Some of us remember the last recession: that awful period of reckoning from
1989 to 1992 that followed the excesses of the mid-1980s. It felt like a
ghastly hangover after an overindulgent party, but it lasted much longer
than a day and needed far more than an Alka-Seltzer to cure. Blameless,
hard-working people lost their jobs, their homes and their credit ratings.
For some, the pressures were so great that they lost their marriages too.
And the worst of it was that it wasn't even their fault.
It is the helplessness, the feeling of being at the mercy of circumstances,
that most characterises the horror of recession. You can be the hardest
worker, the most conscientious borrower and still you can be laid off or
your home repossessed, sometimes both. It is like an act of God: as if a
tornado has ripped through your town, uprooting buildings you have known all
your life, whisking you in the air and dumping you, bruised and shocked, on
a patch of wasteland far from home.
If we were to enter a recession, perhaps a global credit crunch could start it
off. Or perhaps a sharp rise in the price of oil, or perhaps because the
Government has been spending too much. (At the moment, we have all three.)
Interest rates rise to stave off inflation, so businesses get squeezed and
have to cut costs by reducing their workforce. The fewer people there are in
work, the less money there is washing round the economy, so business profits
fall still further and they cut even more jobs. Thus begins a downward
economic spiral.
At the same time, higher interest rates make mortgage and loan payments more
expensive. People who borrowed heavily in the good times find themselves
falling behind with their repayments. If they are really unlucky, their home
gets repossessed. At worst, if house prices have fallen, they may find
themselves in negative equity, meaning that the proceeds of their house sale
are not big enough to cover their mortgage, so they are still thousands of
pounds in debt even after their home has been forcibly sold.
During the last recession, more than 600,000 homes were repossessed and
120,000 people were declared insolvent. Unemployment rose by 50 per cent in
just 18 months, peaking at 2.6 million in 1991.
The people I spoke to who suffered during the last recession describe their
feelings of anger, depression and hopelessness as these disasters descended
upon them. Even if they knew it wasn't their fault, it was hard for them to
escape without a giant blow to their confidence. And it can be harder still
to find another job, as there are hundreds of thousands of other people also
looking for work, and few employers willing to take anyone on.
If this all sounds unremittingly gloomy, then I've done my job. For, apart
from bailiffs and debt-collectors, there aren't many people who thrive in a
recession. Pensioners should be fine, since their income is guaranteed.
Otherwise, the best you can hope for is to keep your head down, keep your
boss happy and have the good fortune to work for an employer that doesn't
suffer too badly in the chilly economic climate.
What else can you do to prepare yourself now, should a recession bite? The
most critical thing is to rein in your spending and borrowing (though the
irony is that, if we all do that, we will make the likelihood of a recession
even greater). Don't take on new debts, pay off the ones you can, and look
at ways in which you can save money. If this means joining the ranks of
people who bring in their own sandwiches in a Tupperware box, tell your
colleagues you are in the fashionable vanguard of “the new frugality”.
Equally, it is amazing what bargains you can pick up in charity shops. I am
proudly wearing a £20 Zara suit (courtesy of Oxfam), and my much-admired
black velvet Christmas party dress cost just £15 (ditto).
If you start to get into difficulties with your mortgage repayments, don't
stuff the envelopes into a drawer: get in touch with your lender and try to
negotiate a deal that will prevent you losing your home. And if you lose
your job, don't be afraid to settle for another paying less - it's still
better, psychologically and financially, than going on the dole.
Most of all, don't despair. As my interviewees bear witness, there is life
after recession. One couple - Tim and Robyn Jones - are now rich beyond
their dreams. All felt that they had learnt from the experience. Perhaps the
most important lesson is not to be too hard on yourself. For a serious
economic downturn, like a tornado, is indiscriminately cruel. It catches
anyone who happens to be in its wake.
Gill Marsh: lost marriage, business and house
If a film were made about Gill Marsh's life, her character would surely be
played by Julie Walters. She has the same twinkly eyes and a determined, but
slightly sad, set to her jaw. Her face tells her story: it is one of deep
suffering matched by pride at having fought her way back. In 1986, at the
height of the Lawson boom, Gill and her husband, Tony, decided to use the
Government's £40-a-week Enterprise Allowance to start their own road-haulage
company. They borrowed money from the bank and the business prospered enough
for them to buy their first home, outside York, for £60,000. Confident of
their prospects, they used their house as collateral to their business debts.
Within a year, interest rates had soared, their mortgage payments nearly
doubled, their marriage broke down and their business lost a big contract.
“From then on it went downhill and downhill,” Gill relates. “The main debt
was against the house. The business folded. The bank took the house. I was
left with nothing. I didn't have a car, didn't have a house. I had no
income. I had my son, though.”
