47,000 fall into bankruptcy

Almost 50,000 people were forced into bankruptcy last year as successive rises in interest rates added to debt burdens and pushed insolvency numbers to a record high.

Figures from the Department of Trade and Industry showed personal insolvencies jumped to 13,013 in England and Wales in the final quarter of last year, up 8% from the third quarter and 34.6% up from the same three months a year earlier.

For 2004 as a whole, the number was 46,651, up 30% on 2003's figure of around 36,000, which was the same as the previous peak during the recession of the early 90s.

"Personal insolvency levels have gone through the roof," said Mike Gerrard, a personal insolvency expert at accountants Grant Thornton.

"Over the past 10 years more than 300,000 people have entered personal insolvency - that's more than the population of Coventry."

Last year, personal debt levels in Britain broke through the £1 trillion level for the first time, just as the Bank of England was attempting to cool the economy by raising interest rates by a third to 4.75%.

"The interest rate rises were the straw that has broken the camel's back for some people," said Dan Levene, spokesman for the Citizens Advice Bureau.

He said debt problems had become the biggest single problem the CAB was dealing with.

"The number of people coming to see us about debt is rising fast and was 1.1 million people in our 2003-04 year."

He stressed that the CAB was not against credit, but was concerned that it was too easy for people to get more credit than they would ever be capable of paying back, and that was leading to debt problems.

"There needs to be more responsibility from lenders," he added.

Mr Gerrard said that 10 years ago most personal bankruptcies were self-employed people whose business had failed. Now they were over-burdened consumers with large amounts of unsecured credit and loan debt, typically in excess of £50,000.

PricewaterhouseCoopers warned that insolvencies were likely to carry on rising through 2005 and that the stagnation of the housing market would make it more difficult for people to raise money against their houses.

"Many consumers have been on a spending binge over the last few years and, while the party may be coming to an end, for some the hangover is likely to be drawn out and painful," said Charles Turner, director in PwC's business recovery practice.

"Despite consumer spending showing signs off tailing off over the Christmas period, there is still a huge amount of personal debt in the system, and personal insolvencies could well reach 50,000 new cases in 2005."

Figures show Britons owe a total of £56bn on their credit cards, almost equivalent to the entire spending of the NHS each year.

Experts added, however, that some of the increase in personal insolvencies may be due to the introduction of the Enterprise Act last year, which made it easier for people to declare themselves bankrupt. The trend in bankruptcies has been upwards for the past three years, however.

The DTI figures also showed that the number of businesses going bust last year, by contrast, fell to 2,938 in the fourth quarter, a drop of 11% on a year earlier.