Watchdog survey reveals financial struggles of furloughed staff

FURLOUGHED workers are three times more likely to have defaulted on payments in the past month compared to those whose employment hasn’t changed, a Which? study has found.

The consumer watchdog said its latest research highlights the challenge facing the Financial Conduct Authority as it considers what additional support measures may be needed for those struggling financially once the government scheme ends in October.

Following a recent survey, Which? said that 13 per cent of those furloughed, put on enforced leave or given reduced hours due to the coronavirus crisis reported having defaulted on a payment, compared to 4 per cent of those still working as usual.

Seven per cent of this group had defaulted on a bill and 6 per cent had defaulted on a loan or credit card payment. Of those renting or holding a mortgage, 5 per cent had defaulted on their housing payment. Some respondents will have defaulted on more than one payment type.

The default rates for bills, as well as loans and credit cards, are more than double that of those who are still working as normal. More than 2,000 adults were surveyed as part of the study.

Research also showed 60 per cent of people furloughed, put on enforced leave or given reduced hours had made one or more changes to their spending patterns in the past month that indicate financial pressure.

This compares to 42 per cent among those working as usual. While over a third of people (34 per cent) have cut back on essential spending, 31 per cent have taken money from their savings and 14 per cent have used an overdraft.

In each category, the proportion of people taking steps to manage financial pressures was higher among the furloughed group compared to those working as usual. According to previous estimates, around 9.5million people were on the Government’s Job Retention Scheme in July. From August, employers have to begin contributing towards it and it is due to end completely on Oct 31. This is the same deadline that the FCA has set consumers to apply for a mortgage holiday from their banks, as well as similar assistance for credit cards, personal loans, car finance, payday loans, overdrafts and insurance premiums.

Which? said it believed more support would be required to help those in difficulty once the furlough period comes to an end with people’s finances likely to be placed under even greater strain if they are left unemployed or on permanently reduced hours.

The group said the industry should be communicating about assistance it can provide through support measures currently in place, such as payment holidays, so that people in financial difficulty are aware of the help on offer.

Richard Piggin, of Which? said: “Despite extensive action being taken by the Government and the banking industry, it’s very worrying that people currently on the furlough scheme have reported experiencing much higher levels of financial difficulty than those who are working as normal.

“With just a couple of months until the scheme comes to an end, there is real concern that this gap could widen even further,” he said.

“The FCA is right to take steps to consider additional support and the industry will also have to ensure consumers are provided with help if they are in financial difficulty.”