Rising food price and soaring energy bills hit the poorest hardest, says new study

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Rising food prices and soaring gas and electricity bills have meant that the cost of living has been going up faster for the poorest households than it has for the richest ones, according to a TUC living standards tracker launched today.

The TUC’s living standards index shows that Consumer Price Index (CPI) inflation for the poorest 10 per cent of households in February was 4.1 per cent, compared to 3.6 per cent for middle-income households and 3.3 per cent for the richest 10 per cent. Headline CPI inflation was 3.4 per cent.

The poorest 10 per cent of households have been experiencing higher inflation over the last year because they spend a larger proportion of their income on food and utility bills – whose prices have risen faster than headline inflation – than the richest households.

The poorest households spend 17 per cent of their income on food and non-alcoholic beverages, whose prices rose by 3.7 per cent in February. The richest 10 per cent of households spend just 10 per cent of their income on food and are therefore less exposed to these rising costs.

The richest 10 per cent of households have benefitted most from falling cost of recreation and leisure activities, which constitute 15 per cent of their spending, compared to 12 per cent for the poorest households.

However with the richest households spending nearly twice as much on transport as the poorest, government plans to increase the cap on rail fare rises to Retail Price Index (RPI) inflation plus three per cent from next January could lead to a spike in inflation for richer households too, says the TUC.

The TUC living standards index shows that with wage growth falling back to just 1.1 per cent in February, the incomes of the poorest households fell by three per cent in real terms, putting a tight squeeze on their living standards.

The living standards index shows that wages have been falling in real terms since May 2010. People will therefore need at least two years of real wage growth – fuelled by falling inflation and decent pay rises – to get back to the level of income they enjoyed in 2010, says the TUC.

The living standards index is launched ahead of new inflation and wage figures published next Tuesday and Wednesday which are likely to show that the Budget raised the cost of living for poorer people far more than for the very richest by increasing duties on alcohol and making more food – notably pasties – liable for VAT.

The TUC living standards index will be updated every month following the latest available inflation and wage figures and is published at www.touchstoneblog.org.uk

TUC general secretary Brendan Barber said: “People have been getting poorer every month for the last two years as high inflation, tax rises and the dire state of the economy take their toll on family budgets.

“Over the last year the poorest households have suffered more than anyone else from rising food prices and soaring gas and electricity bills. The Chancellor’s obsession with raising VAT, along with swingeing cuts to tax credits, has made life even tougher for those on low to medium incomes.

“Consumer spending plays a crucial role in driving our economy so it’s in all our interests for people to start getting decent pay rises. But the government policy of confidence shattering austerity is having the opposite effect.

“The government must start taking our living standards crisis seriously and put jobs and decent pay rises at the heart of its economic strategy. Dressing up plans to make it easier for businesses to sack people for no reason as some kind of pro-growth agenda will not help our economy one bit.”


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