20 SEPTEMBER 2022

Many key workers in the NHS and public sector would struggle to afford an unexpected bill of £100 in a month, according to analysis by the University of Edinburgh, whose new report also reveals that Buy Now Pay Later “has the potential to very quickly lead to an unmanageable debt burden.”

Salad Projects commissioned the Credit Research Centre at the University of Edinburgh Business School to analyse the financial lives and behaviour of NHS and public sector workers.

The University's report, Financial Resilience and Credit Landscape of Public Sector Workers, raises “serious concerns about financial resilience” of many NHS and public sector workers – often the people delivering vital frontline services – and presents questions about why many who cannot afford to repay a loan have been granted credit by Buy Now Pay Later providers.

The University analysed the anonymised bank transactions of 104,661 people, all NHS and public sector workers, and found evidence that over half (54%) had experienced direct debits being returned and a significant proportion of individuals’ accounts are frequently in overdraft, with individuals’ average monthly account balances under £79 for half of every month.

The report also reveals that more than 10% of the 27,943 people declined for a loan because they could not afford repayments went on to be offered credit by Buy Now Pay Later (BNPL) providers. The researchers found that use of BNPL accelerates over time, especially for medium and high users. BNPL users in the sample spend more relative to their incomes, have higher overdrafts and a significant minority are heavily indebted.

The University of Edinburgh analysed nearly 174 million anonymised transactions, most spanning a year or longer, for each of 104,661 NHS and public sector workers who applied for a loan from Salad Money. Most were declined on the basis that they could not afford to repay a loan. Salad is a social enterprise which lends to public sector staff and uses Open Banking technology to make affordability assessments based on the income and expenditure shown in applicants’ banking data.

Lord Iain McNicol, Chair of the Public Responsibility Oversight Body (PROB) for Salad Money, said:

“The report demonstrates why we need a purposeful, social-led approach to credit and financial inclusion. It is worrying to see the fractured financial resilience of so many NHS and public sector workers. It is also alarming to see people are still being offered credit by both FCA-regulated firms and under-regulated BNPL providers, even though they’ve been turned down elsewhere for affordability reasons.”

Theodora Hadjimichael, CEO of Responsible Finance, said:

“Imagine the stark reality of having just £79 left in a bank account with two weeks until payday. Credit is not the answer to the cost of living crisis or low pay, which are issues for politicians and employers to address. But credit is a fundamental part of how we live our lives in the UK today, used by more than 9 out of 10. Everyone should be able to get finance on fair terms if they need it.”

Professor Tina Harrison of the University of Edinburgh Business School said:

“The increase in the use of BNPL, especially among individuals with very low financial resilience, is extremely worrying. Left unchecked, BNPL has the potential to very quickly lead to an unmanageable debt burden.”

The report also notes that while Salad Money cannot offer finance to all the NHS and public sector workers who apply for a loan, we are able to help seven out of ten applicants boost their incomes.

We have embedded a benefits calculator into the loan application process, which checks whether applicants are entitled to any benefits, and shows details of how to go on to make claims. Remarkably, seven out of ten applicants are entitled to benefits they were unaware of before applying to Salad, with the calculator finding an average of around £434 in benefits due but unclaimed every month for each applicant, and more for those with dependent children. 

Tim Rooney, CEO of Salad Money, said:

“Millions of people are feeling the punishing increases in the cost of living in their daily budget. But many households are unaware of benefits they are rightfully due, wrongly assume they are not eligible for any benefits or think an application is too complicated. Households across the UK currently miss out on £16 billion in benefits they could be claiming. I’m proud that our team has already helped thousands of lower-paid NHS and public sector workers put hundreds of pounds into their pockets every month.”

The report is available here, simply scroll down the page and click the download button.