Connected Research

Union policy research in the 21st century

Personal bankruptcies on the rise

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Today’s Datablog in The Guardian picks up on last Friday’s quarterly report by the Insolvency Service publishing the numbers of corporate and individual insolvencies for the fourth quarter of 2009.

Some one in 320 individuals in England and Wales declared bankruptcy last year, a rise of around one-quarter on the 2008 figures, and the figures are higher than at any point in the years since records began in 1960. There were around 6,000 corporate liquidations and insolvencies. The latter group of figures is clearly linked to the recession (and corporate bankruptcies for Q4 2009 show a sharp drop on the picture one year ago) but, as the historic trends indicate, the figures for individual insolvencies have been rising for some years. In fact, the figures started to take off around 2003/04, substantially before the recession, rising particularly sharply in the first half of 2006, before actually falling through 2007 (and then resuming an upwards trend during 2008/09). The link to economic activity is, in the case of individual insolvencies, thus much more difficult to sustain and the current figures are clearly not an accurate bellwether for the state of the economy.

Behind every insolvency lies a personal tragedy – and, despite the slope of the rise, the relatively low numbers of individuals having to declare bankruptcy do give a lie to the apoplexy which the publication of the figures was greeted from some of the usual suspects. The reasons why insolvencies have risen so sharply remain difficult to fathom. Easy access to credit may be one factor – but this has been case for years and did not, during the 1980s, 1990s and the early part of the noughties, give rise to such figures, although the biggest year-on-year rise in the figures did come in 1991, when the UK was previously in recession.

The long-term decline in the share of national income taken by wages, which fell by two percentage points to 53.2% between 2001 and 2008, is likely to account for a fair part of the rise, leaving people increasingly stretched on incomes which have either stalled or not risen as fast as hoped. This therefore represents something of a double whammy, since a rising share of income taken by non-wage sources also helps to account for the speculative bubbles which caused the recession. Even so, the share of national income taken by wages is still above its record low, in 1996 – though economic growth might then have masked any effects of this at the individual level.

Whatever the factors which explain the rising tide of individual insolvencies, policy solutions which attack wages directly and which threaten the employment prospects of people in work are clearly going to exacerbate the problem still further.

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Written by Calvin

08/02/2010 at 5:39 pm

Posted in Economic trends, Politics

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