As this series is exploring, there are several factors that could have led to the decline in the number of judgments registered during the first month of January 2020. This made us think about the last time when we saw judgment numbers decline – that is, post 2008 - to see if there were any interesting parallels.
But, then we were overtaken by events – the convulsive economic and financial shock caused by the Covid-19 pandemic. Most of us have not seen anything like the economic and financial shocks caused by Covid-19 in our lifetimes. Indeed, the expectation is that 2020 will see the UK experience an even worse recession than we saw post the great financial crisis in 2008. Indeed, some economists expect the worst recession in 300 years.
Although the pandemic has caused a major economic shock, the numbers of judgments registered since the onset of the crisis have actually fallen dramatically. But, this is due to the various measures introduced by the government and regulators, and actions by lenders and creditors, to protect financially vulnerable households from enforcement of debts.
Our judgment data allows us to analyse what happened in the aftermath of the last great economic shock in 2008. Specifically, we can gauge the financially vulnerability (or resilience) of households and businesses in the different regions and local authority areas across the nation.
There have been some very interesting analyses published which seek to model the forward looking impact of Covid-19 on the economies of the different regions and local authority areas of the UK. It would be interesting to compare and contrast those forecasts with the data we hold which is a matter of record on the actual financial resilience of households and businesses post the last great economic event.
So, this blog sets out to analyse the trends in judgment data post the 2008 financial crisis to identify which regions and local authorities showed evidence of economic resilience and vulnerability.
So, what happened after 2008?
Specifically the peak was seen in September 2008 with 84,053 judgments issued in the month. As for the trough, the lowest recorded month was actually June 2013 (31,434), but due to the surge of judgments during the rest of 2013, total aggregated judgment levels were the lowest in 2012.
However, since 2012, judgment levels have risen significantly. The rate of increase levelled in 2017 and in the most recent year to date, 2019, 1,080,944 judgments were issued against consumers by English and Welsh courts.
Regionally, the North West of England and Greater London saw the highest levels of judgments in 2019, whilst Wales saw the lowest number of judgments in 2012.
To look at the regional differentiation over the course of the economic recession and recovery, we have broken time down into four subsections; Short-term, mid-term, long-term and recovery. These timings are framed as follows:
Short term: 2008 to 2009
Mid-term: 2008 to 2010
Long term: 2008 to 2012
Recovery: 2012 to 2018
Below, the greatest rises and falls in judgment levels during these periods are laid out in order to compare between the time frames to assess as to whether any trends emerge.
In the short-term following the GFC, the national levels of judgments fell 16%. Breaking this down by local authorities, all but 31 areas followed the national trend. Of the 31 that saw an increase in the number of judgments, 15 were in the South West of England (41%). The top 10 greatest increases, in fact, were all in the South West. However, at the other end of the spectrum, three of the areas were also in the South West, including the two greatest falls.
Between 2008 and 2010, the story changes somewhat. Nationally, the downward trend in the number of judgments in continued with a fall of 32%. The South West is no longer as prominent. 9 out of 10 of the greatest rises were seen to occur in the South East of England. Whilst out of the 20 local authorities that saw a decreases in the number of judgments, 18 were split equally between the East Midlands and the West Midlands.
During a period when the national level of judgments decreased a total of -38%, there were some local authorities that did not follow suit. The table below highlights 9 areas in the East of England who saw judgments begin to rise before the trend was seen across the whole UK. The majority of these areas saw increases of under 10%. However, Breckland in Norfolk experienced an increase of 22% over the 4-year period.
Turning attention to the economic recovery period we have defined as between 2012 and 2018, not a single local authority saw a decrease in the number of judgments over this period. But the variation in % increase did vary wildly. The national increase was 137% but the greatest increase was seen in Blaenau Gwent, Wales (+450%), whilst the smallest was seen in Sutton, Greater London (+4%). Wales’ dominates the greatest increases whilst the East of England has a similar presence in the smallest increases.
The patterns emerging from these tables illustrates that there is a relationship between financial difficulty and turbulent judgment numbers. Let’s take a look at Blaenau Gwent, Wales to illustrate this. In the periods between 2008 and 2012, it consistently saw some of the greatest falls in judgment levels in the UK. Particularly in the short term and long term, as defined above, where it was one of the top 10 in the country.
It might, at first sight, seem counterintuitive that debt judgments fall in the midst of an economic crisis. We cannot say for certain why judgments did fall. But, likely explanations are that closer oversight and tough application of rules by regulators, media and consumer group scrutiny, and concerns about reputational damage would have limited the propensity of household-name lenders and other creditors to enforce debts against vulnerable households. Similarly, it may not have been cost effective for creditors to pursue debts from households with small incomes and no assets.
As the economy recovered (as measured by GDP data), we also saw judgment numbers rise rapidly. Again, it may seem counterintuitive that an improving economy results in higher debt judgments and it is difficult to identify precisely why this might be the case. But, there are a number of possible explanations. Media scrutiny had eased as the economy recovered so reputational risk was not so much of a constraint. Major lenders and creditors had sold their non-performing debts to specialist firms whose business models were built on collecting smaller debts. Despite the economy recovering, real average earnings were not growing so many households were still struggling financially. In other cases, incomes of some households were recovering, so it would have been financially worthwhile for creditors to pursue them for outstanding debts.
It will be very interesting to see if this pattern repeats itself as the Covid-19 financial crisis plays out.
Referring back to Blaenau Gwent, at a time when the economy was recovering, this area saw the largest increase in judgment levels for any local authority in England and Wales between 2012 and 2018.
The financial vulnerability of the area is further reinforced by data used in the Financial Inclusion Centre’s paper on ‘Brexit and the Regions’ (2018). Based on the financial indicators they use, Blaenau Gwent is one of the most vulnerable areas in the UK, ranking in the 10th Decile with a total score of 375 (p.88) . Overall, this is suggestive that those that experience the most volatile changes in the number of judgments are likely to be the most financially stressed in crisis time.
This blog did not test a hypothesis as such. However, it did aim to reveal trends and patterns that unfolded as we come out of the last economic crisis. In doing so, hopefully it provides an insight into how judgment data can be used as an indicator for assessing financial vulnerability across different areas. For example, areas that consistently see large falls in the number of judgments maybe subject to a surge when things begin to recover.
The number of judgments will start to rise again as the various protection measures are removed or phased out, and as lenders and other creditors seek to recover debts or limit losses. As this occurs, judgment data will be an important barometer to assess how the financial effects are being experienced across the UK.
No one can say with certainty when the worst of the impact will start to be felt, or which regions and local areas will face the greatest financial stress. At Registry Trust we think there will be a number of phases to the crisis. The current phase while the temporary government and regulatory measures are in place; a survival phase as the measures are removed or phased out; and the recovery phase – even then it may be sometime before any improvement in the headline GDP numbers are reflected in an improvement in business and household finances.
We will be increasing the frequency of the publication of our data on judgments to help commentators gauge how UK households and businesses are experiencing the crisis. Remember, the fact that a judgment is registered means that a debt, sadly, has not been managed. Judgment data is an important ‘real-time’ indicator of the financial stresses facing household and businesses.
In the next hypothesis testing blog, we will look at whether coronavirus was having any effect on judgment data as early as January 2020. This will lead on to our monthly updates on how judgment data reveals the financial realities during the crisis.
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