A short-term reduction in personal insolvency levels?

05 January 2022

Personal insolvency levels in England and Wales fell for the first time in five years in 2020, according to research from the Insolvency Service.  

The figures from the Service’s annual Individual insolvencies by Location, Age and Gender 2020 report, which was published at the end of September, showed that the rate of personal insolvency per 10,000 adults in England and Wales fell to 23.7 in 2020 – a decrease of 2.4 per 10,000 from 2019.

Existing statistics from the Insolvency Service have shown that total levels of personal insolvency fell in 2020, but these new figures help to shed more light on how personal insolvency has affected different parts of the country and different people.

In this blog, we provide a breakdown and analysis of the figures – and a look at what’s driving the downward trend…

A north-south divide

Despite the pandemic, there were no significant changes to the geographical distribution of insolvency rates between 2019 and 2020. However, there were significant disparities in personal insolvency rates between regions – most notably between the north and south.

The North East of England has been the region with the highest rate of insolvency each year since 2008. This trend continued in 2020 and, for the fifth year in a row, it had the highest rate of Debt Relief Orders (DROs), as well as the highest rate of IVAs.

These figures highly contrast with those from London, which continued to have the lowest rate of insolvency per 10,000 adults in 2020 and has been the region with the lowest rate of insolvency since the series began in 2000.

London was the only region to see an increase in insolvency rate (0.3) compared to 2019, mainly driven by an increase in Individual Voluntary Arrangements (IVAs), yet still managed to have the lowest rate of IVAs, as well as bankruptcies and DROs – with DRO numbers less than half the overall rate for England and Wales.

This regional contrast is also reflected in the gender balance, where overall the gender gap was larger in the northern regions of England and Wales than in the south. For example, the North East showed the largest gap (a difference of 5.0 insolvencies per 10,000 adults) whilst London had the smallest (0.7).

Costal towns hit hard

The local authorities with the highest rates of individual insolvency were spread across England and Wales, but were mainly in coastal areas.

Three of the five local authorities with the highest bankruptcy rate were in Devon, and the local authority with the largest increase in IVA rate was North Devon which had a rate increase of 5.5 per 10,000 adults.

The South West also had the highest rate of bankruptcies in 2020 for the second year in a row, at 3.4 per 10,000 adults.

The gender gap persists and age gap widens

Overall, the insolvency rate amongst women (24.8 per 10,000) was higher than for men (22.4 per 10,000) for the seventh successive year.

There are stark differences in how personal insolvency manifests between the genders, as DROs accounted for 22% of insolvencies amongst women and 14% amongst men.

The picture was reversed for bankruptcies, where 9% of insolvencies among women were bankruptcies and 14% of insolvencies amongst men were bankruptcies. Men aged between 25 and 34 were 20% more likely to become bankrupt than women in the same age group – something which can also be seen between age groups, as the proportion of IVAs was higher among younger adults, whereas the proportion of bankruptcies was higher in older adults.

Insolvency rates decreased for all age groups except for those aged 18 to 24 compared to 2019. Rates were highest for 25 to 44 year olds and lowest for those aged 65+, reflecting the long-term trend that insolvency rates for younger adults are increasing, yet decreasing for older adults.

Support measures skewing the results?

The key driver of the year-on-year decline in personal insolvencies is likely to be the Government financial support measures which were introduced as a result of the Coronavirus pandemic.

Coupled with private sector measures that included mortgage holidays and deferred credit card payments, initiatives like the furlough scheme provided valuable safety nets for individuals whose jobs and finances have been affected as a result of the pandemic.

However, with these having largely come to an end and energy prices and inflation rising, there’s a chance people’s finances may be affected and personal insolvency rates may rise again in the not too distant future.  

Act on the signs

Our message for anyone who is worried about their debts or their personal finances is simple: seek advice from a qualified source – and do it as soon as possible. The earlier you seek advice, the more options you have open to you and the more time you have to make a considered decision about your next steps.

R3 has produced a free guide that outlines the full range of personal insolvency options for people in financial distress. To download a copy, click here.