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Almost 28,000 Brits in personal insolvency amid cost of living crisis

A person holding an energy bill as insolvency rises
Personal insolvency: There were 27,927 individual insolvencies in the quarter to September. Photo: Press Association

Nearly 28,000 personal insolvencies were recorded in Britain over the last three months as inflationary pressures and the cost of living crisis took their toll.

According to the Insolvency Service on Friday, there were 27,927 individual insolvencies in the quarter to September, while it also saw an 18% rise in registrations from people seeking breathing space from debts.

This was a 5% fall compared to the previous quarter, but was 2% higher than the same period last year.

The formal personal insolvency total is made up of bankruptcies, debt relief orders (DROs), and individual voluntary arrangements (IVAs).

DROs are aimed at people with up to £30,000 of debt, and IVAs are agreements with creditors. Both were lower than the previous quarter, but bankruptcies were slightly higher, the Insolvency Service said.

Read more: Cost of living: Brits taking on debt at fastest pace in five years

It comes as inflation climbed to a 40-year-high of 10.1% in the year to September on the back of surging food prices.

It was the second time UK inflation rose above the 10% level, returning to double digits after a slight dip to 9.9% in August. City economists had forecast a slightly smaller rise to 10%.

“Although personal insolvency numbers have fallen compared to the last quarter due to a decline in IVA and DRO numbers, the figures are still higher than they were this time last year because of an increase in the number of people entering an IVA,” Christina Fitzgerald, resident of insolvency and restructuring trade body R3, said.

“This, coupled with the increase in bankruptcies between this and the last quarter, suggests that the cost of living crisis is starting to be reflected in personal insolvency numbers, as people turn to personal insolvency processes to help resolve their financial issues.

Watch: How does inflation affect interest rates?

“While unemployment is down, wages haven’t kept pace with inflation and more people are borrowing money as the pounds in their pockets don’t go as far as they did 12 months ago.”

Meanwhile, registered company insolvencies in England and Wales jumped by 40% to 5,595 year-on-year over the past quarter.

The Insolvency Service said the figures comprised 4,800 creditors’ voluntary liquidations (CVLs), 492 compulsory liquidations, 274 administrations and 29 company voluntary arrangements (CVAs).

Read more: NatWest clocks £1bn profit on rising interest rates and mortgage misery for millions

Compulsory liquidations climbed to their highest levels since the start of the COVID-19 pandemic, with experts warning that the number of companies entering insolvency processes could worsen in the coming months.

Nicola Banham, insolvency director at Azets, said: “This pressure will continue to build as companies face ever-increasing costs at a time of prolonged economic uncertainty.

“Alongside this, the cost of servicing debt is rising due to increasing interest rates, which are expected to continue to rise and further exacerbate matters.”

Watch: How to prevent getting into debt