Drop in household disposable income worst in a decade

LONDON (Citywire) - The average household is more than 2,500 pounds worse off this year than in 2007 - the first such fall for a decade, new research claims today.

Higher taxes and bills and below-inflation wage settlements are the main drivers behind the ‘unprecedented' fall in disposable incomes, according to uSwitch.com.

It calculates that the average UK household must now find an extra 145 pounds a month to cover the rising cost of essentials such as mortgage repayments, council tax and fuel and food bills.

As a result the average UK household now enjoys a disposable income of 14,520 pounds - down from more than 17,000 pounds in 2007. This represents just 28 percent of gross household income, compared with 35 percent last year.

The latest total is just 21 percent higher than in 1997, the year New Labour came to power.

uSwitch puts the ‘real rate of inflation' at around 8percent, which compares with the official figure of 4.4 percent. It points to the 28 percent increase in the cost of gas and petrol, the 20 percent hike in the cost of electricity, and the 25 percent average increase in the cost of food and drink.

Poorer families, meanwhile, and those in the north of England are being worst hit by the current squeeze.

Families in Newcastle appear to fare the worst, spending an average of 77 percent of their average household income of 20,800 pounds on essential bills. Hull, Nottingham and Blackpool are not far behind, the survey finds, spending 66 percent, 65 percent and 64 percent respectively.

This compares with less than 30 percent for inner west London, which includes Chelsea, Fulham, Kensington and Notting Hill. More than 41,000 pounds of the average 59,000 pounds household income in these areas qualifies as disposable income, it was found.

‘Consumers are in a lose-lose situation where everything is shooting up except their income,' warned Ann Robinson, director of consumer policy at uSwitch.com.

‘The shock increase in the consumer price index - which has more than doubled in the last six months to over twice its official target - will impact everyone this year.

'It's a catch 22 situation. Struggling consumers need pay rises to help them meet the mounting cost of living, but the Bank of England and the government wants to keep pay rises to a minimum to dampen inflation.'

UK consumers now face an ‘autumn of discontent', Robinson predicted. ‘With UK emigration on the rise, they could be forgiven for selling up and moving abroad - except they will then be stung by falling house prices and a log jam in the housing market.'

(c) Citywire Financial Publishers Ltd 2008.