2020 has been a difficult year in so many ways. Quite apart from the struggles of living in lockdown, the disruption has had a devastating effect on many bank balances. Two recent reports show the growing level of hardship many households are facing and the debt burden being taken on to cope with this.
30% of Households Facing Hardship
Research by the Resolution Foundation suggests that incomes have fallen significantly this year. While some have risen slightly again since the first lockdown ended, they estimate that 70% of households who lost income initially are still making do on reduced finances.
This has hit the lowest-income sector disproportionately hard, and the Foundation report suggests that 30% of all households are now finding it difficult to afford the most basic needs, such as heating or fresh fruit and vegetables.
As Karl Handscomb, Senior Economist at the Resolution Foundation, put it, “Government support has played a vital role in protecting family incomes during the initial economic shock from lockdown. But as the crisis has persisted, new divides have emerged in how families are coping financially with the crisis.”
Debt Rising in the Pandemic
Hardship tends to lead to debt, with many of those affected either falling behind with existing payments or taking out loans which they then struggle to keep up with. A report by charity Turn2Us suggests that now one in three of us have fallen into debt.
This is likely to get worse, as large numbers of workers who have been on furlough will be losing their jobs, or else seeing their pay slashed. The already-controversial five-week wait before Universal Credit can be claimed is likely to make things even worse.
“What is clear now,” according to Turn2Us Chief Executive Thomas Lawson, “is that financial resilience is at an all time low. Even if a vaccine for Covid-19 becomes available tomorrow, the damage has been done to people’s finances.”
What’s the Effect on Small Businesses?
If you’re a small business owner or landlord, what does this mean to you? Well, if your customers are the general public, it may result in either lower sales or arrears building up. If you’re business-to-business, on the other hand, there’s an increased risk of hard-pressed clients being unable to pay your invoices.
As long as these are “can’t pay” rather than “won’t pay” clients, it’s important to handle the situation in a way that gives you most chance of being able to get your money back, even if not straight away. Give me a call to find out more about your options.
