As income growth slows and household expenditures start to reflect the increase in essential living costs during 2017, more and more families will start to feel the stresses and pressures that debt brings.
The threat of a new squeeze on living standards is the focus of a new report by research think tank The Resolution Foundation. The report uses the ‘average real household disposable income’ as key measure of living standards. In 2014/15 this income growth was 3.4% whereas 2 years on this growth is estimated to be just 1.2%. With rising inflation and slowing employment this figure is predicted to drop to 0.3% a year over the next four years, for the typical working age household.
This is not great news for families that are already struggling across the UK in particular new, young and often single parents who have been identified as a group that struggle the most. Commenting on the insolvency statistics in 2016, information services group Experian identified younger families as facing the most financial hardship, stating “These families have difficulty accessing and managing credit, often relying on high-cost borrowing and unofficial doorstep lenders.” Research from Experian’s also found that these families tend to be based in parts of major English cities such as Nottingham, Sheffield, Manchester, Liverpool and in the Teesside area.
In 2016 IVAs (Individual Voluntary Arrangements) were the most common insolvency process, making up 55 percent of all insolvencies in the UK. The rest of insolvencies were near enough evenly split between debt relief orders and bankruptcy in line with a similar trend for the same period last year. If the growth figures predicted by the Resolution Foundation are correct and essential living costs continue to rise, then IVAs as the leading insolvency solution will inevitably continue to rise.
Jonathan Westley, managing director of Experian consumer information service, said: “Our analysis shows that young parents in particular are finding their finances are being stretched to the point they need to file for insolvency. “It is vital lenders and service providers gain a full understanding of a person’s financial situation so they can make affordable lending decisions for the long term.”
Whilst inflation is a driver in concerns over living standards for hard hit families, changes in tax and spending plans, supporting people into work and a careful handling of Brexit negotiations are all areas where the government could control the numbers of people who need to take on formal insolvency solutions in future.