolvencies to 4,725 in the last quarter, spurred by the collapse of hundreds of construction and retail businesses, sent the number of businesses going bust last year to 17,439, the highest level since 2014.
Stuart Frith, the president of insolvency and restructuring trade body R3, said companies were under pressure from Brexit uncertainty, especially retailers and consumer goods suppliers, in the run-up to Christmas when consumers were reluctant to spend.
“Although recent government figures showed that the weekly amount spent by households has hit its highest level since 2005, much of that expenditure went on housing and transport, with less left over for consumer outlay. This is having a big impact on consumer-facing businesses, such as retailers and the restaurant sector,” he said.
“This also spells bad news for businesses at one remove from the consumer, such as manufacturers supplying consumer products, shop fitters, or logistics firms.”
Evans Cycles, House of Fraser and the music and entertainment retailer HMV were among the hundreds of retailers to go bust in 2018 while Carillion, the construction and government outsourcing contractor, was the largest of many building companies to go out of business.
Mike Cherry, the chairman of the Federation of Small Businesses, said the figures showed the huge strain that small firms are currently facing, with rising employment costs, increases in business rates and “significant uncertainty as the UK exits the EU”.
“Our latest figures have found that small businesses are having to spend 15% more on the likes of taxes, levies and employment obligations than they were six years ago,” he said.
“Meanwhile, confidence among small firms is at its lowest level since the wake of the financial crash.”
Frith said the steep rise in personal insolvencies followed a period of rising inflation and lacklustre wage increases that hit disposable incomes and a squeeze on credit by the City regulator.
He said banks and other lenders tightened their credit standards in response to the Bank of England’s concerns over climbing consumer debts. He added that the billions of pounds that had flowed to many households in recent years from PPI compensation payments had also come to an end.
“The ‘helicopter money’ provided by PPI refunds, along with generally less stringent lending requirements, helped to paper over the cracks that opened up as a result of a decade of persistently stagnant wage increases, but these avenues look to be closing themselves off. People are having to spend more of their income on housing and transport, leaving less left over for savings and making budgets more vulnerable to shocks,” he said.
Much of the increase in personal insolvencies was driven by a dramatic rise in the number of individual voluntary arrangements in the last quarter, a form of financial settlement that lasts five years, which increased by 60.5% from the third quarter of 2018.
The Money Advice Trust said the rise in IVAs was a major concern after it detected an increase in the number of adverts proposing IVAs as a route out of debt.
“Our concern is that many people in debt are being led down a route that may not be suitable for their circumstances. The prevalence of online adverts that promote ‘solutions’ to debt involving insolvency procedures may well be a contributing factor to this,” it said.
