Debt Management

DM 01A

Further written evidence submitted by the Department for Business,

Innovation and Skills

Further to the informal briefing for Members of the Select Committee on the 8 November, I agreed to write with the additional information requested by the Committee.

The Committee asked for information on household debt levels. Below are the latest figures available to BIS on the level and composition of household debt.

Household debt [1]

· Total household debt in September 2011 – £1.45 trillion

· Total secured debt (mortgages etc) in September 2011 – £1. 24 trillion (85%)

· Total unsecured debt (credit cards etc) in September 2011 – £209 billion (15%)

Breakdown of unsecured consumer debt [2]

· Personal loans –around £130 billion

· Credit cards – around £55 billion

· Overdrafts – around £10 billion

· Retail finance including store cards – around £10 billion

· High cost credit – 2% around £7-8 billion

Other stats [3]

· Average household debt in the UK is ~ £55,795 (including mortgages).

· Average owed by every UK adult is ~ £29,532 (including mortgages).

· Average consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to £4,247 per average UK adult at the end of September 2011.

· The Office for Budget Responsibility (OBR) predicts that household debt will be £2.13 trn by the end of 2015. This would take the average household debt to £81,769 per household (if the figure is based on the current estimate for the number of UK households .

In addition the Committee asked for a breakdown of the use of high cost credit type products [4] :

· Home collected credit - £4bn typical APR 3-400%

· Payday loans - £1-2bn (Approx) typical APR 2500%

· Pawnbroking - £1-2bn (Approx) typical APR 100%

· Bills of sale lending (Logbook loans) – £30-£40m typical APR 4-500%

BIS does not hold figures on the number of payday loans applied for each year, but research for Consumer Focus in 2009 [5] estimated that there were 4.1 million successful applications for payday loans resulting in total lending of £1.2 billion.

On the levels of illegal lending in the economy, there is no data to suggest that this is increasing.

The Committee also asked for information relating to Personal Insolvency and Debt Management. Please see the attached annex, which sets out profiling information about debt relief orders (DROs), bankruptcies and individual voluntary arrangements (IVAs) that we have available.

In addition, the Committee asked for information about the level of assets and liabilities in each formal procedure. With regard to DROs, the entry criteria are set so that a person is only eligible for a DRO if (a) their debts do not exceed £15,000, (b) their assets do not exceed £300 in value (certain assets do not count, for example clothing, furniture and a vehicle worth less than £1,000), and (c) their surplus income does not exceed £50 a month after paying essential personal and household spending. With regard to both bankruptcies and IVAs, the range of both assets and debts will vary and are not recorded centrally. However, in individual cases the creditors will be aware of the situation from reports submitted by the Trustee in bankruptcy (who could be the official receiver based within the Insolvency Service, or an insolvency practitioner appointed to act as trustee by the creditors) and the Supervisor in an IVA.

I hope that the Committee will find this additional information useful,

1 Annex: Personal insolvency profile

 

1.1 Debt Relief Orders (DROs)

In 2009 women accounted for 63% of DROs. The 25-34 age group contained the highest proportion of DROs (25%), as shown in Table 3 below. The over 65 age groups accounted for the lowest proportion of DROs (6%).

Table 3: DROs by age group, 2009

	Total	Proportion of bankrupts
Under 25	1,406	12%
25-34	2,941	25%
35-44	2,730	23%
45-54	2,451	21%
55-64	1,571	13%
65+	708	6%

1.2 Bankruptcy

In 2009, as shown in Figure 1 below, women accounted for 40% of bankruptcies. This proportion has increased generally from 29% in 2000.

Figure 1: Bankruptcy and gender

In 2009 the 35-44 age group contained the highest proportion of bankruptcies (33%), as shown in Table 1 below. The under 25 and over 65 age groups contained the lowest proportion of bankrupts (both 4%).

Table 1: Bankruptcies by age group, 2009

	Total	Proportion of bankrupts
Under 25	2,735	4%
25-34	18,407	25%
35-44	24,167	33%
45-54	16,993	23%
55-64	8,208	11%
65+	2,810	4%
Unknown	988

As shown below in Figure 2, the proportion of bankruptcies accounted for by sole-traders generally declined from 44% at the start of 2001, to 12% in Q3 2010. In recent quarters, however, the proportion has picked-up, to 20% in Q2 2011.

Figure 2: Sole trader bankruptcies

NB: sole-trader bankrupts may also have liabilities that are unrelated to their business.

1.3
Individual Voluntary Arrangements (IVAs)

In 2009, as shown in Figure 3, women accounted for 45% of IVAs. This proportion has increased generally from 34% in 2000.

Figure 3: IVAs and gender

In 2009 the 35-44 age group contained the highest proportion of IVAs (35%), as shown in Table 2 below. The under 25 and over 65 age groups accounted for the lowest proportion of IVAs (both 3%).

Table 2: IVAs by age group, 2009

	Total	Proportion of IVAs
Under 25	1,553	3%
25-34	12,642	27%
35-44	16,222	35%
45-54	10,426	23%
55-64	3,974	9%
65+	1,188	3%
Unknown	1,553

Kirstin Green

Deputy Director, Consumer Empowerment

22 November 2011