Credit alert as more go bust

FEARS that Britain faces a debt time bomb increased today as new figures showed the number of people going bankrupt in the third quarter surged to its highest for more than a decade.

The Department of Trade and Industry said 9,094 people in England and Wales went bust in the July to September period - the biggest number since the first quarter of 1993. That was a 4.1% increase on the previous quarter and up 16.9% on the same period last year.

Experts are warning that households are borrowing as if there were no tomorrow. Lured by rock-bottom interest rates, thousands are saddling themselves with debts they cannot afford.

Latest Bank of England figures show consumers borrowed a record £10.7bn in September, taking the total consumer debt mountain to £906bn, equivalent to £36,000 for every household, or 130% of disposable income.

Laurence Baxter at the Consumers' Association said: 'Lots of people are becoming overly-dependent on debt. The Consumers' Association is trying to get lenders to be more responsible and improve transparency. Many people find themselves in credit agreements they simply don't understand.'

The Bank's monetary policy committee on Thursday raised interest rates by a quarter-point to 3.75% in a bid to curb some of consumers' appetite for borrowing.

Baxter said: 'It is a positive step but it's hard to say what impact a quarter-point increase is going to have.'

Vicky Redwood at Capital Economics said: 'The danger is that households have not given enough thought to the possibility of future rises in interest rates when taking on debt. This is therefore another warning for the monetary policy committee to tread carefully in raising interest rates over the coming months.'

A spokeswoman for the National Association of Citizens' Advice Bureaux said its debt enquiries now totalled more than a million a year, with two-thirds relating to consumer credit.

There was better news for the corporate sector, with the number of firms going bust falling by 11.2% to 3,398 in the third quarter against the previous one. The figure was 12.5% lower than the same period a year ago.

Nick Hood, at corporate recovery and insolvency practice Begbies Traynor, said of the figures: 'This reflects exactly what we've seen in London - one of the quietest summers we've ever had.'

He attributed the decline to low interest rates and a pick-up in the economy.

However, Malcolm Shierson at accountants Grant Thornton said the picture painted by the figures was too rosy. He said much of the fall could be pinned on compulsory liquidation of non-trading, shell companies. The number of actively trading companies going into administration, receivership or voluntary liquidation was relatively stable, he said.