So, from being a home-owning, married businesswoman, Gill turned into a single
mother on benefits. She and her eight-year-old boy were even threatened with
moving into B&B accommodation. “That is what really, really terrified
me. I just had these visions of drug addicts and down-and-outs and the
single mum that I was going to become.” Luckily, the housing officer took
pity on her and found her a decent council flat.
She felt angry and depressed. “It wasn't that I was a bad debtor, it was that
circumstances were out of my control. The interest rates at that time were
very, very high so there was no way, even if I had got full-time work, that
I could have paid the mortgage. I was very distressed. I felt I couldn't see
the light at the end of the tunnel. I didn't know what my future was going
to bring. Some days I didn't want a future, I just wanted to curl up in my
bed and put the sheet over my head and not face the world.” But, with an
ex-husband paying no maintenance, she had to keep going for the sake of her
son, Billy. She was lucky enough to find a job with a building society and
has clawed her way back from there. A friend started an estate agency and
offered her a job as a valuer. Then she was taken on by a big estate agent.
Now she has remarried, bought another house, and is managing an estate
agency branch. Poignantly, one of her tasks is to sell on houses that, like
hers, have been repossessed. “I don't like it. I think it's very, very sad.
Having experienced it, I know what it's like.”
But, horrible though the recession was for Gill, 55, she feels good about
having surmounted all the obstacles it threw at her. “I feel a much stronger
person. It's things like this that make you the person that you are. I look
at myself now, and I think, ‘Wow, you can do it girl - you have done it!'”
Penny Hayes: made redundant and then became a potter
Penny Hayes, 59, loved the decade of excess that was the 1980s. “My sister
lived in Texas and I can remember popping over to see her for the weekend.
Champagne was my favourite beverage.” As marketing director of a video
production company, her outfit of choice was a bright red jacket with
shoulderpads. “It made me stand out in a roomful of men.”
It is hard to imagine her now as she was then. She is gentle, soft-spoken,
bespectacled and low-key, apart from a slightly arty brooch. Then she was a
high-flying urban executive; now she is a reclusive country potter wondering
what to do next with her life.
It was in the early 1990s, when Penny was earning £35,000 a year, that her
salary cheque bounced. “Video production for marketing and corporate
promotions just collapsed during the recession. So the company started to
suffer quite seriously with a cashflow problem.” She sat down and talked to
her boss, and agreed that she would carry on working for no pay in exchange
for a share in the company. But the agreement was never put down in writing
and, after three months of employing her for nothing, her boss reneged on
it.
“He just said, ‘I don't want you to come in any more'. Being in marketing,
you're always the one out there working really hard to keep everyone else in
work and when things get bad you're always the first to go.”
Penny had always thought that, if money were no object, she would go away and
make pots. She had kept up her interest in ceramics at evening classes and
decided to turn her misfortune into an opportunity to follow her heart. So
she signed up for a fine art degree at the University of Hertfordshire.
“I had a strange sensation that at last, I was me. I had been all these other
people: a mother, a wife, a marketing person, and suddenly I was just doing
what I wanted to do for me. It sounds terribly selfish, but it wasn't really
like that, it was just that I hadn't really thought about what I personally
wanted. I don't think a lot of people do.”
So she threw herself into the art world. “I went for it full hog, I became ‘An
Artist'. It changed the people I mixed with, everything I did, my whole
outlook.” She set up a studio in her garage, tried to get exhibitions and
sold the odd piece here and there. “But it's a funny world, ceramics,
because it doesn't fit into any nicely organised box like fine art. People
tend to think, ‘I can buy a mug in Woolworths for £2.50 so why should I buy
yours for £10?' Just because it's a one-off, it isn't valued any more than a
mass-produced thing. People don't query paying two or three thousand pounds
for a painting, but they do for a piece of ceramic, and yet mine probably
costs more in materials and time, and needed the same amount of training to
get to that point.”
By this time, her husband was stuck at home, on disability benefit, suffering
from rheumatoid arthritis. They just about survived financially, with Penny
topping up her income by doing some adult education teaching. But sadly, he
died just before Christmas, and now she doesn't know what to do.
The bungalow is up for sale, and Penny has applied for jobs with no success.
“I've been out of the work market since 1993 and unless I work in a shop or
something I don't think I can get a job now. If I put that my last
employment was marketing director of a media company, I don't think there
are many people who would even want me stacking shelves.” She saw a job
advertised last week, just like her old one in marketing, paying only
£30,000 - £5,000 less than she was earning 15 years ago - but she knows she
would not be qualified as she has lost touch with that world now.
As she concludes, rather ruefully: “Life has this habit of turning another
corner when you least expect it.”
