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The shrinking pound in your pocket

Stephanie Flanders | 00:00 UK time, Monday, 21 March 2011

Nearly everyone's feeling squeezed these days, and for good reason. New research published today in association with the BBC shows that after tax, the real income of the median household in the UK, right in the middle of the income distribution, will be 1.6% lower in 2011 than it was in 2008. That's a loss of around £365. Usually, they could have expected their income to have risen by nearly £1140 over that period.

This represents the greatest 3-year squeeze in real living standards since the early 1980s. Looking at the likely prospects for the next few years, the IFS reckons that the real income of the median household will still be lower in 2013 than it was in 2008 - meaning the largest 5 year drop in living standards since the early 1970s.

As we all know, it's not just the recession that has hit household incomes - there's been a triple whammy of slow or no growth in the economy, above-target inflation and tax and benefit changes to cut government borrowing. In advance of the Budget, I asked the IFS to try to estimate exactly what had happened to real household incomes as a result of all these different factors - and which had done the greatest damage.

The result of that work is the research published today. Here's what I found most interesting in these figures.

First, for most households, low interest rates and high inflation have had a much greater impact on their real incomes than either unemployment or tax and benefit changes. If you break down that £365 loss in post-tax income for the median household, only £79 is directly attributable to loss of employment. About £203 has been lost as a result of earning less interest on savings, and another £203 has been lost as a result of their wages not keeping up with inflation.

You might wonder why those losses add up to more than the total loss of £365 a year. The answer is that changes in benefits and direct taxes over this period have actually raised the income of the median household between 2008 and 2011, by about £120. This includes the changes coming in April.

That's the second striking element of these findings. Only households in the top fifth of the income scale or the bottom tenth, on average, have lost out from changes in direct taxes and benefits over this period. Everyone else, on average, has gained.

How can this be true? One part of the answer is that the VAT rise is not included in this heading, because it is already included in that £203 loss of real earnings, due to inflation rising faster than wages.

If you think about the way we pay for that VAT rise, we pay for it in higher prices - and the increase in VAT is a large part of the reason why the target measure of inflation is now running at 4%. It would be double-counting to measure the impact of higher VAT directly as well as taking inflation into account.

These numbers don't take account of the benefit cuts that are coming after 2012, many of which, like the cuts in housing benefit, will cut the income of many households. Inevitably, the indirect effects of public service cuts are also excluded here. But we often forget that the government is also raising the personal tax allowance by £1000 from April. That will boost real incomes for a large part of the income distribution, even if the government will be taking it away in other ways.

That brings me to another point: These figures show that by far the tightest squeeze on incomes, in percentage and absolute terms, has been to the richest households. A family in the 95th percentile - right in the middle of the top tenth of households will be 3.8% worse off, in real terms, than they were in 2011. That's a fall in their annual income of around £2230. Nearly £600 of that is due to the loss of benefits or higher direct taxes, with around £815 due to lower interest on their financial assets or other savings.

I suspect few will shed tears for this group. There will be more concern that the household in the 5th percentile - in the middle of the bottom tenth of the income distribution - will have lost around £35 a year from tax and benefit changes, compared with a gain for the median household of around £120. (Although, as ever, the IFS would note that the bottom tenth contains a lot of students or self-employed people with highly variable income, whom we would not necessarily consider poor).

The other group that has lost relatively more than other groups has been pensioners. The median pensioner household will have seen their real annual income fall by 2.4% since 2008, or £456. In more normal times, the income of this "typical" pensioner household would have risen by nearly £960 over that period. Unlike most other groups, tax and benefit changes have also left pensioners slightly worse off - with a net loss for the median pensioner household of just under £13 a year.

That brings me to the final point to note: the relative importance of low interest rates in squeezing real household income. That is responsible for the lion's share of the loss in pensioner income - more than £350. But even the typical household with kids has lost about £77 a year as a result of lower interest income.

You might think it strange that the IFS has included the negative impact of low interest rates for savers - and not the direct benefit of lower borrowing costs for households with mortgages. The measure of household income they use is after taxes, but before housing costs. But, once again, the impact of lower rates is included in the RPI measure of inflation that they've used in calculating the change in real earnings.

