The number of people on strict debt repayment plans has reached an all-time high, fuelling concerns about the impact on British households if the Bank of England hikes interest rates.
Official figures showed 25,479 people went insolvent across England and Wales in the third quarter, a 10.6% rise on the three months before and 7.7% climb compared to 2016.
The move was underpinned by a record jump in individual voluntary arrangements (IVAs) – an agreement made for a person to pay all or part of their debts to creditors.
The amount of people going through an IVA picked up by 18.3% to 15,523 in contrast to the previous three months, hitting the highest quarterly level since 1987, according to the Insolvency Service.
Households have been grappling with a slide in their spending power, with inflation reaching a five-year high in September as wage growth continues to struggle.
Liberal Democrat leader Sir Vince Cable said personal debt and insolvencies will only get worse if the Bank decides to increase rates next week from record lows of 0.25%.
He said: “These worrying figures demonstrate the unsustainable situation we find ourselves in, with personal debt growing many times faster than the wider economy.
“Pay packets are falling behind rising prices, leading to increased borrowing.
“Now growing numbers of people are simply unable to pay back that debt, with all the financial and psychological difficulty that entails.
“If the Bank of England does indeed raise interest rates as expected, this will only exacerbate the problem.
“This underlines the need for the government to urgently implement proposals for a breathing space to help those in serious debt.”
The latest figures mean one in every 477 adults became insolvent over the past 12 months.
Focusing on businesses, 4,152 companies went into insolvency during the third quarter, a fall of 12.5% in contrast to the quarter before.
The tail-off follows a “one-off” event between April and June, which saw 1,131 personal service companies (PSCs) enter creditors’ voluntary liquidation (CVL) following changes to claimable expense rules.
The number of administrations also went down quarter-on-quarter, dropping 1.1% to 320.
Ben Woolrych, partner at FRP Advisory, the business advisory firm, said: “A quarterly decline in company administrations indicates that the overall economy is holding up.
“A bellwether warning of waning confidence in the outlook for the country’s army of small businesses, however, comes from the sharp rise in underlying quarterly creditors’ voluntary liquidations (CVL) – up 21.2% year-on-year and 22.2% quarter-on-quarter.
“A rise of 500 more CVLs in Q3 2017 to nearly 4,000, suggests that some owners of small businesses are calling it a day and ‘cashing in their chips’ amid uncertainty over the longer term direction of economic growth and the UK pathway pre and post Brexit, with little clarity yet as to whether business owners are reinvesting.”