The small waiting room at Brighton and Hove Citizens Advice bureau, based in Hove town hall, is heaving. The network of bureaux is at the sharp end of the credit crunch and reports a 52 per cent rise in the number of inquiries relating to redundancy in the past six months.
Cash is here to examine the catastrophic impact that job loss can have on a family's financial wellbeing. What happens when a breadwinner suddenly loses his or her job and there are young children to clothe and feed, not to mention the mortgage and bills to pay?
'It isn't just the fact that people lose their job, but that their whole lives can unravel. Everything can fall apart - that's what is so terrible,' says Sheelagh Reid, a 61-year-old adviser who has volunteered at Brighton Citizens Advice for 15 years. The experience can be as upsetting for advisers as it is devastating for clients, she adds. 'I enjoy my work but I wouldn't want to do more than one day a week. It's draining.'
She is considering the financial fate of a fairly typical household that has been abruptly deprived of a £40,000 salary. For the purpose of this exercise, I am playing the part of a breadwinner who's been comfortable in his well-remunerated job for 14 years prior to falling victim to a tanking economy. My (fictional) family has, by today's standards, an unremarkable level of indebtedness: £80,000 to pay on the mortgage and £4,000 outstanding on the credit cards.
Even so, the prognosis is grim. A person 'like the hypothetical you', as Reid puts it, 'is unlikely to have much put by the way of savings. People just don't save any more ... so, sadly, redundancy can destroy marriages and the whole fabric of lives can fall apart.'
It is a view shared by Beccy Boden Wilks from National Debtline, who advises me over the phone before I set off. She reckons the average Briton's savings would only last 52 days if they were to lose their job. According to the Yorkshire building society, average monthly outgoings are £1,445 and the average accessible savings are £2,474. 'Losing a job leaves us incredibly exposed,' she says. 'Few of us would be immune.'
These are questions I asked Citizens Advice:
How much would my employer have to pay if he sacks me after 14 years' faithful service?
Reid wants to know if I have contractual rights exceeding the bare legal requirements. No, I don't.
People are often shocked at how little statutory redundancy pay is, she says. 'You don't get anything until you have been working there for two years and there is a maximum amount you can be paid' - one week for each year's service up to the age of 41 and then one and a half weeks per year, capped at £330 a week.
For the hypothetical me, with my 14 years' service, that adds up to £4,620. If my redundancy pay was meant to be a cushion to soften the blow, then, as Emily Ballantyne, the specialist advice unit manager at Brighton CAB, says it's rather threadbare.
How much will we have to live on?
The answer is £140.38 a week. OK, that's an estimate, but it's likely to be as little as that. According to National Debtline, we would get Jobseeker's Allowance (£94.95 for a couple), £14.08 in tax credits (because I have been working and just lost my job, they are lower than they would have been if I hadn't been working for the past two years), and £31.35 child benefit. 'From that sum you'd have to pay your mortgage, utilities, telephone, car, insurance - everything,' says Boden Wilks. 'The only thing you aren't going to pay out for is council tax' - apparently, I'm entitled to council tax benefit.
How am I going to be able to pay our mortgage?
I'm probably not. It's easy to see that without payment protection insurance (which neither I nor my fictional self have), I'm not going to be able to cover my monthly mortgage payments of £550. 'You need to contact your lender if you have no insurance. Say that you are on Jobseeker's Allowance, you can't afford your mortgage but you're looking for work and hoping to get work,' advises Boden Wilks.
From 5 January, the government will step in to help homeowners with their mortgage interest after 13 weeks of unemployment. The maximum size of mortgage qualifying for help will also rise, from £100,000 to £200,000. But although my £80,000 mortgage is the right size to qualify for help now, because the hypothetical me was made redundant before 5 January, I won't qualify for help for 39 weeks.
So what do the mortgage companies have to say? Lenders can begin court action when homeowners are two months in arrears (though the pre-Budget report wants them to wait three months at least). The sooner I contact my lender, the more options I have, Sarah Robson from the Council of Mortgage Lenders tells me. 'There's no one-size-fits-all approach. The lender will assess the individual situation the borrower is in and try to find a reasonable repayment option.'
This could mean moving on to an interest-only loan, taking a payment holiday or extending the length of the mortgage. As Ballantyne is quick to point out, an £80,000 interest-only mortgage with a 5 per cent interest rate would still cost me £333 a month. The best scenario is a payment holiday, she adds.
Unfortunately, my notional mortgage company (the Halifax) tells me that it doesn't offer them in the event of redundancy. A spokesman says they might agree 'a reduced payment or a nil payment for a period of time' (apparently not the same as a payment holiday). I have not missed a mortgage payment for 14 years; could I have a nil-payment period? That will depend on my circumstances, he tells me.
What about my £4,000 credit card bill?
Sort out your priority from your non-priority debts, advises Ballantyne - and remember that 'credit cards aren't priority debts. Most people don't understand that. Priority debts are your rent or mortgage, fuel bills and council tax. Non-priorities are unsecured loans - credit cards, store cards, and catalogues.'
