Debt Threat as Inflation Hits Low Income Households

New research shows the cost of living has increased 38 per cent over the last decade, putting considerable financial strain on households with low incomes. We look at your debt management options.

Research published by the Joseph Rowntree Foundation (JRF) shows that people on low incomes face a much higher inflation rate than shown in the official Consumer Prices Index, which the Budget announced as the future basis for uprating benefits.

This means that in real terms, people out of work, relying on these benefits, could become worse off. For people in work, the gap between the minimum wage and the wages needed for a minimum household budget has widened.

According to the study, a single person now needs to earn at least £14,400 a year to reach this standard, and a couple with two children £29,200. These have increased from £13,400 and £26,900 in the past two years.

The research, carried out for the JRF by the Centre for Research in Social Policy at Loughborough University, is based on what ordinary people think should go into a minimum budget.

Despite the recession, members of the public continue to believe that alongside physical essentials such as food, warmth and shelter, people also need things which allow them to participate at an acceptable level in society, such as transport, social and cultural activities, and one week’s holiday a year in the UK. A computer and an internet connection are also cited as necessary for all working-age households – a change from 2008 when they were only needed in households with school-age children.

“This new research underlines how people living close to the minimum income standard can end up not having enough if economic trends start going against them,” says Donald Hirsch, Head of Income Studies at the Centre for Research in Social Policy, Loughborough University, and one of the report’s authors.

Hirsch points out that a single person who a decade ago had just enough to get by, and whose income has risen in line with official inflation, cannot afford a minimum budget today.

“Big rises in the prices of things like food and council tax means that they are nearly £20 a week short of what they need, and must think of what essentials they will go without.”

The cost of a minimum budget is estimated to have risen by 38% in the past ten years, due to steep rises in the price of food (up 37%), bus fares (up 59%), council tax (up 67%) and some other essentials. In the past year, the annual earnings needed to keep up with the minimum income standard have risen by over £1,600 (or 6 per cent) for a couple with two children – much faster than wages. This is partly because personal tax allowances and the rules for getting tax credits have been frozen rather than increased for inflation.

Get Me Out of Debt

Figures released by the Government’s Insolvency Service recently revealed that a massive 35,682 people entered into personal insolvency in the first three months of 2010, a 17.9% increase on the same quarter of 2009.

For anyone struggling with debt it is always advisable to seek professional online help to determine what the best solution to your money problems is.

Source: moneyexpert.co.uk