End of furlough scheme set to spark debt nightmares: UK Finance

Sarah Coles, personal finance analyst at Hargreaves Lansdown, comments on UK Finance’s publication of its Household Finance Review, which shows the end of furlough scheme is set to spark debt nightmares.

“Hundreds of thousands of people could be left high and dry when the furlough scheme comes to an end, and those who are carrying debts could find themselves in serious difficulty.

“The ONS Business Insights survey estimates that between 1.6 million and 2 million people were on full or partial furlough at the start of August. On the face of it, if their employer can’t take them on again, they should be able to find work, given there were an estimated 953,000 job vacancies in May to July 2021, a record high. 

“However, in reality, it’s incredibly tough. There’s a real mismatch between the sectors people are on furlough from and the sectors that are recruiting. Not every sales assistant wants to take a pay cut to move into care or retrain as a delivery driver. It’s why NIESR forecasts unemployment will hit 5.4% at the end of the year.

“It’s no wonder that our research* shows that 54% of people are worried about their debts. Right now, arrears are at low levels, but UK Finance warned that when the furlough scheme ends, those who can’t find work are likely to run into trouble.

“At the moment, UK Finance says the number of people who are starting to run into trouble with mortgage payments is falling, while the number with more serious problems rises. As the furlough scheme comes to an end, we can expect those facing problems for the first time to rise too.   

“Anxiety about the future goes beyond those who are on furlough too. Our research* found that 54% of people are concerned their income will fall in the future as the pandemic continues to unfold. It’s one reason why despite putting away record levels of savings, we’re too worried to tie the cash up for a period in return for a better rate. UK Finance data shows the money in fixed rate and notice accounts has been falling since the start of 2021 and has hit a record low.”

* Statistics from a national representative survey of 10,030 UK adults by Focaldata for HL in June 2021.

Kindly shared by Hargreaves Lansdown

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