The last few years have seen total annual levels of personal insolvencies increase by 10,000 each year from 2015 to 2018. We expect to see a smaller rate of increase in 2019. The headline figures do though hide a number of underlying trends.
The last few years should have seen these numbers plummet – the economy has grown (albeit slowly), unemployment is at near record levels, interest rates have stayed low and the national minimum and living wage changes have benefited many of the lowest paid.
However, lending has continued to climb towards the record levels we saw before the credit crunch and the market for consumer insolvency solutions has changed, seeing informal debt management plans replaced by more formal IVAs as a result of FCA driven scrutiny. New lenders to small businesses are more likely to seek the personal guarantees of the directors / owners of business than the high street lenders did a decade ago.
IVAs now total around 65,000 pa – compared to only 40,000 in 2015. That reflects the impact of market changes on consumer based IVAs rather than a change in the economically driven need for personal insolvencies as a small business solution.
In 2019 much will depend on Brexit and the overall performance of the economy. If current trends persist we will see a gradual increase in consumer related personal insolvencies and a slow but steady increase in business related cases. Overall the numbers will not dramatically increase, they may reach to 110,000 – which is considerably short of the record annual rate of 135,000 – but way up on the low of 80,000 seen in 2015.
However, we expect to see an increase in the cases affecting our clients – small business owners and the lenders who fund them. If the two sides of personal insolvencies were separated, we would still see an increase in both – but the real solutions are to be found in the business-related end of the spectrum. If that can be dealt with correctly, entrepreneurs will be rehabilitated so they can help to grow the economy and lender can see a fair but realistic best return on their investment encouraging them to continue to back small businesses in the UK.