Robyn Jones: made redundant, now millionaire
Several years after Robyn Jones, 46, was made redundant in the last recession,
she sent her former boss a thank-you letter. He was amazed: it was the first
time anyone had thanked him for laying them off. But Robyn, recently named
Credit Suisse Outstanding Woman in Business, needed the impetus of
redundancy to become an entrepreneur.
She had been general manager for a large construction firm on a £30,000
salary, and had recently bought a bigger house with her husband, Tim, when
she lost her job in 1991. He was still working as a finance director and
they calculated that if she could bring in just £10,000 to £15,000 a year
they could still cover their mortgage and survive financially. So she set up
office in the spare room on a wallpaper pasting table, with bare boards on
the floor and banana boxes for filing cabinets - and she hit the phone. The
idea was to start her own contract catering company with her husband. He
would carry on with his accountancy job by day and do her books at night.
“My confidence was very low to start with,” she admits. “And it was difficult
because we had no sites that a potential client could visit.” For six
months, she sat at her desk making cold calls from the telephone directory.
Worried that she was earning nothing, she offered herself to catering agencies
as a cook and waitress. But, after six months of hard sell, she finally got
a contract to do the catering at a residential centre for Guide Dogs for the
Blind.
Just two years later, the company won the Booker Prize for Excellence in two
categories: Best Young Business and Best Caterer. Business took off. Now
Charlton House Catering Services has a £75million turnover, employs 1,900
people and has 180 clients including the Treasury, Network Rail and Sony.
Tim is full-time chairman and Robyn is chief executive. Tim, as befits an
accountant, is more naturally cautious than Robyn and is already gearing up
mentally for the possibility of another recession.
“You always have to have a Plan B,” he says. “You have to know what you would
do if the worst happened,” he says
The company has barely ever needed to borrow money, though, and it insists
that its clients pay in advance, at the beginning of each month, to aid
cashflow. His advice to people facing a recession now? “The most important
thing is to live within your means.”
Tommy Cloherty: house repossessed
In 1985, at the age of 21, Tommy Cloherty went back to London from Ireland
“with the idea of making loads of money, getting rich - the usual. I was
quite ambitious.” He was marking time working in a restaurant in Highgate,
North London, but had grander plans. “I thought it would be something with
languages because I speak Italian and French.”
When his sister came over to join him, they decided to buy a flat together.
“When I look back now I think, 'Why did I buy a place?' But I think it was
the peer pressure. If everybody else is doing it you think, 'Why aren't I
doing it?'” Everything was fine until his sister lost her job in 1989. “We
were really stretched,” he remembers. “About 40 per cent of our income was
going on the mortgage.” What's more, the mortgage rate was fixed for the
first two years, but then it shot up.
Tommy started working “like a hamster in a wheel”. He did double shifts at the
restaurant - from 9am to 2pm and then from 6pm to 11pm, and in the
afternoons, he took on gardening and building jobs for friends. But it
wasn't enough. “The letters kept arriving and I'd get the mortgage
repayments up to date and then the council tax letters would come and then
the credit card would come in. I was constantly juggling.” So he left the
restaurant to try to make more money selling insurance. But that turned out
to be even less lucrative.
He borrowed money from relatives and went back to working in the restaurant.
“But it just wasn't enough and I remember as the date for repossession of
the flat was looming, the letters were getting more and more severe and more
and more threatening.” He had taken out indemnity insurance, costing £900,
which he thought was supposed to protect him against repossession. But the
small print failed him. In the end, the flat that they had bought for
£69,000 was sold by the mortgage company for just £27,000, leaving Tommy and
his sister liable to the tune of £47,000 after accumulated interest and fees.
“It was horrible,” he recalls. “It went on and on and I never knew what the
outcome would be. I remember a friend said, ‘You didn't smile for six
months'. There comes a point where you're exhausted: physically, mentally
and emotionally.” By then, his sister had a baby, and the three of them were
put up in bed and breakfast accommodation, with a tyrannical landlord who
would arbitrarily shut the kitchen just when she needed to warm her baby's
bottle. “We had two small rooms with the cot in the corner and all the
clothes piled up.” Eventually they were given a council flat in a tower
block in Edgware, northwest London, but they were still being pursued for
debts. Tommy and his sister were never able to pay them, and the letters
only stopped coming a couple of years ago.
Now 43, he works as the manager of a homelessness project, lives in a rented
flat and has vowed never to buy a property again.
“I value peace of mind and a wife that I love and it's good to be off that
treadmill. I look at other people and remember how easy it is to get sucked
into it all. But when I'm 70, I'm not going to think I didn't work hard
enough or have a big enough house. I care more about family and friends and
memories.”
