Wednesday’s Budget offered households some “breathing space”: a £100 energy payment, extended VAT relief on electricity, and a protected cash ISA allowance.
Welcome, but small next to what’s coming.
For years, at Square 4, we’ve watched the same pattern play out across the firms we support. Q4 brings Budget uncertainty. Christmas spending goes on credit cards, and customers move into their overdrafts. January follows with the card statement, a higher energy bill and a long wait until payday. Arrears and contact volumes rise in February and March.
None of this is a surprise. That’s the point. Harm you can predict every year is harm you can plan for.
And the industry has been here before. The FCA’s Borrowers in Financial Difficulty review found room for improvement at every firm it surveyed, and secured up to £47m in redress for more than 195,000 customers. Those expectations are now rules, reinforced by the Consumer Duty. We set out how firms should respond in our BiFD white paper in 2024. This winter is another test of whether the lessons stuck.
This year, the pressure is sharper.
- Energy – Suppliers forecast the price cap could rise by as much as 27% in January. That’s roughly £460 a year more for a typical household. The £100 payment for homes in council tax bands A to D will soften the first few months, but it covers only a fraction of the increase. Many struggling households in higher bands, or outside England, won’t get it at all.
- Fiscal drag – Income tax thresholds stay frozen until April 2031. It barely featured in the speech, but the effect is real. As wages rise, more of each pay rise goes to tax, and the OBR expects 5.2 million more people to pay income tax by 2030–31. Customers who’ve had a pay rise may feel no better off, and some will feel worse off.
- Savings – Tax on savings interest rises in April, so customers using cash as a buffer will get less from it.
This lands on a population that is already stretched. Our Consumer Duty in 2026: Compliance, to Culture, to Customer Advocacy research with YouGov found that around 60% of UK adults show at least one characteristic of vulnerability. The most common is low financial resilience, at 43%. A customer’s circumstances can change rapidly when already running on thin disposable income and external pressure increasingly sharpens. Customers coping in October may not be coping in January.
Here’s what we’d encourage firms to look at now, not in February 2027:
- Early warning signs: Are you watching for persistent minimum payments, people moving into regular use of their overdraft, or more frequent failed direct debits? And are you acting on what you observe?
- Capacity: Will your collections and support teams be resourced for the January peak? If you’re bringing in temporary staff, are they trained and quality-checked to spot vulnerability rather than just process arrears? The FCA flagged this risk during its BiFD work.
- Sustainability: Will a repayment plan agreed in January still be affordable in April, when the savings tax rise lands and energy costs may still be climbing? Plan to recheck, not set and forget.
- Asking, not waiting: Are your teams proactively asking customers what support they need? From our research with YouGov, 54% of vulnerable customers have never been asked, and a third feel uncomfortable asking.
- Communications and channels: Are your messages about financial difficulty tested with customers who are anxious, overwhelmed or avoiding post? And can customers reach you in a way that works for them? Our research with YouGov found 77% of vulnerable customers dislike calling firms.
- Evidence: Can your board see outcomes for vulnerable customers by driver, or just a policy that says support exists?
That last point matters. The FCA’s recent good and poor practice publications found firms had good policies, but lacked the evidence to demonstrate they deliver good outcomes. We all remember BiFD when policies were tested. Enforcement action resulted in multi-million-pound fines.
If you’d like to talk through how your firm is preparing for the January peak, contact us at hello@square4.com
