Numbers game

Is there an acute debt problem in Britain? Yes, according to the headlines. In the third quarter of 2006 (July to September), 27,644 people were declared bankrupt or entered into Individual Voluntary Arrangements (IVAs), the halfway house between solvency and bankruptcy. This was an increase of 55 per cent on the same period in 2005. Data from the Council of Mortgage Lenders shows that in the first half of 2006, 8,140 properties were repossessed by the lender because of non-payment of the loans on them, a rise of 76 per cent on the same period last year.
But these lurid figures need to be put in context. In the depth of the recession of the early 1990s, 38,930 homes were taken into possession in the second half of 1991. The current level of repossessions is lower than at any time throughout the entire decade of the 1990s. And the total number of outstanding mortgages is 11,650,000, so 8,140 defaults is a drop in the ocean. The dramatic rise in IVAs is an unintended consequence of the government's attempts to encourage an entrepreneurial society. The Enterprise Act of 2002 made bankruptcy a much easier option for an individual, providing for the automatic discharge of almost all bankrupts after a maximum of 12 months. Instead of encouraging entrepreneurial activity, the act has merely led to people running up large credit card debts and then defaulting on them, advised by a whole raft of specialist companies set up to take advantage of the act. Between 1993 and 2002, the annual percentage growth in personal insolvency was only once in double figures, and in six of these years it was even negative. But in 2003 the growth was 17 per cent, in 2004 31 per cent and in 2005 45 per cent.