Well done Ian Kemmish. A bit of positive for a change. i like to see people do well.
steve, newcastle upon tyne, Uk
If you are unfortunate to have your home repossessed, there should be measures to stop you being blacklisted. Good, hard workers are now going to suffer. The last thing i want is to come out the other side of this with a poor credit rating and have to wait 7 years before i can start again
jb, telford, england
nb - if we, 'society' were ever unlucky enough that you should ever have offspring and they should need education or heaven forbid you should ever get ill, or need the emergency services, then your little 'professional' enclave will probably need private versions of each since if we all shared your attitude - these essential 'parasites', as you call them, will be living and working far away from you, as you and yours will have priced them out. Too many people, like you, think they are better because they earn more or perceive that their input into the economy is more fiscally enriching, at least for GB's coffers. You fail to understand that you need these 'parasites' a lot more than they need you.
Yorkie, Amsterdam,
Clive, Chichester - and who makes up the "society" that really needs the nurses and the firefighters and the teachers? Oh yes, the average professional who turns the cog of this country, that pay for the houses that these parasites get cheap. I agree with HG, London: we are paying for them, any of them who get keyworker housing ARE parasites.
nb, London, UK
HG, London, UK. No, it will hit the hardest all of those useless jobs which grow up in boom times - who'd have guessed that we needed people to peel our veg, arrange our wardrobes, tell us what to buy and wear and all those other 'oh so important functions'. In the meantime, the nurses, firefighters, teachers etc (the 'parasites' as you refer to them) will carry on doing the things society really needs. Oh, and by the way, you needn't have disguised your identity as all of these professionals uphold high professional standards and will help all in need - however moronic they happen to be.
Clive, Chichester, UK
A recession in Britain will be short lived. The immigration to Switzerland, Germany and the Nordic countries will reduce significantly the numbers of the unemployed. Do not worry.
Sara, Geneva,
Crash away. And hopefully it will hit the knockdown-price ex council tenants and I'm-so-precious keyworker "affordable housing" parasites the hardest.
HG, London, UK
If we have recession, it will be the third I personally will have been though as an adult. The first put me out of work for 12 months as a graduate with a good degree in English in 1983; the second gave me negative equity on my first house sale in 1995; the third may be survived by me unblemsihed, but what prospect it will bring to my adulthood -reaching kids is difficult to say.
I have a fear that we have seen the best of times already in this country during the last century, and that the decades to come will be marked by a steep decline in living standards throughout the west. The blips we have complained about during the last 25 years will been as warning signs: the bedrock of prosperity - this planet's capacity to give of its finite resources -is illusory. Basics, water, food, the climate will become less predictable; in this context, the concerns over home ownership and equity will be viewed as the obsessions of a glib and bygone age.
John Pownall, Bridport,
Repossessing houses when you've been repossessed, having a Guide dogs home as a client when you don't know where you're going... there's a lot of irony in this column. And the biggest of all: if everyone stops spending, the economy shuts down!
Pierre Bernardi, Paris, France
Actually, the venture capital started drying up in late 1988, after the stock market scare.
I feel a resonance with Robyn Jones' story.
During the 1980's, I worked for ten different companies, nearly all of which went bust. In 1990, I figured that if I was going to survive, I'd need to rely on my own efforts. (I joked that, having watched managers make every mistake in the book, all I had to do to ensure success was not do anything that they had done.) During the early 90's, I was doing consultancy during the day and software development during the evenings. The joke turned out to be no joke at all, and I and my colleagues ended up creating quite a few jobs for others. And I'm now in a financial position where I fear no recession....
It may sound harsh, but I reckon that recessions are essential to allow the cream (or even the sticky underside of the cream, like me) to rise to the top.
Ian Kemmish, Biggleswade, UK
This a truly great article. I am mid thirties, I entered the job market at the bottom of the cycle, so while it was hard to start once on the job ladder it has been one long bull market upswing. I have in that time been laid off once, but was comfortably compensated, and found work pretty quickly after that. There is a storm coming, and people of my generation or younger are not aware of how hard it could be. By providing people's experiences which, while hard, are truly inspirational it gives one chance to plan and also view the coming storm as an opportunity.
“I had a strange sensation that at last, I was me. I had been all these other people: a mother, a wife, a marketing person, and suddenly I was just doing what I wanted to do for me. It sounds terribly selfish, but it wasn't really like that, it was just that I hadn't really thought about what I personally wanted. I don't think a lot of people do.â€
This quote particularly rings true.
Nic Corry, Hong Kong, China, SAR
So that's Mary Ann Sagheart's solution: start shopping at Oxfam?
What a reverie!
Belacqua, London,