A combination of the UK’s deepening cost of living crisis, soaring inflation, increased interest rates and stagnant wages have placed unprecedented pressure on household finances. According to the Citizens Advice Bureau (<strong>CAB</strong>), the proportion of people facing a negative budget (where their essential costs exceed their income) has increased from just over a third in 2019, to just over half in 2024. It further states that stagnant wages and increasing bills means that people are just £20 away from crisis.

Indeed, according to statistics published by the Insolvency Service, there has been a steady rise in the number of individual insolvencies, including bankruptcies, debt relief orders (DROs) and individual voluntary arrangements across England and Wales during 2025. In March alone, 9,205 individuals entered insolvency which represented a 2% increase from February. The most significant change being in respect of DROs have been at record-high monthly numbers since the abolition of the £90 fee in April 2024, with the 45,804 DROs in the past 12 months being nearly twice as high as the long-term annual average.

One of the reasons for this upward trend is the rising cost of essential goods and services. Energy bills, food prices, and rent have all surged, eroding disposable incomes. At the same time, increases in interest rates by the Bank of England, aimed at curbing inflation, have increased the cost of borrowing. This has made it more difficult for individuals to manage credit card debts, loans, and mortgages, leading to rising individual insolvency rates.

A key example of this is the Thames Water crisis; the potential government intervention to rescue Thames Water is inevitably connected to the financial strain on individuals. The cost of saving Thames Water will inevitably be passed on to customers, further exacerbating personal debt. CAB found that almost half of the people in the UK have already used their savings to pay bills, losing the buffer of a financial safety net and being pushed further into financial strain. If, as CAB reported, people are just £20 away from crisis, then an increase in an essential service like water can tip already stretched budgets into unsustainable territory, increasing the likelihood of debt and insolvency.

For many, these combined pressures have led to a reliance on debt to cover everyday expenses. As debt accumulates and becomes unmanageable, insolvency becomes a last resort for financial relief. As the UK grapples with ongoing economic uncertainty, tackling the root causes of insolvency through targeted financial support, debt advice services, and policy reform will be critical to stabilising household finances and preventing a long-term debt crisis.