If interest rates had not fallen so far, then the loss in savings income would have been smaller, but the loss of real earnings from employment would look a lot larger, because the RPI measure of inflation would have been even higher than it actually was. For that reason, the IFS believes it has fully taken into account the fall in mortgage rates.

As anyone with a mortgage will tell you, mortgage rates have not fallen nearly as far as the official base rate. There are households who were on tracker mortgages when rates were slashed, who have seen a massive boost to their net income, but they are not the majority. (And many of them will have had to re-negotiate their mortgage by now, because that particular deal has run out). By contrast, savings rates have generally fallen in line with official rates.

That is how loose monetary policy is 'supposed' to work after a financial crisis - low interest rates help banks rebuild their balance sheets by widening the gap between what they charge borrowers and what they pay to savers. That will be little compensation to families who feel they are being squeezed on all sides. For most, they would be right in their suspicion that the recovery has been more painful so far than the recession.

Comments

Page 1 of 3

  • Comment number 1.

    "You ain't seen nothin yet"

    Also I think the point made about VAT is an important one and is a significant factor in the inflation figures aswell as oil and commodity prices.

  • Comment number 2.

    Of course the whole problem of the pound in your pockets's value is entirely due to the last Labour government spending money neither we or they had. The lack of savings in bank and building society accounts is also due to the OISG allowing interest rates to be so low that savings are worthless as they do not keep up with infaltion.

    The present situation in government is exactly the same as the Torys inherited from Labour in 1979, so one must hope that the public have now learved that Labour will always bankrupt the country and thus the Pound in your pocket is never safe with them.

    The Government could save billions by removing us fron the EU, from which we import much more than we export to, and use the saving in club fees to pay off the debt.

  • Comment number 3.

    Politicians spend our money on their priorities and send our servicemen to die for their principles.

  • Comment number 4.

    "This represents the greatest 3 year squeeze in real living standards since the early 1980s"

    And then the early 80s turned into the mid-80s... so let's keep a sense of perspective here, and we can all look forward to...

    LOADSAMONEY! LOADSAMONEY! LOADS, LOADS, LOADS!!!



  • Comment number 5.

    Stephanie. By some oversight you fail to mention the effects of quantitive easing, otherwise known as debasing the currency, on the shrinking pound. The net loss in income of over £1500 in the period 2008 -2011 can be laid entirely at the door of Gordon Brown's Labour Government and it's reckless and unrealistic economic policies. The country is now paying the price of Labour's financial incompetence and it is a pity that responsible economic commentators are failing to highlight the main causes of our economic plight.

  • Comment number 6.

    Part of the problem is the minimum wage. I'm working 47 hours a week, on the minimum wage but take home just over £14K. Not much I can do about that in the current job market, in a country flooded with economic migrants where the unions have been castrated. If we didn't have the minimum wage, I bet my bosses wouldn't even be paid £14k. Its the employers attitudes to paying their staff a decent living wage that's the issue really...

    As an example of the consequences of this situation, I was thinking about buying a garden shredder. Not an essential purchase, but it would make life a bit easier. Cost £69 new, so not a bad price. I worked out that the VAT on that purchase would be £11.50.

    Eff that I thought, walked away and didn't make the purchase.

    Happens quite a lot these days...

    Whilst some households do need to be squeezed, until the Government gets the economic balance right for those forced to work on the minimum wage, not beacause these people are thick but because of circumstances in the job market, the economy just isn't going to recover...

  • Comment number 7.

    "save billions by removing us fron the EU, from which we import much more than we export to" (SnoddersB) - and how we would all cheer to see Spanish oranges, Italian wines, French cars and Finnish tyres priced off the British market! Far from increasing our national income, protectionism would impoverish us - a nation that lives by trade cannot restrict it.

  • Comment number 8.

    re #2
    '... the pound in your pockets's ...'
    -------------------------------------
    WhoooooooOooooOoooooo ... ! Ghostly echoes of the past ... [Shiver.]

