Boom and Bust Britain, 2006....... A stark image of divided Britain



"The underlying theme is the strain from high debt levels and high debt
service payments,"

Boom and Bust Britain, 2006

Boom: city bonuses hit a record £7.5bn; 3,000 workers given at least
£1m; sales of penthouses, fast cars and champagne at all-time high.

Bust: house repossessions up 70% to highest level since the 1991 crash;
mortgage arrears up 21%; record 70,000 go bankrupt, a 51% rise

By Philip Thornton, Economics Correspondent and Terry Kirby, Chief
Published: 04 February 2006

A stark image of divided Britain was revealed yesterday as it emerged
that a record number of people were made bankrupt, even as a tiny elite
of City of London bankers were looking forward to £1m-plus bonuses.

The Government's own figures yesterday showed that more than 20,000
people were forced to file for bankruptcy in the three months running
up to Christmas after being overwhelmed by their debts. The total of
20,461 was a 51 per cent jump on the previous year and the highest
number for a three-month period since records began in 1960. The total
for 2005 was almost 70,000, 57 per cent more than 2004.

Families struggling to make ends meet will take little comfort from a
report by a leading think tank showing that City traders are set to
share a staggering £7.5bn bonus pool after a bumper year for share
prices and company takeovers. Some 3,000 people are on track for a
seven-figure bonus, the Centre for Economics and Business Research
(CEBR) said. Many lenders foreclosing on debts will be owned by the
same financial giants that are paying individual employees up to £10m.

"The contrast between the financial situations of these groups of
people is shocking," said Vince Cable, the Treasury spokesman for the
Liberal Democrats. "While those in the City worry about whether they
have chosen the trendiest location for their skiing holiday those
recently insolvent will be worrying about how they will put food on the

"These figures demonstrate the hollow nature of Gordon Brown's rhetoric
on social justice."

The jump in personal failures was accompanied by a surge in mortgage
repossessions, triggering fresh fears that households were buckling
under the weight of mounting debts and rising interest rates.

The number at least three months behind on their mortgage payments is
up by 21 per cent. More than 10,200 people lost their homes last year -
a 70 per cent increase on 2004.

"The underlying theme is the strain from high debt levels and high debt
service payments," said Michael Saunders, a UK economist at Citigroup,
the American banking giant.

Households are currently labouring under a record £1.16 trillion of
mortgage and unsecured debt - credit cards, bank loans and overdrafts
and HP deals. Although there are tentative signs that consumers are
reining in their unsecured borrowing, experts believe that the number
of personal failures will increase.

"The bankruptcy bubble is getting bigger but seems unlikely to burst
for some time yet," said Steve Treharne, the head of personal
insolvency at the accountancy firm KPMG. "The levels and availability
of credit have been increasing for some time and recent figures from
the Bank show that this trend is continuing. The more people use
credit, it is inevitable this will be followed by increases in personal

Citizens Advice said its bureaux had seen a 26 per cent surge in the
number of people seeking help over their debts, to 1.23 million last
year. The latest figures, combined with bumper bonuses for top bankers,
will fuel calls for a crackdown on profits made by high-street banks.

A spokeswoman for Citizens Advice said: "Our evidence shows that
lenders are selling products without properly checking whether the
borrowers can afford it." She said that the majority of cases were
among the lowest income group. But Mike Gerrard, a personal insolvency
expert at Grant Thornton, said: "We are also seeing greater numbers of
individuals earning good salaries but borrowing proportionally more
than people on lower incomes."

He said the "now culture" - people of all ages expecting things now and
no longer wanting to save to buy them - was generating the highest
volumes of insolvencies.

The figure was distorted by a doubling - 117 per cent - in the number
of individual voluntary arrangements (IVAs), a recently introduced
procedure to take the shame out of bankruptcy.

At the other end of the scale, £7.5bn in bonuses is due to be earned
by City workers this winter, according to the CEBR, a 16 per cent
increase over past year. The rise is due mainly to a 10 per cent rise
in stock market trading and a 20 per cent surge in mergers and

At the top end, about 3,000 people, usually at boardroom level at such
companies as Goldman Sachs and Morgan Stanley, will get bonuses of more
than a £1m, with a handful nudging £10m. This includes people such as
Michael Spencer, 50, chief executive of ICAP, the world's biggest money
broker, who is said to be getting £5m this year, and Crispin Odey, 46,
a hedge fund manager, said to be due £8.8m.

But there are also 330,000 City workers, usually traders, brokers and
dealers, who are also getting bonuses, ranging from a few hundred
pounds right up to the magic £1m figure; the average is around
£23,000. Even relatively lowly workers on £35,000 might expect to
double their salaries in their first year.

The art lover with a £5m bonus to spend

Michael Spencer, chief executive, 50

The British chief executive of the world's biggest money broker,
Intercapital (ICAP), Michael Spencer, isestimated to have made a £5m
bonus this year, which, if he continues his tradition of hospitality,
may be partially spent on a party. Last year, he spent £1m to bring
Robbie Williams over to his pad in St Tropez and sing to the 300 guests
who had joined him for his fiftieth birthday.

"I'm the sad person you see reading the FT on the beach," he says. But
it has paid off - Mr Spencer has homes in Holland Park, St Tropez and
New York and is a collector of modern art with a penchant for Picasso
and Jack Vettriano. He earned around £4.5m last year and has an
estimated personal wealth of around £372m. His company operates from
26 offices across the globe and employs 2,900 staff to handle daily
transactions of $1trillion. He lives with his wife Lorraine and three
children. Mr Spencer got a taste for trading when he made a £300
profit dealing in GKN shares while at Oxford studying physics. He now
controls 22 per cent of Icap.

Geneviève Roberts

The bankrupt forced to give up his home

Robert Power, 26

After the death of his father, Robert Power went "off the rails". He
had a £43,000-a-year sales job, with a £40,000 inheritance. In two
years he spent it all. He went bankrupt on 1 April 2004, having racked
up a further £42,000 of debt.

"I used to be very frugal," said Mr Power, 26. "I think dad dying sent
me over the edge. I lost sight of the future and saw it as my own money
to spend. I went out to have fun knowing I had tens of thousands of
pounds in my pocket.

"But it got out of control. You get calls and letters every day chasing
you. I used to go and sit in the bus stop for an hour with my head in
my hands."

Bankruptcy brought it to an end. He has to pay half of his disposable
income - about £400 a month - to creditors until April 2007. Mr Power
says his finances are back under control.

"There is no longer so much stigma attached to bankruptcy, but it is
humiliating. I used to live on my own in a nice flat in Canary Wharf;
now it is a grotty house with three other people in north London. I
have less self-worth. But the calls have stopped."

Oliver Duff


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