Darkest before the dawn?

The United Kingdom has endured eight long and distressing months, and at last the promise of vaccines to fight COVID-19 appear to be very much within touching distance. 

The collective sigh of national relief is of course tempered with the knowledge that it may well take several more months before the vaccination program reaches the majority of working-age adults, and therefore a little longer still until some form of social and workplace normality returns across the nation.  But the knowledge that this moment lies ahead is now encouraging many more employers to ask the perfectly valid question;

“So what happens now?”

Of course so much will depend on the post-pandemic - and indeed post-EU - state of the British economy.  The Chancellor’s recent assertion that the “economic emergency has only just begun” presents a realistic summary of the problems the nation may yet experience as it faces the challenges of servicing a national debt of more than £2trillion. 

But employers are probably more immediately interested in the likely changes to short-term consumer and business activity rather than the longer-term state of the nation’s finances.  And many plans will therefore be made based on the likely “shape” of the UK’s economic spending recovery.  So will it be a “V” shaped (bounce-back), a “W” shaped (double dip), or even a “K” shaped (winners and losers)?

It’s far too early to say for sure, but for employee personal finances the future is already looking distinctly “K” shaped.

Winners and Losers

Earlier this year we commented on the findings of a report by The Resolution Foundation which suggested that, financially at least, some households had done rather well out of the previous few months.  The driver behind this unexpected good news was thought to be the lack of options for discretionary income spending throughout lockdowns and restrictions.  As a result many of these households had effectively become “enforced savers”, with a resultant improvement in their personal finances.

Yet the flipside was also true.  Almost by definition it is those at the bottom end of the income scale who have little room for discretionary spending even at the best of times.  And 2020 has certainly been anything but that.

Many of this grouping have been placed on furlough by their employer, and have seen income levels drop by £1 in every £5.  It’s worth pointing out that this same percentage decrease even applies to salary payments that would usually have been protected via national minimum income legislation.  And those on furlough may have also been unable to top-up their pay through other earnings such as overtime and bonus too. 

So the reality is that many low-income families are now really struggling financially, and the longer the crisis persists, the worse it may get for them.  And the latest report on poverty – this time by The Legatum Institute – finds that the number of people in poverty since the start of the crisis has already risen by an eye-watering 690,000.

Not just those on low pay

It’s also worth mentioning that financial hardship can be felt further up the employee income scale too. 

The government’s Job Retention Scheme has been very welcome to employees and employers alike, and has been a lifeline for many.  But payments from the scheme are not limitless, and the maximum payment per individual employee is subject to a cap of £2,500 per month.  This effectively means that any employee with pre-crisis earnings of above £37,500 per annum is likely to be receiving less than the headline message of 80% of pre-crisis income. 

In more usual times this grouping would probably be considered the “squeezed middle” by the national media and politicians, and that is often because their problems are perhaps deemed less dramatic and newsworthy than those receiving very low pay.  Yet such an unexpected and significant fall in income will still present genuine problems for very many households in this bracket, particularly if their already fixed monthly outgoings exceed their new furloughed income level.  And additional income through overtime and bonus may have been denied to this grouping also.

A final – but really important – point.  Many households in both the low income and squeezed middle earners groups are also likely to be trying to service and repay significant amounts of personal debt too.  The latest figures from The Money Charity suggest that the average debt per UK household is now more than £60,000, so this represents a major financial challenge for many in these difficult times.

Flexibility removed

And just to add to the problems for individuals is the loss of some of the very helpful financial repayment flexibility which was initiated at the start of the crisis by both government and various business sectors across the national economy.

The problem here is that most such flexibility was generally only intended to last for six months, and the latest lockdowns and restrictions are now well outside of that timeframe.  It follows that much of the initial repayment flexibility offered by financial institutions, landlords, and utility companies is now coming to an end.    

This may be something of a hammer blow to those households that have been just about getting-by so far.  That said, some further measures have been instigated to protect households where possible, and this page from the Money Saving Expert website is a particularly good source of information on this important point.  

What can employers do to help?

So the reality is that although the end of the crisis is in sight, a huge number of employees and their families across the nation are now really struggling financially.  And the prospect of Christmas expenditure and a bleak midwinter period before normality can return really won’t be helping matters either.

Of course there is clearly a limit to what assistance employers can provide here, particularly as many are facing their own financial challenges too.  Yet most responsible employers will want to do something tangible to support their workers until the crisis is finally over and worker incomes can return to their pre-crisis levels.

So some low-cost options here might include reminding employees of the free debt-counselling and other support tools offered within the employer’s Employee Assistance Plan (EAP), or signposting those with significant debt problems towards specialist debt charities (for instance Step Change, who have recently launched a new Covid Payment Plan specifically to help people over some of the short-term financial challenges of the pandemic).  And of course Howden Employee Benefits & Wellbeing also provide a range of useful and low-cost financial wellbeing support tools too.

Darkest before the dawn?

Many employers will be familiar with the old adage that tells us “that it’s always darkest before the dawn”, and that sentiment just seems so appropriate right now.

Spring 2021 will hopefully bring a welcome post-coronavirus sunrise for businesses and individuals alike, but until that much needed daylight arrives employers should try to offer what support they can to their employees.

For more information on any of the above topics, please speak to your usual Howden Consultant in the first instance, or visit our website for other contact options. For the latest details on COVID-19 & Employee Benefits provision please visit our coronavirus hub.

(Published 07/12/20)

Steve Herbert

Steve is Head of Benefits Strategy, Howden Employee Benefits & Wellbeing, and is an award-winning thought leader on Pensions, Employee Benefits, and Human Resources issues. He is occasionally accused of making Employee Benefits interesting.

Steve Herbert

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