Sat, Jan 22, 2011 - Page 9 News List

Experts warn Britain’s poorest are facing a decade of despair

By Tom Bawden  /  The Guardian, LONDON

About 7 million of Britain’s poorest people will see their spending power fall by a tenth over the next decade because the prices of essentials such as food, fuel and clothing are rising much faster than inflation, according to new research.

Research for the Joseph Rowntree Foundation shows that these households, where typically nobody is employed, have already seen their spending power reduced by about 10 percent in the past 10 years. This means that by 2020 they will be nearly a fifth worse off than they were in 2000, if, as expected, pricing trends continue.

“This really shows how world factors are affecting the standard of living in the UK as rising global demand for food, cotton and other commodities pushes up prices of basic necessities,” said Donald Hirsch, head of income studies at Loughborough University’s Centre for Research in Social Policy, who conducted the research.

Tuesday’s inflation figure was expected to put the rise in the cost of living at 3.4 percent last month on the consumer price index (CPI) measure [Editor’s note: it turned out to be 3.7 percent], way above the Bank of England’s target of 2 percent and further evidence for hawks on the bank’s monetary policy committee, who believe that interest rates must be raised before prices spiral out of control. The wider retail price index (RPI), which includes housing costs such as mortgage interest, was forecast to rise to 4.8% [Editor’s note: It did].

There is mounting concern that fuel prices in particular need to be curbed as oil nears US$100 a barrel. British Prime Minister David Cameron has spoken out in recent weeks about the need to tackle inflation.

Hirsch’s latest research suggests that the last decade’s jump in the basic cost of living will continue, or even accelerate in the next 10 years, with increasing price volatility as the rising value of commodities prompts hedge funds and other speculators to funnel more money into basic raw materials.

“All the talk about recent VAT increases [of 2.5 percentage points] is a storm in a teacup compared to some of the price rises we’re seeing elsewhere, where the long-term trend is almost certain to be up, and quite seriously,” Hirsch said.

The persistent growth in basic household expenses such as council tax, water, public transport and, more recently, energy and food, means that the cost of buying the basics — known as the minimum income standard (MIS) — increased by 38 percent in the 10 years to April last year. Over the same period the RPI, to which benefits are tied, rose by 31 percent, leaving those relying on the state significantly out of pocket.

However, the poorest households — so-called workless families comprised of single people and couples, with or without children — are to set to lose out at an accelerating speed from April, when their benefits will be tied to the CPI rather than the RPI.

The CPI has consistently grown by less than the RPI, increasing by only 23 percent in the 10 years to April last year, and this trend is expected to continue.

“This could be the decade of despair for the poor families we work with, and they will certainly face desperate choices as income shrinks and price rises impact on parents’ ability to support their children ... These price rises could break them,” said Rhian Beynon, head of policy and campaigns at Family Action, a charity helping disadvantaged families.

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