Evidence that many Britons have borrowed beyond their means grew yesterday with news of a record number of individual insolvencies and a huge increase in court orders for repossession of homes in 2005's fourth quarter.
The number of insolvencies among people in England and Wales unable to pay their debts surged 57.1 per cent on a year earlier to a seasonally adjusted 20,461, the government said.
That was the highest quarterly total since comparable records began in 1960.
Other government figures showed the number of mortgage repossession orders made in the fourth quarter in England and Wales surged 58 per cent on the year.
A total of 18,784 orders were made in the three months to December, although 51 per cent were suspended orders.
"(The) overall picture is clearly still one of a sharp deterioration in UK consumer health," said John Butler, UK economist at HSBC.
"With economic growth likely to remain below trend in the near term at least and unemployment set to continue rising, there is a very real danger that individual insolvencies and mortgage repossessions will climb markedly further over the coming months," said Howard Archer, economist at Global Insight.
Borrowing costs at generational lows and booming house prices in recent years encouraged British households to rack up more than a trillion pounds of debt. But a series of interest rate hikes from the Bank of England between November 2003 and August 2004 and a property market slowdown have stretched already tight household budgets.
Last August's quarter-point rate cut to 4.5 per cent seems to have done little to alleviate the burden.
Bankruptcy experts blame easily available credit, a lack of education from the government on the need to save, changes to bankruptcy rules and a culture of indulgence spending, where people expect to get what they want immediately.
"Credit is ridiculously easy to get hold of," said Louise Brittain, personal insolvency head at accountants Baker Tilly. "We see bankruptcies with people who have 20 to 30 credit cards."
Accounting firm KPMG said since 2000 more than one in every hundred households in England and Wales have been directly affected by personal insolvency.
Economists and bankruptcy experts agree things will only get worse but BoE policymakers have so far said the huge rise in bankruptcies is primarily a social problem and not economic.
"Since Christmas we have seen a dramatic increase in the number of people calling debt help lines which demonstrates the continued build up of over indebtedness," Steve Treharne, Head of Personal Insolvency, at KPMG.
The group predicted there will be 100,000 personal insolvencies this year after 67,580 in 2005.
Baker Tilly's Brittain also noted that January was typically the worst month for personal insolvencies as people crumble under debts made worse by Christmas spending spree.
But there was some improvement in companies' situation in the last few months of 2005. The government figures showed company liquidations fell 5.5 per cent on the quarter but were still up 8.5 per cent on a year earlier to 3,187.
But for 2005 as a whole, 2,257 companies in England and Wales hired administrators, an increase of 41 per cent from 2004.