Q3 2017 insolvency statistics – R3 comments
Commenting on the Q3 2017 England & Wales insolvency statistics (published this morning by the Insolvency Service), Eleanor Temple, chair of R3 in Yorkshire and barrister at Kings Chambers in Leeds, says:
• Underlying corporate insolvencies rose 15% from Q2 to Q3 2017 and are 15% higher than this time last year (in Q2 1,131 connected personal service companies entered liquidation as a result of tax changes – these distorted the statistics and the above stats and below comments refer to the insolvency statistics with these insolvencies removed).
“Corporate insolvency numbers have bounced around over the last couple of quarters as a result of the impact of tax quirks and timely economic boosts, including summer’s surprise drop in inflation. This quarter’s rise in underlying insolvencies, however, moves things back towards the trend of growing insolvency numbers we’ve had since the middle of 2016.
“The prolonged fall in insolvencies we saw between 2010 and 2016 appears to have begun to change direction.
“Businesses have faced a number of fresh challenges over the last year. Increasing input costs caused by post-referendum inflation increases and a weaker pound, a rising national living wage, the added costs of pensions auto-enrolment, and, for some businesses, rising business rates will have hurt bottom lines.
“Some of these added costs will have been passed onto customers, but reliance on consumer confidence isn’t necessarily a recipe for long-term financial health. Consumers’ ability to absorb price rises is limited, and with spending fuelled by consumer debt, potentially unsustainable.
“An interest rate rise is just around the corner, too. Although it may be a small one, it may be too big for those businesses and their customers already on the edge.
“R3’s own statistics on the growth and distress levels reported by businesses show the numbers of businesses with signs of growth have fallen from recent record highs, while the numbers of businesses with signs of distress are increasing from recent record lows.”
• Personal insolvencies rose 11% from Q2 to Q3 2017 and are 8% higher than this time last year.
“Falling real wages and exhausted credit limits may have helped to push personal insolvencies up again. Aside from a couple of dips, notably in the previous quarter, there has been a pretty consistent upward trend in insolvencies since the middle of 2015.
“Some people have trouble paying for basics, like food or housing, let alone paying for luxuries. R3’s long-running survey of personal debt levels typically finds around two-in-five people saying they often or sometimes struggle to make it to payday.
“It’s important, however, to approach the personal insolvency statistics with a touch of caution. Individual Voluntary Arrangements, which are often used to help resolve problem consumer debts, may be at a record high, but rises and falls in these numbers can be linked to changes in the market and access to IVAs rather than individual indebtedness. Not all of the increase can be put down to this, but it is something to bear in mind.
“Other procedures, like Debt Relief Orders, which are available to those with low levels of debt but low incomes and low levels of assets, have increased slightly. Bankruptcy numbers, already close to record lows, are stable.
“It’s important to remember that the official insolvency statistics don’t tell the full story of how many people are struggling to repay their debts. Access to statutory debt solutions can be just as important a factor in driving the numbers up or down as improving or worsening finances.
“There may be thousands of people in non-statutory debt management plans, for example, sometimes because they can’t access a statutory solution which might be more appropriate to their situation. These plans are regulated by the Financial Conduct Authority but there is no information available about the extent of their use.
“The most important thing for people in serious financial difficulty is to seek professional, independent advice to make sure they end up in a debt solution that is right for their particular situation. Government plans, announced earlier this week, to introduce a six-week ‘breathing space’ from creditor pressure will make it easier for people to get this advice and choose the right way to resolve their debts.