Debt & Bankruptcy Issues in the UK

Despite the increasing affect of problems due to bad debts in the UK, the financial outlook for the major credit card companies is far from bleak. The big five lending companies reported a combined profit of £ 32 billion in the last financial period, mostly from investments outside the UK.

Barclays announced a record profit of £ 5.3 billion.

There was some evidence of the influence of bad debts affecting profits though, particularly in the UK. Barclays noted a 19% fall in profits at Barclaycard, its credit card arm. Barclaycard still made a profit of nearly £ 700 million, but at the same time saw the amount of money written off due to late payments or bad loans increase by 44% to £ 1.6 billion.

Barclays have responded by increasing charges for bounced cheques and overdraft penalties, as well as tightening up on its criteria for credit card lending. At the present time they are refusing one in two credit card borrowers.

Of particular interest are Barclay’s reaction to the issues surrounding bad debt. They’ve introduced a new term for the money they have to set aside for bad debt – the so-called “impairment charge”. Barclays reported that the growth in their impairment charge was partly due to large increases in utility bills putting pressure on UK consumers. They also cited recent changes to UK bankruptcy law, which have reduced the period people have to spend in bankruptcy to one year.

Specifically, Barclays said that the increase in their impairment charge was caused by bad debt and difficulties in recovering defaulted loans, rather than late payments.

Barclays expect further growth in the UK for 2006, though some analysts are questioning whether the increase in bad consumer debts and the rise in personal bankruptcies will feed into the business sector.

The Financial Services Authority, the UK’s financial watchdog, has launched its new debt advice website www.moneylaidbare.info. In their press release, the FSA present some fascinating statistics shedding light on how reluctant people in the UK are to discuss their financial problems.

With the juicy title “Sex, Lies and Money”, the FSA start the press release with the astonishing revelation that nearly three quarters of people find finances the most difficult of subjects to discuss with their partners.

A third felt more comfortable discussing sex or their ex-partners than their current account balance.

Other titbits worth a mention include

• 40% of couples lie to their partners about how much they
• spend on luxuries.
• 30% deceive their partners about their credit card borrowing.
• Women are more likely to lose sleep worrying about debt than men (40% versus 30%).

Unfortunately, the website itself, launched as part of a £ 1.5 million campaign to educate the British public on debt and other financial matters, is something of a disappointment.

There’s advice on debt issues, managing money, and a few explanations of financial jargon, but on the whole the content is somewhat shallow. We couldn’t find any information on bankruptcy or the new IVA (individual voluntary arrangement) for example.

The press release is well worth a read though!

http://www.fsa.gov.uk/pages/Library/Communication/PR/2006/010.shtml

It’s well known that UK students struggle with debt. Recent statistics show that the average student will owe over £ 10,000 by the time they graduate. Now it seems that debt help and advice is on hand in the form of “Money Doctors”, paid for by the FSA (Financial Services Authority).

A pilot project in 2005 helped more than 1,000 students from Roehampton University improve their budget skills and understanding of debt issues. The scheme is part of the FSA’s “Financial Capability Strategy”, an initiative to promote awareness of credit and debt issues in educational centres throughout the UK [1].

The plan is that by educating consumers (particularly children) on financial matters, they will be able to take better control of their finances, and be able to manage their debt more effectively.

The University scheme was considered to be a great success, with some students returning early from their holidays to take part in debt advice seminars. Now the FSA want to extend the scheme to the rest of the UK.

Further Reading:

[1] More details of the FSA’s Financial Capability Strategy are available from their web site: http://www.fsa.gov.uk/financial_capability/

We have to confess to being a little late with this story, but we’d like to wish people from the UK a belated, happy “Debt Freedom Day”!

The unofficial Debt Freedom Day is a metric used to indicate the date on which the average UK citizen would finish paying off interest on their credit card and loan debts, if they used all of their salary. The data are taken from analysis of Bank of England figures and other official sources.

According to IFA Promotions, on average, it would take a typical UK worker 35 days’ full pay to clear the £ 2,350 interest alone, owed on credit card and loan debts.

It seems that Debt Freedom Day has arrived a little earlier in the calendar each year since 2004, when IFA Promotions first calculated that it would fall on the 15th February.

This year, personal borrowing in the UK has decreased from £ 64 billion to £ 59 billion in the last 12 months as Britons try to rein in their borrowing. This has meant that Debt Freedom Day in 2006 has fallen somewhat early, on February 6th.


So perhaps it’s a little late to congratulate people in the UK, but as with most debt-related issues, we hope it’s a case of better late than never!

Welcome to our new “Bankruptcy and Debt Issues” blog. In this blog, we’ll be discussing issues of interest concerning credit and debt in the UK, such as

• Insolvency news and data.
• Bankruptcy statistics and trends.
• The IVA or individual voluntary arrangement – and alternative to bankruptcy for some.
• Any “hot” news topics in the UK about credit and loan companies.

We’ll be updating frequently, and hope you can drop by regularly, or add our “Bankruptcy & Debt Issues” RSS feed to your newsreader, or your Yahoo account.

We’d like to thank Accuma for allowing us to host this blog on their site, but would like to point out that the blog content contains comment and opinions not necessarily shared or endorsed by the Accuma Group.