Redundancy: what state help is available?
James Davis, a 30-year-old tester for a games website, heard about his redundancy on a trade magazine’s website in April. By that stage he hadn’t been paid for two months. The games site had been looking for a buyer, so took its time going into administration.
James says: “Because nothing was official, I wasn’t entitled to any help at all. I had some money set aside for emergencies, but no one can budget for two months without pay. I had to move into my parent’s flat in Surrey, and cut all my outgoings. I was borrowing off friends and family, and couldn’t wait for the whole thing to be official so I could get down to the Jobcentre and get some help.”
A growing problem
James may be one of the few who stands to gain from an official redundancy announcement, but he’s one of many who will receive one this year. Unemployment hit 7.1% in the three months to March 2009, up 1.8% from the same time last year, and redundancies have been a huge contributing factor.
In those three months alone, 244,000 people were made redundant, up 592,000 over the year. This is the largest quarterly increase in unemployment figures since 1981.
Richard Exell, senior policy officer for the Trades Union Congress (TUC), says: "Redundancies have been increasing in every sector except the public sector, and there are signs that is catching up now too.”
This doesn’t have to be a disaster: a good number of people made redundant do bounce back.
Kelly Davies, a 30-year-old communications consultant living in Cardiff, was made redundant a year ago. She says: “I was fortunate. I had some good local contacts, and I made the most of them. In the end, I managed to line up a job to start when my notice period ended.”
However, for many people, the process is far more arduous. Recruiters estimate that if you know what you want, your role is in demand, and you’re flexible and proactive, you should find a job within two months, even in this market. But if you’re looking for something more specific, or there are fewer jobs being advertised in your field, which is the case in most industries now, the search will take between four and six months.
Added to that, redundancy payments have become far less generous. Companies in administration aren’t in a position to pay the amounts they would have before running into trouble.
Paul Seaton, a former Woolworths senior manager, who now runs the Woolworthsreunited.com website, says: “I had been working at Woolworths for 25 years. If I had been made redundant from the company normally, I would have received a payout of at least £100,000. As it was, I received the maximum payment available from the administrators of £4,000.”
Laura Livingstone, an employment partner at law firm Davenport Lyons, adds: “The statutory minimum is based on age, salary and length of service (although salary is capped at £350 a week). Some companies have been more generous in the past and paid enhanced redundancy, but the majority are trying to pull back on that and now offer only the statutory minimum.”
Many people, therefore, need to fall back on state benefits, at least for a short period. In April, the number of people claiming unemployment benefit climbed to 1.51 million. That’s up more than half a million from the same time last year, and is the kind of level we haven’t seen since August 1997.
Claiming benefits has previously carried something of a stigma. There has been an assumption among many people that benefits claimants are lazy, and that any hardworking individual should never need help from the state. However, in a recession, there are plenty of hard-working, ambitious and skilled people who have been forced to claim benefits because of lack of work.
So what help is out there? The main benefit is Jobseeker’s Allowance. To get this, you need to be either out of work or working less than 16 hours a week.
There are two types. The first can be paid for up to six months; you will get it if you have paid enough national insurance contributions in the last two tax years. Income and savings are not taken into account. This benefit is paid at £64.30 a week (or £50.95 if you are under the age of 25). If you haven’t found work after six months, you may be moved onto the other type of Jobseeker’s Allowance.
The second type is for those who haven’t made enough national insurance contributions, and is based on your income and savings.
So you will get less if you have income from part-time work, or if you have savings of more than £6,000. The full allowance is £64.30 a week or £100.95 for couples, and it is paid until you return to work.
There are certain circumstances under which you won’t qualify for this second allowance: if you have savings of over £16,000, or if your partner works more than 24 hours a week. This means that many individuals, including anyone who has a full-time working partner, have no entitlement to this benefit at all.
In addition, you may get council tax benefit, which would mean you could get up to 100% off your council tax bill. This will usually apply to people who are on the second kind of Jobseeker’s Allowance or income support, and who have savings of less than £16,000.
You may also be entitled to housing benefit, which offers help with all or part of the rent if you have savings of less than £16,000. The percentage of rent that is covered will depend on your savings, salary and the pay of anyone living with you. The total you can receive isn’t capped.
