"The reality of Brexit is beginning to bite." That was how one debt expert summed up official figures showing a huge spike in personal insolvencies over the final three months of 2018.
In the three months from October to December, some 34,100 individuals in England and Wales went bust – a 35 per cent increase on the same period in 2017. That took the total number of individuals falling into insolvency for the year as a whole to more than 115,000, the highest level in seven years and the third year-on-year increase.
The alarming trend revealed in the figures from the government's insolvency service underlines the fragility of household finances as Brexit uncertainty takes its toll.
A breakdown of the data shows individual voluntary arrangements (IVAs) – a legally-binding agreement with creditors to repay debts over a set period of time – reached their highest-ever level, jumping by 20 per cent over the year.
That compares with an increase of around 16 per cent in overall insolvencies last year, including bankruptcies and debt-relief orders.
Bankruptcies are the most serious form of insolvency, involving the appointment of an official receiver to sell off assets such as a house or car to repay creditors.
IVAs are a less drastic option, offering protection for an individual’s main assets, such as their home. However, an IVA is still insolvency, with all that entails, and debt charities fear that increasing numbers of those in financial difficulties are being lured into them by some less than scrupulous “debt solution” firms in pursuit of fees; the same sort of firms that charge huge percentages to handle the simplest of payment protection insurance (PPI) claims.
Of those individuals who went insolvent last year, almost two-thirds used an IVA. But repayment terms can be punishing and lengthy, and if the debt schedule is not adhered to can force the debtor into full bankruptcy anyway.
Household indebtedness
Given the current high level of household indebtedness it wouldn't take much to send thousands more over the edge, according to Brian Johnson, insolvency partner at accountants HW Fisher. He fears that any increase in short-term interest rates would send insolvency numbers "through the roof".
Tighter lending criteria imposed by the banks are likely to be one factor pushing more Britons into financial distress, as well a tailing-off in the flood of PPI compensation money.
PPI payouts from the banks for the mis-selling scandal have proved a bonanza for millions of households, with more than £30 billion paid out over the past decade or so. While some of this has been used for fancy holidays or other fripperies, a good portion of the cash has gone to shore up stretched household budgets.
As Stuart Frith, head of the insolvency and trade body R3 puts it, the "helicopter money" provided by PPI refunds, together with less stringent lending requirements, has helped "paper over the cracks that opened up as a result of a decade of persistently stagnant wage increases".
Frith cites some deeply alarming recent research that found one in five British adults would find it “somewhat difficult, very difficult or impossible” to immediately pay an unexpected bill of just £20 without help.
The increase in corporate failures last year was not as dramatic as the surge in personal insolvencies, but at just over 16,000 was the highest level since 2014.
Retailing and construction companies bore the brunt – hardly surprising given the collapse of Carillion and the knock-on effect on its suppliers at the start of 2018, together with the steady stream of retail failures throughout the year, from Toys R Us to House of Fraser, Maplin, Evans Cycles, Poundworld and HMV.
Casualties
As with personal insolvencies, the outlook is grim, particularly in the battered retail sector, where casualties continue to mount. It’s already been a brutal week in retail, with news that 9,000 jobs are at risk at Tesco as it axes fresh food counters at about 90 of its stores.
Chief executive "Drastic" Dave Lewis is also swinging the axe at head office as he pursues his plan to slash £1.5 billion from the group's cost base.
It has also emerged that the off-licence chain Oddbins is preparing to appoint administrators, putting more than 500 jobs on the line. Oddbins’ owner blames tough trading and Brexit uncertainty for its plight. It will be the second time in seven years that Oddbins, which has 45 branches, has collapsed into administration.
Scores more retailers are destined to share its fate in what promises to be another grim year for the retail sector, whatever way the Brexit debacle unfolds.
Fiona Walsh is business editor of theguardian.com
