Demographic insight

While figures published today by the Insolvency Service* showed there were 11.3% fewer personal insolvencies in 2011 compared with 2010, Experian’s demographic analysis using its Mosaic classification shows that this decrease was experienced by some consumer groups more than others.
Experian’s analysis showed that the Suburban Mindsets group saw the biggest increase in their share of UK insolvencies in 2011, rising by a total of 56 basis points. This demographic, which includes mostly married or middle aged people, bringing up children in family houses accounted for 10.93 per cent of UK personal insolvencies in 2011, up from 10.37 per cent in 2010.

Young people saw the biggest improvement in their share of personal insolvencies in the last 12 months. The Liberal Opinions group, consisting of young, professional and well educated people experienced the biggest decrease in insolvencies, from 6.14 per cent of insolvencies in 2010 to just 5.40 per cent in 2011. Mosaic’s Upper Floor Living group, consisting of young people on limited incomes living in council accommodation, saw its share fall from 5.90 per cent in 2010 to 5.17 per cent in 2011.

Experian’s data reveals that the largest share of UK insolvencies continues to be in the Ex-Council Community group – typically those living on council estates where a large proportion of residents have exercised their right to buy. This group, which makes up 9.26 per cent of the UK adult population, accounted for a higher share of UK insolvencies in 2011 compared to 2010 with this demographic accounting for 14.54 per cent of insolvencies, an increase of 41 basis points.

Geographical analysis

Despite overall decreases in insolvencies across the UK, Experian’s analysis shows that some regions and towns continued to struggle.
Amongst UK towns, Birmingham saw the biggest increase in personal insolvencies rising by six per cent, with 30 in every 10,000 households experiencing insolvency in 2011, up from 29 in 2010. Middlesbrough and Stirling also experienced rising levels of personal insolvencies, up by five per cent and two per cent respectively.

Richmond in South London experienced the UK’s biggest drop of insolvencies in 2011 where just seven people in every 10,000 households became insolvent, 62 per cent less than last year. Overall London remained one of the least affected regions with four in every 10,000 households experiencing insolvency in 2011 compared to five in every 10,000 in 2010.

Simon Waller, for Experian UK & Ireland, commented: “Whilst it is encouraging to see that personal insolvencies are declining throughout the UK, there are still pockets of society where financial stress has increased in 2011. Redundancy and relationship breakdown are typically the main reasons for why people to experience serious financial difficulties.

Lenders that use data and analytics to better understand the specific circumstances of their individual customers are best placed to assess risk and to manage their customer relationships accordingly.”

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Headline statistics from the release include:

• £55,823 is the average household debt including mortgages, and £7,948 is the average household debt excluding mortgages
• £29,547 is the average amount owed by every UK adult (including mortgages)
• £171 million is the personal interest paid in UK daily
• 1,797 people are made redundant daily
• 857,000 people have been unemployed for more than 12 months
• 331 people are declared insolvent or bankrupt every day
• £15.68 million of loans are written-off every day by banks & building societies
•  Every 14 minutes 17 seconds a property is repossessed
• CAB deal with 8,652 new debt problems each working day
• £66.75 is the amount it costs to fill a car with a 50-litre tank with unleaded petrol
• 26.2 million is the number of plastic card purchases made every day, with a total value of £1.252 billion

Figures for the first three bullet points apply specifically to December, other figures are based on the latest available data – see the full Debt Statistics for more detail.

Whilst you would expect December to be a time of high consumer spending, the figures for December not only show a decrease in average household debt (excluding mortgages), but a significant acceleration in how much it fell by. In December 2011, the decline accelerated by 50% compared with the previous month, down to £7,948 from £7,972. The daily amount of interest paid on personal debt also decreased in December 2011 from £173 million to £171 million. Meanwhile, the number of people made redundant every day has risen. Between September and November, there were 1,797 redundancies every day, up 153 from 1,644 in the previous quarter.

