Eight in ten UK workers unable to make ends meet between pay days

03 September 2018 Authored by Consultancy.uk

Shocking new research has discovered that almost 80% of the British workforce have difficulty making ends meet between their pay days, as stagnating wages leave citizens vulnerable to inflation. Financial stress is not just a matter for employees to worry about, however, with the issue impacting workforce performance, and ultimately contributing to the productivity crisis UK business is struggling to deal with.

For February to April 2018 the unemployment rate for people was 4.2%, the joint lowest since 1975. While this figure suggests cause for celebration, however, a closer look has given experts growing cause for concern in recent months. While more people are in work than for four decades, that should be delivering a larger boost to the economy than it has, as more people theoretically have access to disposable income.

Contrary to this, in summer 2018 the British Chambers of Commerce warned that UK growth could hit its lowest levels since 2009, as the organisation downgraded its growth forecast by 0.1%. While the fall from 1.4% to 1.3% might seem trivial to some, it would place the UK’s economy at its lowest point in nine years; a time when it had just been rocked by the great recession of 2008. Examining that period against the present, while the banking sector might be marginally better regulated now, what hasn’t changed is the fact stagnant wages have left many workers still depending on credit to get by on a monthly basis.

As the UK’s unemployment figure currently resides at a historic low, there is only so much more of a boost it can hypothetically provide, if the trend of more people becoming employed even continues. At least, that is the case without a significant improvement in the nation’s pay packet, and without either of these boosts, Britain could be sitting on the verge of another credit crunch, and even a recession. With the UK retail sector currently staggered by a succession of high profile administrations, the warning signs appear to already be there.

State of play

At present, according to a new study conducted by independent research consulting firm, Vitreous World, on behalf of employee pay app Hastee Pay, 78% of workers currently use various types of credit, such as payday loans, credit cards and unplanned overdrafts, to source money quickly between pay days, suggesting that monthly outgoings are not aligned with their monthly salaries. The ‘Workplace Wellbeing Study’ polled over 1,000 UK residents to uncover their working habits, credit arrangements and payment methods, and found that 71% of workers aged 25-44 rely on credit cards in particular.

78% of workers use finance options to source money quickly between pay days

According to the researchers, this suggests that younger workers are risking their long term financial stability by accumulating debt with no other easy means of accessing additional funds to help them get by until payday, opening the door for a cycle of debt. Aside from credit cards, of those quizzed, a significant proportion of workers in financial difficulties use overdrafts, doorstep loans and payday loans to bridge the gap. At 47%, almost half of the sample of employees had experienced difficulties relying on payday loans, while a further 45% previously experienced difficulty relying on equally high-interest doorstep loans and 40% have encountered difficulty with bank overdrafts.

Those earning less than £20,000 a year are the least likely to clear their personal finance debts each month, while some 25.6 million consumers could be vulnerable to financial harm as a result. This is likely to impeded their ability to pay off such debts further, as it impacts on their ability to even get to work. To this end, Vitreous World and Hastee Pay’s research found that 32% of people have not been able to make it into work as a result of not having enough funds to pay for their commute, after an unexpected cost meant travel money had to be reallocated.

At the same time, overall consumer debt soared by 10% between 2016 and 2017, and with this is unlikely to slow on the basis of more recent evidence. In the past year, the pay of FTSE 100 bosses surged 11%, pushing their median pay up to nearly £4 million a year ($5.1 million), according to a report by the Chartered Institute of Personnel and Development. Meanwhile, full-time employees received a comparatively meagre 2% rise over the same period, and while inflation was lauded as defying the odds by remaining at 2.4%, this has meant most staff received a real-terms pay cut for their hard work. This reinforces fears previously voiced by the Financial Conduct Authority, which professed that Britain is presently sitting on a debt time-bomb – something especially disconcerting as the nation prepares for the economic unknown of what will likely be a No Deal Brexit in 2019.

Commenting on the current state of play, the Trade Unions Congress’ General Secretary Frances O’Grady recently said, “It’s taking wages longer to recover from this crash than it did after the Great Depression. The government is turning a blind eye to Britain’s living standards crisis. Ministers must get wages rising faster now.”

However, it is not just a matter of concern for those among the working class. Financial stress, associated with the debt many staff deal with on a daily basis, has long been linked to poor workplace performance, something which stings employers for billions globally every year. Nearly three-quarters of 18 to 34-year-olds in the UK have experienced mental health or well-being issues linked to money. According to the survey, financial stress impacts people’s sleep worst, at 38%, alongside social life (29%), relationships (29%), and health (23%).

While none of these answers mention work directly, under the sustained mantra purported by many business experts, that “a happy worker is a productive worker”, it is impossible to ignore the impact this is likely to have on a business’ output. 25% of workers stated that they have suffered from a lack of concentration at work due to their finances. The UK’s economy remains plagued by sluggish performance, and the issue deepened in 2017, as overall output per hour worked declined 0.2% in the year to the second quarter of 2017, compared with an OBR forecast for 1.5% growth as recently as the March Budget. Elsewhere the International Monetary Fund announced that due to "weaker-than-expected activity" in the first three months of the year, the global financial institution forecasts that the UK economy would grow by 1.7%, compared to a previously anticipated 2%.

Variations

While its markets continue to perform well, and the city is talked about as a potential global tech hub in the near future, London faces a multitude of conundrums as it plans for a future outside of the EU. Should a number of structural issues, including the cost of living and of housing and rental accommodation, fail to be addressed in the capital, Grant Thornton recently predicted that over 500,000 Londoners could exit the city, with many millennials among them, costing its economy around £60 billion in Gross Value Added.

Across the UK, 71% of workers aged 25- 44 rely on credit cards

In line with this, the report from Vitreous World and Hastee Pay reveals London’s dependence on high cost credit to be even more severe. Some 91% of Londoners rely on credit cards to help budgeting and personal finance, further highlighting the long-ignored imbalance between London salaries and the cost of living in the capital. Interestingly, these findings are not exclusive to workers on low incomes.

Indeed, even among some of London’s higher paid employees, and those in senior positions, three quarters of such people across the UK rely credit on cards, raising the question. To that end, one third of the UK’s best paid workers could be unable to pay an unanticipated bill of £500 or more without resorting to borrowing, shaking the theory these individuals are middle class, as opposed to being better paid but still vulnerable members of the working class. Meanwhile, results also showed marked gender differences. 43% of the working population are uncomfortable asking for an advance in pay at work, but this discomfort is more evident among 52% of female workers, compared to just 34% of male workers, pushing more women toward the previously mentioned credit methods, which have encumbered many workers with heavy debt burdens and financial stress.

James Herbert, CEO of Hastee Pay, commented on the findings, “The fact that those in steady employment are struggling to balance their incomings and outgoings paints a worrying picture. We’re not just seeing those on lower pay struggling to put food on the table but also middle-income families unable to cope with an unexpected £500 bill… The financial stress this creates is impacting workplace productivity.”

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