Friday 24th August, 2007 

For the first time ever GB Plc owes more than it earns. This has sparked fears that the country could be on the verge of bankruptcy.

According to research by financial advisers Grant Thornton the UK's Gross Domestic Product (GDP), the amount of money generated by the economy, is less than the total amount owed by consumers.

The figures make grim reading, according to Grant Thornton we owe £1345bn. This debt is made up of mortgages, credit card and loans. Compare this with the GDP, the amount of income generated in the UK was £1330bn. From these figures it appears that we are spending more than we earn, which makes the UK bankrupt, right?

Most people would say yes, in that the UK's GDP cannot cover all outstanding debts. However, insolvency expert Ron Craven at Grant Thornton is not showing any signs for concern, "Britain's huge level of consumer debt is symptomatic of the country's well-established buy now, pay later' culture. We can no longer generate enough yearly GDP to cover the amount we owe and need next year's income to cover this year's debts. Fortunately, most consumer debt is secured and can be repaid over several years, otherwise we would be technically bankrupt."

Putting these figures into context 10 years ago, consumer debt stood at around £500bn while our GDP was £790bn. Since 1997 the economy has benefited from the from the rising level of consumer spending using credit which has been either secured on property or been serviceable. The unfortunate consequence of this credit boom has been a sharp increase in the number of bankruptcies. In 1997 the number of IVA's and bankruptcies stood at 24,441 but today it is projected to hit the 100,000 mark, more than 4 times the level it was at 10 years ago.

If you would like any help or advice about avoiding bankruptcy visit our debt forum.