Michelle Highman, CEO of Credit Action says: “Put in context these are striking figures with the decrease in average household debt not necessarily a cause for celebration. I suspect that these figures in fact represent an increased level of caution and concern in your average household, which impacted confidence in putting Christmas on credit last year. Whilst it is heartening that people did not overspend, the underlying reasons for not doing so may prove to be a real cause for concern in the coming year.”

The full Debt Statistics can be downloaded from the Credit Action website: http://www.creditaction.org.uk/helpful-resources/debt-statistics.html

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

Dan Jones, Partner in the Sports Business Group at Deloitte, commented: “After last year’s bout of big money transfers that drove the record total spend of £225m, January 2012 has seen a more sober level of spending amongst Premier League clubs.

“In the decade since the introduction of transfer windows, January has typically been a relatively quiet window with total spending driven by a few high value transfers, as was certainly the case with the chain of events on last year’s deadline day. The £60m spent in January 2012 is back to a similar level as the January windows in 2004 to 2007, and still ahead of the investment in players by top division clubs in other European leagues.”

Commenting on the downturn in transfer window activity, Dan Jones added: “As clubs are now in the reporting period that will count towards the first assessment for UEFA’s financial fair play break-even requirement, their comparative restraint is indicative of an overriding reflection on spending levels. The focus on football’s future financial sustainability is more prevalent in Europe than at any time in the past 20 years and, going forward we remain keen to see that translated into a better balance between revenue and expenditure.”

Some of the key findings from the analysis by Deloitte include:

• Premier League clubs have committed to around £60m in respect of player transfer fees in January 2012 (2011: £225m; 2010: £30m). A summary of the total player transfer fees for each of the ten January transfer windows (2003-12) are set out in the chart below.
• Premier League clubs concluded around £30m of transfer fees on deadline day. The equivalent deadline day figure in January 2011 was £135m, and for summer 2011 it was around £100m.
• The top spenders in this window were Chelsea, Queens Park Rangers and Newcastle, together contributing over half of the total spending. In January 2011, around 80% of the total spending of £225m was concentrated across just four clubs (Chelsea, Liverpool, Aston Villa and Manchester City).
• There were no single player acquisitions by a Premier League club for more than £15m in this January window, compared to six such transfers in January 2011.
• Spending with overseas clubs accounted for £30m (50%) of Premier League clubs’ gross transfer spending, followed by spending with Premier League clubs (£15m, 25%) and with Football League clubs (£15m, 25%).
• This year is the 10th January transfer window, with Premier League clubs accumulating around £925m of transfer spending in these 10 windows. Over the past decade, on average the transfer spending in January is equivalent to around one-fifth of total transfer spending in each year.
• Premier League clubs’ net transfer spend was around £25m (2011: £90m; 2010: £10m), being the net amount that flows to overseas clubs and Football League clubs.
• Over the past decade Premier League clubs’ January transfer spending has typically exceeded that in other European leagues. In January 2012 the top division clubs in each of France, Germany and Italy have reportedly had total transfer fees of around 80% of the level of Premier League clubs.

Looking ahead to the summer 2012 transfer window, Dan Jones commented: “Whilst it’s been a relatively sparse January, we can again expect an active summer window following Euro 2012. The global popularity of the English game helps drive continuing growth for Premier League clubs’ revenues, with transfer spending further supplemented from the pockets of some owners.”

When the Deloitte Football Money League is published in February, it will confirm the position of several Premier League clubs amongst the ‘Top 20’ highest revenue generators in the world.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

Last year the Trust made high court judgment information publically available in Northern Ireland for the first time, with historic cases available dating back to April 2008. This was added to the default and small claims information which was already provided.

Judgment information from the Trust is used as an indicator of creditworthiness by lenders and incorporated in the reports of credit reference agencies. Through the website trustonline.org.uk the information is made directly available to the public. In September the Trust more than halved the cost of searching the registers.

