The cash registers have rung heartily this Christmas season but this will be followed by rather more morose tunes for some people soon. As we report today, the number of personal insolvencies is estimated to run at a rate of 10,000 a month between January and March this year and this after a record 100,000 individuals suffered the same fate in 2006. These are unknown levels of indebtedness. Nor does it represent all of those who are in financial trouble. The economy might be relatively strong yet serious private difficulties lurk below the surface.

This is, in fairness, partly because of a change in legislation. The Enterprise Act 2003, building on work by Peter Mandelson when he was at the DTI, sought to make bankruptcy less desperate. It reduced the time in which a person is declared bankrupt from three years to one and has been responsible for a surge in individual voluntary arrangements, a form of negotiated settlement that falls short of bankruptcy and often allows the persons concerned to remain in their own property.

This reform was introduced because ministers were persuaded, not unreasonably, that the traditional legal regime surrounding bankruptcy discouraged potential entrepreneurs from taking on inevitably risky commercial ventures because the price of failure was so heavy and humiliating. In the 1970s Sir Keith Joseph declared that the country urgently required far “more millionaires and more bankrupts” (because these two groups are intimately related). Mr Mandelson can claim to have fulfilled Sir Keith’s objective.

The question is whether legislation that is entering its fourth year of operations is working as its framers intended. The initial evidence is that it is serving less as a spur to new business than a device for what is often tactical bankruptcy and, on some occasions, an avenue for fraud. The proportion of those entering individual voluntary arrangements having once been self-employed is low (barely a quarter of all cases) and in some of these instances the reasons why the people involved fell into financial peril were unrelated to commercial activities. It is also ironic that in the period after Britain deliberately adopted what is an American model for bankruptcy, pressure has increased within the United States for Congress to move in a more austere direction similar to Britain’s original legal framework.

There is an argument, therefore, for ministers to look again at the law and investigate whether a law that had noble aims has been exploited. Bankruptcy should not be the source of desperate shame, but it should not become a mere tool in the hands of slick financial advisers or banks seeking a means of cutting their losses either.

There is, nonetheless, a more encouraging development lurking in these figures as well. Two years or so ago this newspaper, among others including Mervyn King, the Governor of the Bank of England and Vince Cable, the Liberal Democrat Treasury spokesman, expressed concern at the rapidly rising level of credit card debt. While it would be a gross overstatement to contend this danger has ended, the recent trend has been for consumers to shift away from a form of credit that involves extremely high levels of interest in favour of more rational and sensible methods.

That shift does, though, reinforce the suspicion that the record figures for insolvencies is being driven by calculation as much as calamity. Britain probably does need more millionaires and more real bankrupts. It does not require more sharp practice that takes advantage of the law.