In Britain, for example, in the months following the first nationwide lockdown in March 2020, 9.6 million employees were on forced leave and a record 370,000 redundancies were recorded between August and November, Deville and Florisson point out. They add that 45% of those employed in February lost their income in the first months of the crisis and that the number of people receiving social support doubled to 5.7 million by November.
“Now, at the beginning of the new year, personal and domestic finances are facing new uncertainty“The authors commented. They point out that in Britain, as in other countries, the number of new cases of covid-19 is almost out of control and households and businesses have to deal with the practical and financial implications of new lockdowns.
Impacts in the coming years
Given this situation and doubts about how quickly vaccination programs will lead to the definitive end of restrictions, the financial problems of many will worsen, academics expect. They state that government initiatives provide relief to some people, but the criteria set exclude many people, and support for small businesses and sole proprietors is uneven.
The situation is already difficult for many, but the full impact of unemployment, redundancies, loss of income and rising personal debt is unlikely to show for several years, Deville and Florisson fear. They warn that the severity of the impact on household finances is likely to increase further.
Household indebtedness is already rising today, and in Britain alone it is estimated that new loans and debts due to the coronavirus crisis will reach £ 10.3 billion, with the number of people failing between March and August. pay on time bills, rose to 6 million, experts say. They refer to current research by the Work Foundation think tank, which shows the significant effects of this financial crisis on mental well-being, which are strongest among people on the lowest wages.
Lessons from the 2008 financial crisis
If we predict how the current financial crisis will develop, we can learn from the last major financial shock, which affected not only Britain as a result of the global financial crisis of 2008, the authors comment. They recall that at that time, personal over-indebtedness emerged as an important new subject of the regulatory agenda.
Special attention began to be paid to the mental and financial well-being of debtors, Florisson and Deville point out. They explain that in Britain, the main public response was the transformation of the Financial Services Authority into a Financial Management Authority, as the former was widely considered to be complicit in many of the 2008 banking sector failures.
One of the main goals of the Financial Management Office was to regulate debts and try to eliminate part of the worst effects of their recovery on the psychological well-being of debtors, experts say. They outline that this included requiring creditors to treat vulnerable people differently, especially those with mental health problems, while ending efforts to repay debts to individuals who are not in a mental state to make rational financial decisions.
There have also been attempts to get creditors to evaluate more whether applicants can afford a loan, including examining the real role of credit registers, the sociologist and political analyst point out. They note that these efforts reflect the belief of regulators that gradual reform is more beneficial than a comprehensive transformation of the credit sector.
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“However, given the impact on mental health, the continuing financial uncertainty means that such a reformed approach to financial regulation can be terminated.“The authors commented. They point out that in many countries there are already indications in the political debate that the current crisis could turn the debate on the authorities’ approach to debt – especially in the US, the issue of student loan forgiveness has shifted from relatively marginal, activist circles to possible political agenda of the incoming Biden administration.
Given the severity of the new financial crisis, which is affecting the unresolved problems of the previous crisis, experts say it will be important to see similar initiatives elsewhere in the world or to continue the gradual approach to credit regulation that has characterized previous years.
Research by the Work Foundation has also found that, for example, the current British social system is deeply flawed and unable to provide adequate financial protection for households from shocks, Deville and Florisson point out. They expect that given the number of people who have lost their jobs and the challenges that the next few months will bring, the British government may find itself under renewed pressure for a comprehensive reform of the social system.
According to experts, an immediate response that could improve the situation is to abandon the plan to reduce key social benefits by £ 20 a week (less than 600 crowns, editor’s note), starting in April 2021. Nevertheless, the depth of the crisis may require more far-reaching changes, including a reassessment of the overall rate. support and the circle of persons to whom it is intended, as well as the conditions for its use, the authors of the comment judge. They call in particular to ensure that social benefits are only one element of a wider safety net for people in need in the future.
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