HOW TO COPE WITH THE... COVID CLIFF EDGE

ROSIE MURRAY-WEST ASKS THE EXPERTS FOR THEIR TIPS ON HOW WE CAN NAVIGATE THE CURRENT LOCKDOWN AND EMERGE WITH OUR FINANCES INTACT...

AS THE Covid crisis drags on, and with it the damage to the economy, an increasing number of British households are wondering whether their finances can stand the strain. According to British financial regulator the FCA (Financial Conduct Authority), the last lockdown pushed two million people into financial difficulties. Laith Khalaf, financial analyst at AJ Bell, says that he expects this trend to ‘raise its head again’ with shops and other employers shut for the winter. ‘The pandemic has created a two-tier nation,’ he explains.

‘A renewed lockdown will increase financial pressure on many businesses and individuals.’ Added to this is the fear that many of the support schemes set up to help people cope with the current crisis will reach an end in the coming months, leaving people with even less financial resilience than before. Justin Basini, CEO of credit score service ClearScore, says he is already seeing a growing divide between the ‘haves’ and ‘have-nots’ when it comes to credit scores, with hundreds of thousands of people defaulting on credit cards and loans. ‘Unless more is done by the government to slow redundancies and protect those at most financial risk, this gap is likely to continue to widen in 2021 and further entrench financial divides,’ he says. ‘Without further industry and government intervention, we can expect to see considerable debt piles occur for UK consumers, not least because consumers have started to resort to desperate measures.’

‘Half a million private renters remain behind on their rent, with the majority falling behind during the pandemic restrictions’

Alistair Cromwell, acting chief executive of Citizens Advice

‘The pandemic has created a two-tier nation. A renewed lockdown will increase financial pressure on many businesses and individuals’

Laith Khalaf, financial analyst at AJ Bell

Covid support schemes

‘It’s a very worrying time for many, but there are financial support mechanisms in place which may be able to help – though many of them have looming deadlines, and we don’t yet know if they’ll be extended,’ says Steve Nowottny, news and investigations editor at moneysavingexpert.com.

‘If you’re struggling, it’s worth doing a full check now of what help is available, and keeping an eye on whether that help, and the deadline to apply for it, is extended in due course.’

Here are some of the support packages that are available now for individuals whose livelihoods have been affected by coronavirus. Many of them run out at the end of March, while the ban on home repossessions runs out on January 31, although there is hope that this ban might be extended given the current lockdown.

Furlough

If you can’t work – for example if you are employed in an industry that is shut because of Covid – or can only work part time, the government’s furlough scheme can help ensure you receive up to 80 per cent of your income.

Under the scheme, the government will pay you the lesser of £2,500 a month or 80 per cent of your usual salary for any hours you can’t work from your usual contract. You can be furloughed part-time and, crucially at this time with the schools shut, you can ask to be furloughed for childcare reasons or because you are shielding. Your employer does not have to furlough you just because you have asked, however, and there is a cost to the employer of the furlough scheme as they must still pay National Insurance and pension contributions for you. The furlough scheme now runs until April 30.

SEISS

The self-employed can apply for support via the Self Employment Income Support Scheme (SEISS) grant to cover the period November 2020 to January 2021, covering 80 per cent of trading profits capped at £7,500, with applications open until the end of January.

A fourth grant, covering February to the end of April will be available after that, but the level of this grant has not yet been determined. The grant is not available to the newly self-employed, those who are the directors of limited companies or those whose trading profits were on average more than £50,000 over a year.

Universal Credit

‘Don’t dismiss Universal Credit. It’s a benefit available to many employed, self-employed and unemployed people, plus those on low incomes – whether furloughed, getting SEISS grants or not,’ says Steve at Moneysavingexpert.

The government increased the weekly Universal Credit payout by £20 at the beginning of the coronavirus crisis, but this is due to end in March – although there is pressure on the government to extend this.

To see whether you can apply for Universal Credit, visit www.gov.uk/ apply-universal-credit or for more information go to turn2us.org.uk.

Other help available

As well as specific coronavirus support schemes, there is other help available if you are struggling financially. Your bank may be able to offer you a zero per cent overdraft for a certain amount of time if you are struggling, while free services from stepchange.org or Christians Against Poverty (capuk.org) can help you manage existing debt without taking a fee.

If you have expensive credit card debt, but a good credit rating, you may be able to transfer it to a zero per cent credit card to give you a bit of breathing space.

Laith at AJ Bell says that the average interest rate on a credit card is 17 per cent. ‘If you can switch from paying 17 per cent to zero per cent with a bit of paperwork, that’s a nobrainer. The introductory offer of zero per cent will only last for a limited period, after which much higher rates start to apply.

‘So, by that time make sure you have either paid your debt off, or have found another provider offering zero per cent on balance transfers you can switch to. You also need to factor in any fees charged for the balance transfer, or ongoing fees for the credit card.’

Citizens Advice (citizensadvice.org. uk) can help you with other issues, including whether you qualify for a council tax refund, and can give you advice on how to get help with paying household bills.

Useful contacts

www.gov.uk/coronavirus/workersupport

The government website gives information on furlough and other worker benefits, and how to claim SEISS for the self-employed.

turn2us.org.uk

For help understanding what you are entitled to from the government, and to search for grants from charitable funds. Free helpline 0808 802 2000 (9am to 5pm weekdays).

stepchange.org

Stepchange is a charity that can help you consolidate your debts and deal with creditors, without charging you a fee. It can also advise on bankruptcy, individual voluntary arrangements (a less onerous form of insolvency) and other debt issues.

shelter.org.uk

If you are struggling with possible eviction or repossession in England or Scotland, housing charity Shelter has a helpline at 0800 808 4444, or you can find details of local advisers online

citizensadvice.org.uk

Citizens Advice can provide invaluable advice if you want help demystifying all the new rules and grants. They also provide help across a range of other issues, including debt.