ALMOST a million Britons will be technically insolvent by the end of the year, according to a study that threatens to reveal the true state of the nation’s household finances.

More than 700,000 cash-strapped customers have been declared technically insolvent by their banks without showing up on any government statistics, the figures reveal.

The thousands of “hidden debtors” have been signed up to a debt-management plan with their lenders, rather than forced into formal insolvency proceedings.

The study, conducted by R3, the trade body for insolvency practitioners, suggests that the true number of people in severe financial difficulty is about 450% higher than government statistics indicate.

Peter Sergeant, president of R3, said: “By the end of this year almost 1m people will be technically insolvent. The official insolvency statistics are only the tip of the iceberg. The rest of the iceberg is made up by these 700,000 hidden debtors that have been signed up to debt-management plans.

“If the government wants to record the true state of the nation’s finances, these plans should be officially recorded.”

A debt-management plan is an official agreement between an individual in financial difficulty and creditors. Anyone signed up for such a plan is technically insolvent, according to the R3 report.

It is seen as an alternative to bankruptcy or an individual voluntary arrangement (IVA) – a softer form of bankruptcy linked to a repayment plan.

Although the terms of an IVA are set at the start of the agreement, the interest rates and repayments on a debt-man-agement plan can be adjusted over time.

The study claims that 64% of individuals who have signed up to these schemes have been asked to increase their monthly repayments since agreeing to the original deal.

The figures also show that the number of “hidden debtors” soared 17% in only seven months.

Sergeant added: “Every day I come across young people in their early twenties who are earning maybe £15,000 in an office job but have racked up debts of £25,000 on credit cards.

“At the other end of the spectrum, I recently met a couple in their seventies who had borrowed more money on their home and the man of the house had spent his share of the cash buying cars and living the high life. We have a huge debt problem in this country.”

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