By Max Clarke

Corporate and personal insolvency statistics, published today by the Insolvency Service, show that the number of bankruptcies for the fourth quarter 2010 has continued the reduction that commenced in quarters two and three and is now 29% lower than a year ago.

Alec Pillmoor, Head of Personal Insolvency at Baker Tilly- a leading provider of accounting and business services- commented:

“The continued reduction in the number of bankruptcies in the Q4 2010 statistics published today confirms anecdotal evidence that people have been cutting their expenditure and paying off credit card debts because of uncertainty over their jobs.”

“My concern is that the reduction in bankruptcies may be reversed during 2011 as household incomes do not keep up with price increases. Everyone has noticed the increase in their weekly shopping bill and the increased cost of travelling to work. These will mean that those families that have just been able to meet their costs will no longer being able to do so and will inevitably result in insolvency. With the housing market being generally depressed, being able to sell your house to reduce outgoings is not a realistic option for many.”

Carl Jackson, Head of Recovery at bankruptcy specialists RSM Tenon, says that the drop in corporate insolvency alone is a poor indicator of business performance, and that the reassuring statistic belies the insecurity still gripping UK business.

Also commenting on today's statistics is Steven Law, president of the Association of Business Recovery Professionals (R3)- the UK's leading trade association for insolvency, business recovery and turnaround specialists in the UK:

"The fact that corporate insolvencies in 2010 were lower than in 2009 suggests that this has been an atypical recession. HMRC's Time to Pay scheme and the historically low interest rates have been effective at stemming the flow of insolvencies that usually occur post-recession. However it is important that businesses continue to carefully monitor their financial health as many will be affected by the implementation of recent fiscal policies.

"Businesses that rely on consumer spend will see their bottom line affected by the VAT increase as they try to absorb the tax or pass it on to their consumers which will have a negative effect on consumer-demand.

"Our research found that ten per cent of businesses describe themselves as reliant on public sector contracts and these businesses will be hit as the public sector cuts start to take effect this year. Our members believe that the construction industry will be the worst affected by the public sector cuts due to the reduction in capital spending in education and social housing.

"For businesses that are struggling it is important that they seek advice sooner rather than later so they can be put onto the path of recovery."

On Personal insolvency statistics:

"Although the number of people in formal insolvency procedures fell in the last quarter of 2010, personal insolvency hit a record high at over 135,000. Worryingly, these figures do not include the number of people using informal insolvency solutions such as debt management plans, of which there are estimated to be around 700,000.

"Unfortunately, for those that are struggling with debt the worst may not be over. Inflation, the rise in the cost of fuel and the increase in VAT means that the cost of living has risen at a time when most of us are experiencing pay freezes, pay cuts and, in some cases, unemployment. In fact, our research found that, in the last quarter of 2010, there was a 4 percent jump in the number of businesses making redundancies.

"The findings from our personal debt survey found that four in ten people were already struggling to make it to payday, with more than a third (35%) saying they struggle because of credit card debts; and one in six say it's because of their mortgage repayments. Changes to the economic landscape which include a potential interest rate rise means that this figure is likely to grow. For those that are worried about their finances, seeking professional advice is the best remedy."