TODAY I would like readers to meet Tracey, a pert young lady with an amazing technique in personal matters. It took Tracey, crisply kitted out in a British Midland uniform at Edinburgh Airport last week, one minute 25 seconds precisely to complete an application for a BMI credit card on my behalf. She was unbelievably quick and professional.
I could not help but compare this brief encounter to an altogether less pleasurable experience earlier this year. It took me several days to complete the paperwork for a simple regular monthly savings plan, into a conventional authorised UK investment trust.
I was presented with a full set of Financial Services Authority Conduct of Business Rules; had to fill in the independent financial adviser's 'Know Your Client' form (more than 20 questions on my investments, pension, bank deposit and current accounts, long-term savings arrangement, mortgage and loans); complete the risk assessment procedures for equity-based trusts and complete the anti-money laundering form (together with providing proof of identity document).
Then came the confirmation notice and statutory cooling-off period. The whole caboodle took, all told, 23 days from beginning to end. Tracey was effortless by comparison.
This anecdote may help explain a deep and problematic paradox in Britain: why it is that we have, at one and the same time, a pensions crisis, a low savings ratio and a soaring rate of personal bankruptcies.
Much of this phenomenon is explained by mismatch: the households that have the huge burden of debt are not those who have high savings, or vice versa. After all, two out of every five households had no debt at all. And just over 3% of households were devoting more than half their disposable income to servicing their debt.
But what is striking is how we have a continuing low personal savings ratio and a level of personal indebtedness that has now climbed to more than £1 trillion against a perpetual Greek chorus of despair at how little we save.
Yet we are very largely the author of our own misfortune. The reason we have this mismatch is in some measure because the banks, egged on by the consumerist lobby, have made borrowing so easy, while the savings industry, regulated to blazes by the FSA, have made savings such a sweat.
Insolvency figures released last Friday certainly leave the impression of a country that is now deeply stricken financially. The figures showed individual bankruptcies soaring to 23,350 in the first quarter of the year, 13% up on the immediate preceding three months and a whopping 73% higher than in the same period last year. The figures for Scotland are less severe, but the trend line is similar: personal sequestrations (the Scottish term for bankruptcy) are down on the fourth quarter of 2005, but 37% higher than this time last year.
The figures add weight to the view that 2006 could see record levels of personal insolvency. Data released separately by the Department of Constitutional Affairs show a rise in county court orders for mortgage repossessions. The first three months of the year saw a total of 21,997 orders to repossess homes, up 17% on the immediate previous three months and almost 57% higher than in the first quarter of last year.
Official explanations cite greater personal debt - an unhelpful tautology that does not explore the lending policies of the banks or explain how this greater debt came about - and higher unemployment, even though the numbers of people employed in Britain continue to rise.
The figures for England and Wales have almost certainly been distorted by recent changes to legislation. The 2002 Enterprise Act effectively cut the costs of bankruptcy by lowering the time period required before an individual can be discharged from bankruptcy from three years to one year.
In the words of Lombard Street Research: "The recent surge in individual insolvencies almost certainly contains an element both of a general deterioration, but also a one-off adjustment to reflect a less onerous bankruptcy process."
That, in the minds of some, may be putting it mildly. The figures would seem to bear out the concerns that, with some two-thirds of personal insolvency individuals declaring themselves bankrupt, it has become much more of a lifestyle choice. This cannot but concern retailers and businesses generally: how can they rely on the creditworthiness of customers when they may have come out of bankruptcy just a year previously?
The bigger picture suggested by these figures is that of a distressed and troubled household sector buckling under the combined weight of high debt and soaring heating and energy bills. But while consumer spending is subdued, there are still record amounts being spent on services, entertainment, foreign travel and retail in the broader sense, including internet shopping.
For the record, UK households have been enjoying a wealth surge. This is largely due to the continuing rise in house prices - now climbing at an annual average rate of 8% according to Halifax last week - and a buoyant London stock market. The FTSE 100 index closed on Friday at a whisker under 6100, taking the gain from the dark days of early 2003 to 82%. And the first quarter gain of 7.4% for the FTSE All-Share Index was the strongest start to a year since 1998.
According to calculations by Lombard Street Research, the net wealth of the household sector (ie, the sum of financial and tangible assets less total debt) rose by 8.9% in 2005, and by a further 3.5% in the first quarter. The firm's latest estimate puts net household wealth at £7,064bn as at end March, 11.2% higher than a year ago. As for the ratio of household sector wealth to income, this now stands at a record eight and a half times.
Much has been made of the phenomenon of mortgage equity withdrawal (MEW) - households realising some of the increase in the value of their homes by taking out bigger mortgages. Data for the fourth quarter of last year show MEW at £11.8bn, equivalent to 5.6% of gross disposable income, up from £8.3bn in the previous quarter.
Lombard economists reckon that a significant proportion of MEW was invested in financial assets or used to repay unsecured debt. This would explain why the savings ratio has shown stability at its recent, albeit low, level, rather than falling even further.
So while there are doubtless some households under severe debt strain, this is not true for the vast majority, given the substantial rises in the value of assets - property and equity holdings in particular.
What else could sustain the latest surge in mortgage approvals? In the first quarter of this year, the number of mortgage approvals for house purchase was up 35% on the same period last year. So ironically, it is the very strength of household finances that explains the latest surge in mortgage lending. This may be sharply curtailed if there is a big correction to the stock market later this year.
But for the present, rising numbers of personal insolvency do not tell anything like the whole story of the way we live now.
The regulation-burdened IFA may be despairing. But Tracey - or her home loan counterpart - is on a roll.
BILL JAMIESON * Scotland on Sunday 7 May 2006
