The effect of the COVID-19 crisis has led for many to an abrupt fall in household income both from employment and self-employment earnings. The Financial effects of the crisis have been severe for millions of households and businesses across the UK.
Many people have been impacted financially in one way or another, whether that’s in a reduction in work hours or pay, being furloughed or actually losing their job. It is a particularly difficult time for households across the UK with many struggling to keep up with their bills, loan payments and mortgages due to the impact of COVID-19. As households face income loss as a result of the coronavirus pandemic, even more people are taking on additional debt to make ends meet.
Coronavirus and Impact on Employment
Due to COVID-19, there has been an increase in people who are unable to work, due to their own sickness, or because of shielding and caring responsibilities, as well as, those affected by having less work, fewer hours or being made redundant.
Businesses have been operating at reduced capacity, and the restrictions have meant that people facing unemployment find it harder to get a new job and it is less easy to get extra hours or work for those on reduced hours or pay.
According to the Office for National Statistics (ONS) latest report, from May to July 2020 show a significant increase in the unemployment rate.
The ONS indicates that from August 2020 from the PAYE Real Time Information indicator, the number of payroll employees fell by 2.4% (695 000) compared to March 2020. Redundancies have also increased by 48 000 between May and July 2020
The Bank of England has also predicted a rise in unemployment with the expectation that more than one million jobs will be lost.
Coronavirus and Debt
Based on the current situation and statistics, coronavirus is still having a big impact on people’s jobs and livelihoods. This has caused concern for many households as families continue to struggle financially leading to more people being affected by debt.
Coronavirus has pushed more people into debt which will take them a while to get out of. According to the Bank of England Money and Credit Statistics report as of July 2020, this indicated that Household net borrowing was £3.9 billion in July, with increases in both mortgage borrowing and consumer credit debt. Household consumer credit borrowing increased £1.2 billion in July, following four months of net repayments. The interest rate on new consumer credit borrowing increased 22 basis points to 4.64% in July, while rates on interest-charging overdrafts increased 1.6 percentage points to 14.84%.
Despite the increase in borrowing, this has not shown through in the figures for insolvency as of August 2020, which seems likely to be due to the effect of action taken by government at this time:
- 31% reduction in DROs
- 43% reduction in Bankruptcies
- 28% reduction in IVAs
COVID-19 Government Support Measures
The government has developed a range of measures/policies in response to the pandemic and consequent lockdown measures. Some of the schemes that have been implemented are as follows:
New Job Support Scheme replacing the Coronavirus Job Retention Scheme
The government had previously introduced the Coronavirus Job Retention Scheme in March 2020, which allowed organisations to “furlough” employees. This “old” furlough scheme is coming on an end on the 31st October 2020. The new Job Support Scheme (JSS) will be available from the 1st November 2020 for 6 months to 30th April 2021, this is a new scheme which will be replacing the old furlough scheme. The Job Support Scheme will aim to help people who are working but under reduced hours. The Government contribution will be a maximum of £697.92 per month. Both the employer and the Government will pay a third each of the usual hourly wage for that employee.
Employers using the Job Support Scheme will also be able to claim the Job Retention Bonus if they meet the eligibility.
To be eligible for the Job Support Scheme:
- Employee must be on PAYE payroll before 23rd September 2020
- Employees must work for at least one-third of their normal working hours
Extension of the Self Employment Income Support Scheme
If you’re self-employed but your income from work has reduced or stopped due to coronavirus, you may be eligible to receive help from the government’s Self-Employment Income Support Scheme (SEISS). The SEISS will be extended until April 2021, the government has planned to extend the SEISS by providing further grants to self-employed individuals who are currently eligible for the SEISS and actively continue to trade but have reduced demand due to COVID-19. First grant will cover 20% of the average monthly trading profits capped at £1875 in total. Second grant will cover a three-month period from February 2021 until April 2021 – HMRC has not set the level of the second grant yet.
Individuals on low income will be able to claim lump sum payment of £500 if unable to work from home and required to self-isolate.
This payment is aimed at helping make up for any lost income people face due to having to stay at home.
Financial Conduct Authority
The FCA had put in place measures to ensure support is provided to many households across the UK. They had previously announced that firms are required to offer support to customers experiencing financial hardship, with options including payment holidays and some interest free overdrafts. The scheme comes to an end on 31st October 2020, however, it is hoped that further help to support borrowers will be announced. It is unclear if any further measures will be put in place after 31/10/2020 at the time of writing this article.
Other Available Help
Help with Benefits
Check if you are entitled to claim benefits or if you are getting on the benefits you may be entitled to extra amounts if your income has been reduced. Check what you may be entitled.
If you are employed and you now need to claim universal credit (UC) due to a reduction in your income, perhaps because your hours have been reduced or you are coming off furlough, you should be aware of how pay information is used for UC purposes and how this may affect the payments you receive. For more information see link - https://www.gov.uk/guidance/coronavirus-covid-19-what-to-do-if-youre-self-employed-and-getting-less-work-or-no-work
Find some useful information on the link below regarding “Coronavirus and your money” which explains:
- How you can best manage your money
- What help is available from your account providers
- What to think about if you need to borrow money