Income insecurity has a lasting impact on people’s vulnerability to debt

By Henry Hall, Insight and Planning Officer

Recent data from the ONS shows that people who are in continuous work have higher increases in earnings than people who have gaps in their employment.

People in continuous work have seen their incomes increase by 4.6% while all employees have seen a 2.2% increase. This is to say that people in continuous employment have (fairly consistently) seen double the earnings increase as all employees.

Annual percentage change in median full-time gross weekly earnings for all employees and those in continuous employment, UK, April 2005 to 2016. Source: Annual Survey of Hours and Earngings (ASHE) — ONS

Forced to turn to credit

We’ve seen before how insecure work has led people to suffer financial difficulty and a change to income or employment is still the most common reason for our clients to fall into problem debt. After all, 19% of our clients fell into problem debt due to losing their job, and 15% due to injury or illness.

The data suggests that there’s an inbuilt advantage for those who can maintain continuous employment, and prospects for pay rises, promotions and improvement in sector skills all help pay to increase at a faster rate. For those who find themselves in and out of employment, prospects for pay increases are lower.

Sudden changes to income can push people into a spiral of debt, particularly when there is little financial resilience built up to protect against shocks. People are often then forced to turn to credit to make ends meet, and recent national polling found that 34% of people who relied on credit couldn’t last a week on their existing savings.

We also know from talking to our clients that the next job after a shock to income tends to be less well paid. Just 9% of clients who were on temporary contracts have moved into permanent work, 13% have moved to a zero hour contact, and 10% have moved to self-employment. Clients with insecure jobs are over-represented compared to the general population, supporting the correlation between insecurity and likelihood of financial difficulty.

Source: Navigating the New Normal report

People need help to build up resilience to shocks to their income

Given income insecurity has a lasting impact on people’s vulnerability to debt, we believe these people need help to build up resilience to shocks to their income. Work and growth alone are not enough to keep families out of financial difficulty.

This should include action to help low income families save for a rainy day through the Help to Save scheme, and by introducing a Breathing Space protection to help families control their credit commitments and stop their finances spiralling out of control.

We also need to consider how to help people plug the gap between their income and essential costs after they’ve faced a shock to their income, so that they don’t have to turn to credit and put themselves at further risk. People at risk of problem debt need affordable credit options to cope with life’s ups and downs without relying on high cost credit.