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Disposable income drops for first time since 1997

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26/08/2008

For the first time since 1997, household disposable income has fallen in cash terms, according to uSwitch.

It now stands at £14,520, a drop of 15% in just one year. Disposable income is now just £2,491 (21%) higher than that enjoyed by households in 1997. While latest salary inflation figures show average pay rises of just 3.4% and unemployment rising at its fastest rate in 16 years, households are being forced to find an additional £145 a month to cover the cost of rising bills.

Disposable income now represents just 28% of gross household income, compared to 35% in 2007. The rapid decline is attributed to essential living costs soaring at their fastest rate since records began, while rises in tax and social contributions have eaten into net income, which, as a proportion of gross income, has fallen 0.5% in the last year alone.

Steep hikes in the cost of household essentials such as gas, electricity, fuel and food have contributed to essential household bills climbing by an inflation-busting 8% over the last 12 months – almost double the Consumer Price Index (4.4%) and 3% higher than the Retail Price Index (5%).

Ann Robinson, director of consumer policy at uSwitch, said: “While British athletes have been going for gold, British consumers are going for broke. It’s been a year since the start of the credit crunch and these figures reveal the exact price being paid by British consumers.

“Consumers are in a lose/lose situation where everything is shooting up except their income. 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 affect 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.

“People now have less money in their pockets than at any point since 1997 and British consumers are facing an autumn of discontent. 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.”

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