The pandemic has caused widespread change across the UK and has had a significant financial impact on millions of people. The government has introduced a range of measures to support the country and those directly affected – but this also serves as a reminder to review the protection needs for you and your family.
The changing picture
In the Budget on 11 March, the Office for Budget Responsibility (OBR) estimated that in 2020/21, the government would have to borrow about £55 billion to fund the difference between what it spent and what would be raised in taxes and other revenue.
A little over one month later following the impact of the pandemic, the OBR issued another, vastly different set of numbers, quoting potential borrowing of £273 billion or 14% of GDP. This time the OBR was at pains to emphasise that its figures were not a formal forecast but rather “a scenario ? based on the illustrative assumption that people’s movements (and thus economic activity) would be heavily restricted for three months and would get back to normal over the subsequent three months”.
The outlook for the recovery
The second part of the OBR’s scenario of a V-shaped recovery – a sharp fall followed by an even sharper bounce back – was met with some scepticism from other forecasters. Economists have suggested a U-shape – gently picking up before rising sharply; W-shape – a partial rise followed by another dip from a second wave of infections before a final sharp recovery; and L-shape – the economy stops falling, but then flatlines at its new low level.
Whichever proves correct – and none may do so – one near certainty is that in a year’s time the government’s total debt will be close to equaling the size of the UK economy. The corollary is that the Chancellor is going to be in no position to make tax cuts and the Conservative’s manifesto pledge not to increase the rates of Income Tax, VAT and National Insurance contributions (NICs) may even have to be dropped.
Putting support measures in place
There are 8.4 million workers covered by the government’s furlough scheme, also known as the Coronavirus Job Retention Scheme (CJRS), which allows employees to receive 80% of their salary up to £2,500 each month. 2.3 million self-employed workers have also joined the government’s Self-employment Income Support Scheme (SEISS) which pays out a single three-month lump sum capped at £7,500. At the end of May, claims made by employers and the self-employed totalled £21.8 billion.
The global lockdown has tested supply chains, internet connections and government social security safety nets.
In the UK, other measures taken include:
• Scrapping the four-day waiting period before statutory sick pay (SSP), £95.85 a week, began to be paid to employees suffering from Covid-19 symptoms – the self-employed do not qualify for SSP
• Adding £1,000 a year to the standard allowance under Universal Credit, to bring it approximately into line with the value of SSP at £410 a month for a single person aged 25 or over (£594 for a couple)
• Legislating to prevent evictions for three months and demanding mortgage lenders, credit card companies and others grant three-month payment holidays.
Some of the changes made by the government may endure – for example, it will be hard to reinstate the former Universal Credit standard allowance – but others are too costly or disruptive to maintain.
Taking responsibility for your own protection
Whether or not you have benefited from any of the Covid-19 measures, it is worth considering how you and your family finances would have fared if instead of a pandemic, you faced the more common risks of losing your job or even dying. There would be no enhanced state safety net in those circumstances.
The lesson, like some of those other Covid-19 insights, is that you need to have your own protection in place, be it through insurance and/or a sufficient rainy-day fund. It is important to recognise the needs of the family unit, as protection needs can help to address overall financial impact, for example in the event of a non-working spouse/partner no longer being able to perform their household tasks due to illness or death.
Protection underpins financial planning and provides valuable security to you and your family. Our advisers can assess your needs and review existing protection policies and rainy day funds and then either confirm that you have sufficient protection in place or recommend actions to address any gaps. The pandemic has served as a timely reminder to review your protection plans.
CA5375 Exp 26/12/2020