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.
Although those relying exclusively on state benefits will be hit the hardest, millions of other people in the UK who have limited disposable income will see their standard of living reduced. The poorest pensioners are a particularly vulnerable group, Hirsch said.
The issue of the rising cost of living has gained momentum in recent weeks. The soaring cost of sugar, grain and oilseed drove world food prices to a record last month, surpassing the levels seen in 2008, when price rises sparked riots around the world.
The Food and Agriculture Organization index, which tracks the prices of a basket of cereals, oilseeds, dairy, meat and sugar, hit a record 215 points last month, up from 206 in November, to break the 213.5 high registered in June 2008. It shows a dramatic rise in food prices for the decade, since the Rome-based UN agency’s index stood at only 90 in 2000 and did not break through the 100 mark until 2004.
Meanwhile, the price of cotton jumped by 54.8 percent last year, prompting the British high-street retailer Next to increase its clothing prices by 8 percent, while copper rose by 20 percent and soya beans by 32 percent. In addition, UK rail fares increased by an average of 6.2 percent this month, confirming the network as the priciest in Europe.
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