However, the government will make an assessment as to whether the accommodation fits your needs. If it thinks you are living in too large or glamorous a home it may reject your claim.
If you own your own home, you’re not entitled to housing benefit, but you may get help through the government’s mortgage schemes: the Support For Mortgage Interest Scheme and the Homeowner Mortgage Support Scheme, which provide help on loans up to £200,000. Under the first, the government may pay your mortgage if you qualify, provided your rate isn’t over 6.08%.
The second is a new scheme, which will allow interest payments to be deferred and rolled into the loan for up to two years. It’s intended for people who expect their fall in income to be temporary and who have savings under £16,000.
If you have children, you may also be entitled to child tax credit, which offers some financial support to anyone with a child and earning less than £58,000 a year (or £66,000 a year if there is at least one child who is less than a year old). The amount you get will depend on your circumstances and your income, but at the very most, it will be £545 a year, plus £2,235 for each child.
What are you entitled to?
You could be forgiven for expecting this to add up to a decent monthly income. Figures revealed in the press last December claimed 140,000 households were taking in £20,000 or more in benefits a year. It created a fair amount of outrage, but the government was at pains to point out that the vast majority of this figure will include payments to support people with disabilities.
So what will people be entitled to in more ‘normal’ circumstances? The Department of Work and Pensions refuses to estimate, as it insists every situation is different.
However, as a rough guide, a family with a young child, where the mother doesn’t work and the father is made redundant, would be entitled to £100.95 a week in Jobseeker’s Allowance.
Assuming they qualify, they may also have their council tax bill and their mortgage interest covered. Plus, they may receive up to £2,780 a year in child tax credit.
But even if they qualify for all this – which is not guaranteed – they will be living off less than £670 a month. Assuming the father was on a wage of £24,000 before redundancy, even after tax, he would see his income more than halve.
An older couple in their fifties, meanwhile, in roughly the same position but without any child tax credit, would be living off just under £440 a month. Assuming the man was the only breadwinner, earning £40,000, they would see their income drop by around 85%.
Clearly, it’s extremely hard to maintain your lifestyle on these benefits. And while there may well be people who see claiming benefits as a useful alternative to working, it’s far more likely to be an unwelcome but necessary short-term measure.
It’s worth, therefore, considering what would happen to you if you were made redundant; for example, whether you have any savings in place to protect your standard of living.
The size of savings pot you would need will depend on your outgoings, but as a rule of thumb, most people need to be able to cover their outgoings for at least two months, and ideally six.
It could also be worth taking out insurance cover to protect yourself should you lose your job because even if your job has seemed secure so far, the experts are certain there are many more redundancies to come.
It makes sense to take precautions so your income doesn’t fall dramatically if you find yourself out of work. There are three types of insurance that could cover you:
1. Standalone unemployment insurance
The policies vary, but as a rough rule of thumb, usually you will get around 50% of your income covered, up to £2,000 a month. This will be paid out for a year – although some will pay for two years – or until you return to work. It will usually be paid one or two months after you are made redundant, although some policies will backdate payments to cover the whole period.
2. Payment protection insurance
You can get unemployment cover as part of this package, which also guards against the effects of accident and sickness on your income. Such policies will cover your mortgage repayments and loans. It will usually be paid out for the same length of time as standalone cover.
3. Income protection policy
You can also get unemployment cover as a bolt-on addition when you buy an income protection policy, which will cover you if you’re unable to work due to injury or ill health. Adding unemployment cover to this policy is often cheaper than buying it on a standalone basis.
Where to go if you need help
* For tax credits you need to contact HM Revenue & Customs. Its website also has a useful calculator, which will work out what you are likely to be entitled to. Alternatively, you can call 0845 300 3900 and ask for a claim form.
* There is lots of information on how to get started claiming benefits on the DirectGov website.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. To qualify for the state pension, individuals need 30 years’ of full NI contributions.
Child tax credit
A scheme started in 2003 that sought to replace a raft of other tax credits and benefits, the payout depends on the number of dependant children in a family, and its level of income. The amount of credit is reduced as income increases. It is payable to the main carer of a child, usually the mother, and is available whether or not the recipient is working.