Jeff Salway: Prepare to be made redundant

Some 8,000 people are to join the ranks of Scotland’s unemployed this summer as the country’s jobless total edges towards a quarter of a million, according to the Institute for Public Policy Research (IPPR).

Around 100,000 jobs are to go across the UK over the coming months as the axe falls on the public sector and as private sector growth remains elusive. The IPPR said 40,000 of those losing their jobs this summer will be under 25, helping to take the UK unemployment rate – already at its highest since 1995 – to new levels.

The research adds to household anxieties at a time when incomes are being squeezed and thousands of Scots are paying the price of welfare spending cuts.

For many households the financial ramifications of unemployment could be severe. Research by insolvency practitioners group R3 recently found that four in ten Scots are spending less as they tackle the rising cost of living, with a fifth having no savings to fall back on.

But while redundancy could potentially spell financial disaster for some families, there are ways of trying to mitigate the impact.

Bryan Jackson, corporate recovery partner with accountants and business advisers PKF, said: “The difficulty in planning for redundancy is that it is like planning for bad news: nobody wants to accept that it might happen and therefore nobody wants to do it. But acknowledging that it is a possibility is the first step towards easing the pain that the transition from employment to unemployment often involves.”

If you’re worried about your job security, now is the time to bolster your finances and set up a safety net.

Here are a few things to consider:

Check your rights

Find out what you’d get from your employer in the event of being made redundant. If you’ve worked for them for at least two years you are entitled to a statutory redundancy payment. The amount you get will depend on your age, how long you’ve worked there and your pay level, although some firms will pay above the minimum requirements. Dig out your employment contract to see if that would be the case.

Visit www.direct.gov.uk for more details on your redundancy rights.

State support

You could be eligible for benefits such as jobseeker’s allowance, income support and housing benefit, provided that you paid national insurance contributions while you were working.

Contributions-based jobseeker’s allowance pays up to £56.25 if you’re under 25, rising to £71 for those above that age, depending on circumstances. For more information, call 0800 055 6688 or visit www.direct.gov.uk.

Other potential help may come in the form of income support, which is means-tested to help judge whether you have enough to live on, while you could also be entitled to child benefit, housing benefit, child tax credits and support for mortgage interest, among other payments.

The Turn2us charity has a benefits calculator to help you work out what you’re entitled to: www.turn2us.org.uk/benefits_search.aspx.

Review your budget

A detailed look at the money you have coming in and going out could be time well spent. Break down your spending into essential and non-essential items – everything from mortgage/rent and bills to subscriptions and memberships – and work out what you can do without.

Can you reduce any regular payments? For example, if your car or home insurance is coming up for renewal, take the opportunity to shop around as you may be able to get a cheaper deal elsewhere.

Look too at your utility bills; if you haven’t switched supplier or tariff recently, you could achieve significant savings by doing so. Similarly, could you get a better mortgage deal?

Examining your budget will help you identify any shortfall between your household income and the essential outgoings. Then you can look at how to address that.

Tackle your debts

If you have debts, work out what they are – loans, cards or overdrafts, for example – and which are the most expensive. Focus on paying down the costliest debts first.

Seek help if you’re already struggling to deal with your debts, because redundancy could exacerbate those difficulties.

Resist the temptation to take out a payday loan or similar last-resort options and take advantage of the free advice on offer. Visit your local Citizens Advice Bureau or contact the Consumer Credit Counselling Service (www.cccs.co.uk or 0800 138 1111). Other sources of free help include Money Advice Scotland (www.moneyadvicescotland.org.uk or 0141-572 0237) and National Debtline (www.nationaldebtline.co.uk or 0808 808 4000).

Save for a rainy day

This may not be an option for some, given the pressure on household incomes. But if you have no debts or they are under control, putting some money aside on a regular basis will give you a cushion to help cover your bills and expenses.

If you can save, the first port of call should be a tax-free cash Individual Savings Account (Isa), into which you can put up to £5,640 in the new tax year.

Savings rates are generally low but there’s a big difference between the best and worst accounts on offer, so take time to shop around. You can check out the top-paying savings accounts at comparison websites including www.moneyfacts.co.uk and www.moneysupermarket.com.

Insure your income

Think about insurance that can cover your regular payments in the event of being unable to work due to redundancy, accident or illness. One option, payment protection insurance (PPI), is best known for a multi-billion-pound mis-selling scandal for which the banks involved are now paying a hefty price.

But while that episode concerned sales made alongside the loans and mortgages that the product was designed to protect, standalone PPI is still worth looking at. This generally pays out a monthly sum for 12 or 24 months with the aim of covering loan repayments in the event of being unable to work because of redundancy, illness or an accident.

Although it is the cheapest option, it is also limited, with pre-existing medical conditions usually excluded, and policies not paying out if they are less than three months old and rarely covering people who are self-employed.

A more comprehensive (and more expensive) alternative is income protection insurance, which can pay out until retirement. Income protection is designed to provide financial support in the event of the policyholder being out of work due to illness, disability or an accident, but unemployment cover can be requested as an additional feature.