“Claer — do you know anything about the benefits system?”
This week, I received the first message from a friend on furlough who has just been told she’s likely to be made redundant. Sadly, I fear it won’t be the last.
Around 9m workers in the UK are currently furloughed, but they face an uncertain future. The government has prevented mass unemployment by agreeing to cover 80 per cent of their wages — a scheme that could end up costing the taxpayer some £60bn — but from August, employers will need to start contributing towards the cost.
As a result, many are launching consultation periods with staff at risk of redundancy (depending on how many roles are affected, this needs to start between 45 and 30 days before any dismissals take effect).
The friend who contacted me was trying to work out what financial help she might be entitled to if the worst happens. She was shocked to find out how little this would be.
Even though she has paid tax and national insurance for more than 30 years of her working life, her partner (who is self-employed and currently not earning anything) has more than £16,000 in savings accounts and a stocks and shares Isa. Although this is her partner’s money, and not hers, this immediately prevents either of them from claiming universal credit. You don’t need to be married for this rule to apply, but simply living with a partner.
My friend should be able to claim jobseeker’s allowance, which is not a means-tested benefit. But this is just under £75 per week, and limited to 26 weeks.
She should also be entitled to a redundancy payout. Although the first £30,000 of anything you get is tax free, be aware that this will still be counted as “savings” in the eyes of the benefits system.
My friend was surprised to learn that her partner’s savings counted against her — particularly as the stocks and shares Isa is a long-term investment akin to a pension. By contrast, money accumulating in pensions is not means tested, as it is not deemed to be “accessible”. But Isas, including the Lifetime Isa for the under-40s, will count — even though the Lisa was billed as a halfway house between a pension and saving for a property.
Any early withdrawals from a Lisa will wipe out the 25 per cent bonus, though the Treasury has recently tweaked the rules to remove the additional penalties.
If your investments are under water, then tough luck. You will be expected to sell up and burn through that cash before you can claim any benefits. Owning a property that is not your main home could also prevent a claim.
I’m aware that plenty of you will be reading this thinking, well, it’s only right that we use our savings before making recourse to the state safety net. But I am writing about it because it’s becoming more apparent to me how few people realise this is how the system works — and an awful lot of them could soon find out.
You should also bear this in mind when you look at the jobs data. Figures this week showed that 2.8m people were claiming out of work benefits in May. The numbers are undoubtedly going to rise as the furlough support tails off, but they won’t include people who are not entitled to claim.
And there are millions of people who have already found that they’re not entitled to access the government’s two main support schemes for PAYE workers and the self-employed.
I’ve written here before about the plight of those working at the more flexible end of the labour market who have found that state support does not reflect the reality of modern working practices.
The recently self-employed; freelance workers who are taxed at source through the PAYE system; many people working via umbrella companies and limited company directors who pay themselves via dividends have “fallen between the cracks”.
Most have had little or no income now for over three months. They are burning through savings, borrowing money to get by and becoming increasingly desperate.
This week, MPs on the influential Treasury select committee urged the chancellor to look again at what more can be done for those who have been excluded and fear they have been forgotten.
Two huge campaign groups have mustered around the social media hashtags #ExcludedUK and #ForgottenLtd where you can find many personal stories of hardship, as well as hope that things will change.
Losing either your business or your job would be a hammer blow to anyone’s finances. Even if you manage to avoid redundancy, the chances are that your income has fallen (either as a result of being furloughed or taking a voluntary cut). So I’ll end with some practical thoughts.
If you are put on consultation for redundancy, make sure you know your rights and don’t be afraid to challenge what you’re being told. We will be writing much more about this in FT Money in coming weeks.
The changes happening in the workforce as a result of the coronavirus are the biggest and fastest-moving challenge companies and HR departments have had to face in years. With many offices still working remotely, there is plenty of potential for things to go wrong and messages to be miscommunicated. Yet the economic reality is that large numbers of jobs are going to be lost.
Even if you hang on to yours, you are likely to have friends or family members who will receive bad news in the coming weeks and months. Being made redundant or struggling with your finances can be traumatic. Yet this is the reality millions are facing. We will all be relying on close friends to provide support and a listening ear when the chips are down. Social distancing means hugs are currently out — but it costs nothing to let people know you care and it could mean the world to them.