Creditors with non-priority debts will scream loudest, ring you up at home and deluge you with red-letter demands, says Boden Wilks. The reason for that is that their money isn't secured against anything you own, so they're worried they won't get it back.
She recommends I start by filling out National Debtline's budget sheet which enables me to calculate my available income after we've paid mortgage, council tax, gas and electricity. If there's any money left for my creditors, we can work out what we can afford to pay and contact creditors making 'pro rata' offers.
I ring up Barclaycard: 'Will you cut me some slack on my £4,000 until I get back on my feet?' Not exactly; but, as the spokesman puts it, they can 'guarantee that we'll be sympathetic'. He goes on to explain they might use a number of options, 'such as accepting reduced repayments for a period of time or looking to agree a repayment plan'.
What about fuel bills?
Payments can be recalculated and direct debits reset on a lower tariff, says Patricia Ockenden of new watchdog Consumer Focus. 'It all depends on your level of consumption, the property and the amount of difficulty you're in. It's always possible for consumers to renegotiate their tariff and look at other ways of paying for their energy.' She warns me to stay clear of prepayment meters, which suppliers might suggest as a means of economising: 'You have to be very cautious. You could end up paying a tariff far greater than you would be if you paid by a different means and moving back to the standard meter can be costly as well.' Ballantyne agrees - she calls them 'debt recovery machines'. Consumer Focus has good advice if you are having problems paying your bills (consumerfocus.org).
I ask EDF what it can do for me. For its 'most in need' customers, it offers a long-term social tariff. This would include someone on Jobseeker's Allowance if they spend more than 10 per cent of their income on their energy bills (more than likely if I'm on benefits). 'Our customers - including those on prepayment meters - can access our social tariff,' a spokesman says. He reckons that EDF's 'Energy Assist' represents an annual saving on an average bill of up to £184.90, assuming a dual-fuel tariff.
How am I going to feed my family?
Boden Wilks says the guideline for housekeeping for two adults and two children is around £500 a month, a figure agreed between the debt advice sector and credit industry: 'You're not going to be spending that much, though,' she warns. 'Your monthly income on Jobseeker's is only £608.31. You're going to shop as cheaply as possible.'
What you need to know
Is the rule 'last in, first out' still used?
Some businesses may still operate on this basis, but they have to be careful. If all the people made redundant are young, the employees could claim against their employer on the grounds of age discrimination.
How quickly can I sign on?
It depends on your particular circumstances and how your final payoff is regarded by your Jobcentre Plus. The best thing is to ring up (0800 0556688) and provide your details immediately. You will then be given an appointment to see an adviser who can determine when, and if, you qualify.
How much money will I get?
The standard Jobseeker's Allowance (JSA) is £47.95 a week for people under the age of 25, and £60.50 a week for over-25s, and lone parents aged 18 or more. You may also qualify for other benefits, so check, either with your local Jobcentre Plus or Citizens Advice. If you are unable to work, you may be able to claim Income Support (the same amount of money) instead. You can claim by calling 0800 0556688 or online at www.jobcentreplus.gov.uk. In Northern Ireland, you claim JSA at a Jobs and Benefits Office or Social Security Office.
Will the money be cut off if I refuse to take a job?
It could be. To claim JSA you must be capable of working, below state pension age, available for work and actively seeking it. If you fail to take up a job offer, or follow up chances of work, you may be penalised. Your JSA could be reduced or stopped for between one and 26 weeks. You can also be penalised because of the circumstances in which you left your last job, for example, if you left voluntarily or were dismissed because of misconduct.
Will I get help with my mortgage?
If you are eligible for JSA or income support, you can claim help with the monthly interest, but not repayment of the loan itself.
When you get help depends on its size (help is only extended to loans up to £100,000) and when you took out your mortgage: if it was before 2 October 1995, you will get nothing for eight weeks, then 50 per cent for the next 18, and the full amount after 26; if you took out your loan on or after that date, you will have to wait for 39 weeks. From 5 January, the waiting period will be reduced to 13 weeks, and the maximum limit raised to £200,000.
Should I use my redundancy payment to reduce or pay off my mortgage?
It depends how much money you get. If you receive a huge amount, then why not pay off at least part of your mortgage? But if you get tens of thousands of pounds or less, you should probably hold onto a large part of the cash to meet bills and in case of an emergency.
I can't afford to pay all my bills - which ones should I concentrate on?
Mortgage or rent, council tax and utilities, and anything affected by a judgement order or bailiff action. If you fail to pay these, you could end up homeless.
I can't manage my debts now I've lost my salary - should I take out one of those plans advertised on TV?
Definitely not. Although they purport to cut your debts, they will charge a large amount to set up the plan. Instead, seek free advice from one of the debt-counselling charities, such as Citizens Advice (www.citizensadvice.org.uk), National Debtline (0808 808 4000), Capitalise (in London - 020 7392 2953) or Consumer Credit Counselling Service (0800 138 1111).
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