Number of personal insolvencies

Between 2016-17 and 2019-20 inclusive, the total number of personal insolvencies increased year-on-year. In June 2016, the announcement that the United Kingdom would leave the European Union instilled prevalent political and economic uncertainty into the UK market. Higher inflation, pressured wages and deceleration in production output across the UK economy, as a direct result of the UK economy's response to its impending withdrawal from the EU bloc, placed personal finances under pressure. Meanwhile, operational uncertainty in the business sector contributed to the slowdown in wage growth, while firms with bleak profit forecasts accelerated severance programmes amid cost pressure. According to independent UK insolvency specialist Begbies Traynor, some 484,000 UK businesses were in "significant financial distress" in the three months through March 2019, the equivalent of 16% of all UK businesses; relative to the labour market, employees grew uncertain with regards to their income. Moreover, while the official bank rate remained low against historical standards, meaning that debt repayments relative to what has been borrowed was limited, the lower cost of borrowing facilitated consumer spend, cutting into personal finances - the BoE MPC lifted the official bank rate from a then record-low 0.25% to 0.5% in August 2016, subsequently inflated it to 0.75% in August 2018, opting to hold it at this level until March 2020. In particular, credit card spending and car finance deals left many of the adult working population vulnerable to insolvency if, in the event of financial sector and economic downturn, market conditions deteriorated.

Towards the tail-end of 2019-20, the threat of personal insolvency was heightened by an economic shock caused by the COVID-19 (coronavirus) pandemic and resultant market disruption. Notwithstanding the prevalent health risk associated with coronavirus, the pandemic's effect on the wider economy (e.g., stock market downturn, currency market sell offs, depleted business activity, supply chain disruption, lacklustre consumer market conditions) was marked and ultimately induced financial pressures among businesses and consumers alike, threatening many with insolvency pressures. However, the government and associated organisation introduced a number of stimulatory and supportive measures to buoy businesses and help society weather the storm - these measures included: the BoE MPC imposing emergency cuts to the official bank rate, dropping it to 0.25% on 11 March and dropping it again to a record low 0.1% on 19 March; a number of temporary coronavirus support schemes (e.g., Coronavirus Job Retention Scheme (CJRS), Self-employment Income Support Scheme, Coronavirus Business Interruption Loan Scheme); and policy changes (e.g., tax payment deferral, wrongful trading insolvency law suspension). Accordingly, the number of personal insolvencies did increase in 2019-20 - by 0.7% year-on-year - albeit the rate of increase was diluted by financial support measures which effectively protected personal finances from significant deterioration towards the tail-end of the fiscal year.

Despite government support continuing for businesses, for workers furloughed by their employers, and for the self-employed, the United Kingdom inevitably suffered job losses via redundancy. Business activity was severely hit, cash balances dried up, balance sheets cracked and, in turn, many firms felt leverage of support measures had not been enough to safeguard finances, opting to trim the workforce to slash operational costs. According to the Department for Work and Pensions, some 950,000 people had successfully applied for universal credit (i.e., a payment to help with living costs) between 16 March and 1 April - over a normal two-week period, circa 100,000 claims would be expected - and if every claim for universal credit represented someone made redundant, the unemployment rate would have risen to 6.7%, compared with 3.9% at the start of 2020. However, while many businesses had engaged in job shedding, those which used government support measures contributed to an overall decline in personal insolvencies in 2020-21, falling by 11.2% on an annual basis. According to the Insolvency Service, the reduction in personal insolvencies is "likely to be at least partly driven by Government measures in place in response to the coronavirus pandemic, including reduced operational running of the courts and HM Revenue and Customs enforcement activity", going on to propose payment holidays, furloughing and other financial support measures acted as a safety net. That is, furloughing ensured a number of people remained in employment, even if they were not working during the furlough period, which contributed to the reduction in insolvency levels. Nevertheless, diluting the decline and suggesting an impending wave of insolvencies, Begbies Traynor proposed that many have been ""kept on artificial life support" in the form of temporary supportive measures. For instance, the CJRS is being phased out and ceasing on 30 September 2021, whereby the absence of payroll support and, in turn, support for personal finances beyond the CJRS' expiry date, induced some cashflow issues in the business sector.

However, while the number of UK personal insolvencies did subsequently creep up over 2021-22, the rate of annual growth (+2.9%) was lower than initially expected, in particular considering much temporary stimulus support had been phased out. As the UK economy reopened post-lockdown, market activity resumed in earnest. Despite businesses still being challenged by severe supply chain disruption and ongoing operational difficulties, a revival in domestic demand, in addition to the release of pent-up demand, effectively forced businesses to embark on a recruitment drive – since peaking in Q4 2020 (5.2%), the UK unemployment rate subsequently declined for five consecutive quarters, falling to a 50-year low as of Q1 2022 (3.7%). As furloughed staff returned to work and as more people joined the workforce amid accelerated efforts to recruit post-pandemic, more income and less pressure on personal finances in H1 2021-22 helped to limit growth in the volume of IVAs DROs and bankruptcies filed by individuals – industry professionals have also pointed to delays in formal insolvency order processes have also limited growth in IVAs, DROs and bankruptcies, disguising the true image of personal insolvencies across the United Kingdom. Yet, in H2 2021-22 and heading into 2022-23, there is reason to believe UK personal insolvency volumes will gain momentum – increasing by 2.3% in 2022-23. Pressure on personal finances has increased, with significant hikes in National Insurance contributions and energy costs in particular, conversely causing a decline in real wages. Should inflationary pressures ensue through the fiscal year – the 12-month consumer price index measure of inflation stood at 9.6% in October 2022 – and should the recessionary period weigh heavy, insolvencies are expected to increase.