As a result, more people than ever before checked with past judgment records held by the Trust. A record 11,103 searches of the register for Northern Ireland were conducted last year. This total is 51.5 percent higher than the previous record of 7,331 searches set in 2010. The rapid growth of search requests – from just 920 searches in 2007 – is indicative of a dramatic upturn in interest in debt matters.

Registry Trust is the only public source of information about judgments against other people and businesses and is popular as a pre-transaction check.

Registry Trust’s annual statistics show that businesses and consumers faced default and small claims debts worth £22.7m in 2011. This figure is 11.8 percent lower than the previous year’s total of £25.7m.

This can be attributed to a smaller number of cases being adjudicated in court – falling from 11,220 in 2010 to 9,496 in 2011 – a decrease of 15.4 percent.

Announcing the statistics, Malcolm Hurlston, Registry Trust chairman said: “Our non-profit model means that we have no shareholders to pay, so where we are able to make savings we can pass them on directly to our customers.

“If lower prices encourage more people to check debt histories to help them weigh up creditworthiness, then we are achieving our aim of acting in the public interest.”

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

Firms with 101 to 500 employees paid their invoices three quarters of a day faster than in the previous quarter (from 25.84 days to 25.07 days), while firms with more than 501 employees improved by two thirds of a day (from 34.77 days to 34.12 days).

These businesses also led the way in improvements when compared to their payment performance in Q4 2010. Firms with more than 501 employees settled their invoices almost two days faster while firms with 101 to 500 employees improved by almost three quarters of a day – from 36.06 days and 25.79 days in Q4 2010, respectively.

Jason Mills, Head of Payment Performance at Experian UK & Ireland, said: “Payment performance is the timeliest indicator of the current health of any business, so the overall improvement suggests that during the last three months of 2011, pressure on cash flow and finances was more manageable for most businesses.

“Feedback from our larger customers demonstrates awareness and understanding of the struggles faced by some of their key SME suppliers so are prioritising payments to them, to better support them.

“The only firms to see an increase in their payment performance from Q3 to Q4 were firms with three to five employees. The increase, however, was very small and is a timely reminder for smaller firms to credit check potential new and current business customers for signs of possible non-payment before it is too late.”

Regional performance

Firms in the North West continued to pay their suppliers later than firms in any other region – 35.54 days after agreed terms. However, the improvement from quarter-to-quarter and year-on-year was by far the biggest – by 1.2 days from Q3 and almost six days from Q4 2010.

Industry trends

Of the five biggest sectors in the UK – business services, building/construction, property, IT and leisure/hotels – the building and construction sector saw the biggest improvements, both from Q3 2011 and also Q4 2010.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

In a statement, the Employment Minister Edward Davey said that, having ‘taken into account all of the issues’, the Government has decided the benefits of the proposed legislative controls are outweighed by adherence to the Government’s current ‘moratorium’ on new regulations.

However, while the Forum’s latest ‘cost of compliance’ Referendum survey shows small firms’ annual red tape bill has reached £16.8 billion in total, recent late payment data suggests that the UK’s small businesses are owed more than £33 billion in outstanding invoice payments. The Forum believes the Government should think again, revisit some of its earlier proposals and go even further to protect creditors.

“Cutting red tape is hugely important but, against the backdrop of the Government’s de-regulatory agenda this is one area where tighter legislation would protect more firms from ‘phoenix’ companies abusing the pre-pack insolvency process by starting again while failing to pay them,” said the Forum’s Senior Policy Adviser Alex Jackman.

“Late payment – or in this case non-payment – devastates firms’ ability to maintain any kind of healthy cash flow and threatens their very survival. The Government is working on some extremely positive projects at present to help firms minimise the problem and offering them more protection in this way would also be of great benefit.”

