It was recently reported that there had been a drop in insolvency levels in the UK, with levels dropping again following the record level of insolvencies that was seen last year. However, whilst the news will have been welcomed in many industry sectors there are concerns that it could just be a temporary reprieve, and that the situation could quickly get out of control again.

One UK debt charity has stated that personal debt levels in the UK are set to increase, and whilst the recent figures have shown a drop in insolvency levels this is a situation that could go into reverse as a result of rising unemployment. Officials from the Debt Advice Foundation have said that it is likely that personal debt levels and insolvency numbers will rise again as more and more people in the public sector start losing their jobs.

The prediction follows recent announcements from the coalition government with regards to the security of jobs within the public sector. As part of the cutbacks planned by the government it is thought that around half a million people in the public sector will lose their jobs by 2014. The debt charity described the recent insolvency figures as ‘the calm before the storm’ and said that the government’s Spending Review could see the number of insolvencies soar by 20 percent.

David Rodger from the Debt Advice Foundation said: “Although 2010 has seen a reduction in the number of people becoming insolvent, the prospect of half a million public sector jobs being cut with little hope of the private sector picking up the slack, unfortunately means that the worst could be yet to come.” He added: “Although insolvency volumes are the product of a number of contributory factors, unemployment, particularly new unemployment, is a key determinant. If the predicted spending cuts go ahead we could see insolvencies rise to in excess of 40,000 per quarter, which is 20% higher than present levels.”