In 2010, the outgoing Chief Secretary to the Treasury left his successor a note. It famously read:
“I’m afraid there is no money.”
At the time, he wasn’t joking. UK government borrowing was at record highs.
Since then, coalition and contrastive governments have committed to cutting the deficit. A robust, many would now say, an overly stringent set of fiscal policies have reduced the deficit from a record £154 billion in 2009 (around 10% of GDP) to £52bn in March 2017 (2.6% of GDP).
Unfortunately, at the same time, consumer debt has increased since 2012.
Consumer Debt Time Bomb
In the past five years, consumer debt – which includes mortgages, loans, credit cards, store cards, car finance and student loans – has grown 7.3%, adjusted for inflation. During that same period, wages have only increased 0.7%, which means more people than ever before are turning to credit to treat themselves, go on holidays, even pay household bills.
One reason for a larger debt burden is rising house prices, which means a considerable amount of this debt, around £1.3 trillion is tied to property which is increasing in value. However, £201.5 billion of the UK’s total debt – £1.63 trillion – is unsecured, through credit, store cards, loans and overdrafts, with the latest figures for July 2017.
The number of customers in arrears, an indicator of financial distress and an inability to afford credit, has also increased. Over the last five years, council tax, water and electricity bill arrears has increased around 12% to a combined total of £5.3 billion. There aren’t accurate figures for arrears in other areas, including rent and phone bills, but the rise in CCJs and bailiff action are strong indicators that families are struggling to cope with too much consumer debt.
If this is all sounding scarily familiar, as if we’ve lived through this nightmare before, you wouldn’t be wrong. In many respects, the UK economy is approaching potentially worrying economic waters. Experts note that “the ratio of household debt to GDP heading back towards the peak seen in the boom years before the financial crash.”
The outgoing German Finance Minister Wolfgang Schäuble has warned that “risks arising from the accumulation of more and more liquidity and the growth of public and private debt” could cause a new financial crisis. Germany, unlike other Eurozone countries, is running a trade and government surplus, currently sitting at £16.8bn for the first half of 2017.
Why Employers Should Be Concerned
Work directly impacts home life, and what happens at home never always stays at home.
As much as employees and employers try, when one area of our life is out of balance – such as our personal finances – it impacts everything else. Debt causes stress. Stress causes staff to take time off. A cold or flu isn’t always caused by a virus: stress colds are similar, in many ways, but anxiety is the main cause, with a lack of money, savings or too much debt one of the reasons employees need to take time off because of stress.
Not only do people take time off, but employees can be present whilst being mentally checked out. Coming into work so focused on something else that they aren’t productive is nearly as bad as an employee taking time off as a result of stress. In either case, your team and potential customers are affected.
Another risk is that they look elsewhere for work. When debts mount, one of the seemingly easiest ways to reduce them is to try and earn more. If your company isn’t raising salaries, then they could start looking for a new job to gain the pay rise they need to get debts under control.
Is There A Solution?
Thankfully, there is a solution, and it won’t cost you a penny.
Not every employer can raise salaries quickly, or give out loans, or directly step in when staff are struggling. Nor is it your role as an employer to do that. Not every practical financial workplace benefit needs to come from your HR budget.
Providing practical support, such as employee benefit credit union accounts, is far cheaper – free for businesses, in the case of FairQuid – than watching staff struggle, lowering productivity and even jumping ship.
As an employer, you can do something about these issues (whilst also ensuring your staff are more productive and engaged) – thanks to FairQuid Credit Union savings accounts. Best of all, these won’t cost your business a penny. Find out more today.