In May 2011 the Forum wrote to Mr Davey as part of a consultation on ‘improving the transparency of, and confidence in, pre-packaged sales in administrations’, which followed the Statement of Insolvency Practice (SIP16) guidelines put in place in January 2009.

Reporting its members’ concerns over the abuse of the pre-pack insolvency process, for example when an existing management team or associates are able to effectively buy back the company without consultation with creditors, often doing this deliberately with the express purpose of avoiding paying debt, the Forum welcomed several proposals but called for more robust action to tackle the problem.

The Forum prioritised three options: first, following a pre-pack administration, restricting exit to compulsory liquidation so as to achieve automatic scrutiny of the directors’ and administrators’ actions by the Official Receiver; second requiring different insolvency practitioners to undertake pre- and post-administration appointment work; and third requiring the approval of the court or creditors, or both, for all pre-pack business sales to connected parties.

However, while backing several steps – such as providing a three-day notice period of an insolvency sale and ensuring best value sale prices to benefit creditors – the business support organisation made a number of further proposals to tackle the non-payment problem. They were:

• Strengthening the Statement of Insolvency Practice (SIP16), with penalties for non-compliance
• Tightening the rules against directors involved in multiple pre-pack insolvencies
• Preventing administrators actively promoting pre-packs as ‘business as usual’, following concerns that some are advising their clients to actively pursue this approach
• More robust scrutiny from the Insolvency Service.

On this final point, Mr Davey said the Insolvency Service already monitors compliance by insolvency practitioners with the SIP16, which requires administrators to provide creditors with early post-sale information on details of the sale and the justification for it.

He said officials have been asked to undertake an ‘urgent review’ in conjunction with stakeholders of how the existing controls on pre-packs have been working and whether, in light of their experiences and the outcomes from the monitoring, more could be done within the existing regulatory framework to improve confidence and transparency.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

21,070 UK businesses, 1.1 per cent of the total business population, failed in 2011. This represented a marginal increase on the 1.03 per cent (19,818 failures) recorded in 2010. In 2008 and 2009, the insolvency rates were considerably higher, reaching 1.16 per cent and 1.25 per cent respectively.

Experian’s analysis also shows that during the second half of 2011 the insolvency rate neither rose nor fell significantly – from a rate of 0.53 per cent (H1) to 0.56 per cent (H2).

Max Firth, UK Managing Director for Experian’s Business Information Services division, said: “Given the challenging economic climate in 2011, businesses in the UK were pretty resilient and this was reflected by the stable insolvency rate during the year.

“For businesses to improve their financial health and avoid insolvency, it is vital that they understand the risks they are exposed to and have strategies in place to protect themselves. By monitoring the performance of all current and potential clients, they can fully understand and prepare for the impact they could have on them if they failed.”

Yorkshire sees insolvency rate fall
Yorkshire was the only region to see an improvement from 1.46 per cent (1,724 companies) in 2010 to 1.39 per cent (1,653) in 2011. This is the second successive year the region has seen the insolvency rate fall.

Wales witnessed the biggest increase in its insolvency rate, jumping from 1.01 per cent (569 companies) in 2010 to 1.18 per cent (654) in 2011. Scotland, which has experienced significantly lower levels of insolvencies compared to other regions since 2005, came more into line with the rest of the UK with an insolvency rate of 0.93 per cent.

The UK’s biggest sectors
Of the UK’s biggest sectors – business services, building/construction, property, IT and leisure/hotels – the property sector saw the largest increase in its insolvency rate, from 0.72 per cent in 2010 to 0.91 per cent in 2011. 1,149 property companies failed in 2010, compared to 1,345 in 2011.

SMEs
Firms with one or two employees saw the biggest increase in the insolvency rate during 2011 – from 0.63 per cent in 2010 to 0.71 per cent. Despite this increase, they still managed to maintain the lowest rate of insolvencies compared to their larger counterparts.

[1] The insolvency rate is calculated by comparing the number of businesses that failed with the total business population in Great Britain.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.