  • Comment number 9.

    It might actually be easier for frugal pensioners because they have probably been doing without as a lifestyle for some time.They are probably also savers and don't really spend unless they need to.

    Hopefully the latest budget will see a rise in personal allowances which will see them not paying tax on the first £10000 of income.

    Most pensioners do not run a car on a regular basis and so will be unaffected directly by the cost of fuel,though it will affect them indirectly by fuel costs from hauliers being passed on to the retail trade.

    A lot more people have become interested in growing their own food and indeed keeping animals,which may become a necesssity over timeand is probably a good thing.

    We could probably learn a lot from islanders in Orkney who can show that by and large we can all live reasonably well on a lot less.Indeed we may even become fitter from doing so given the degree have obesity we have in the country.

    We may all find that less is more and become more self-reliant in the process.Old traditional skills may be revived and the VAT increases may be side-stepped by people actually buying less.

    Those affected most will probably be the young who are unable to find a job, to save, to pay for a pension and to get on the first rung of the property ladder.

  • Comment number 10.

    @TGR Worzel if the minimum wage was raised it would still be the minimum wage. The relative cost of everything would rise and the country would lose more jobs while becoming more attractive to EU job immigration, making the competition for minimum wage jobs even harder for local people.

  • Comment number 11.

    SF ' ... low interest rates help banks rebuild their balance sheets by widening the gap between what they charge borrowers and what they pay to savers.'
    ------------------------------------------------------------------------
    Er, no, Stephanie, it does not.

    There might be some small short term gains but the bulk of the extra earnings are lost with W/Os/provisions for bad debts. The real way to rebuild Banks balance sheets is to up rates for savers and go 'conservative' on lending. Plus get trade and business going so that they can earn from their (bank) activities there, assuming they are a multi-activity bank and haven't been forced to become narrow ... {Be careful what you wish for!}

    In addition, if loans start to look expensive, customers go away. Too big a spread on a loan can make investment of their accumulated reserves or spare cash more attractive to business where their future earnings look reasonably secure.

    Of course, to improve reserves, they could go easy on the bonuses they pay ... [Thought I'd get that in to save hundreds of other posts.]

  • Comment number 12.

    I am semi-retired and spend much time at a (modest) apartment I bought on Tegernsee (Bavaria) some 22 yrs ago. One of many side benefits of getting divorced.

    Our £ devaluation v DM/Euro since 1990 is approx 40%, since late 70's when I first contracted to work in Germany, some 60%. Our lack of competitiveness has straddled all eras and governments of different hues. SnoddersB is talking facile nonsense. Severe radical root and branch rebalancing of our economy is needed.

    Also I suggest putting your retirement savings into a multi-currency annuity under a European managed fund which has cheaper charges. This has hedged my retirement income quite well.

  • Comment number 13.

    Congratulations Stephanie on pointing out what is so often ignored, namely that those of us who have saved throughout our working lives, rather than getting into debt, are the ones who continue to be penalised heavily by the 'benign', ie 'low' interest rate policy.

    I have saved throughout my working life and now find that my reward is near zero savings rates against an inflation rate of over 4%. Your report shows the result of this. Dear members of the MPC: why should savers loose 4% of the value of their savings each and every year in order to bail out over-spending individuals and government?

  • Comment number 14.

    Consider having a conversation about politics, in 1947; with someone who never, ever, mentions the second world war. You'd think that was odd, wouldn't you?
    That shows just how dishonest is the government's line about the current economic crisis: they claim it's all due to Labour, and never mention the Great Crash of 2008.
    There must be a new motto: never mention the crash.

  • Comment number 15.

    The country is bankrupt, so....hey, let's start another war to take people's minds off it and show that Cameron is not a lightweight!

    We can't afford another war or even the wars we've got and we can't afford Cameron. They're meant to be better than Labour for the country, which just goes to show how poor Labour is for the country rather than how good the con-libs are.

    Let's leave the EU, save loadsamoney and let Brits rule the UK. Maybe then some serious politicians will step up to the mark and run the country as it should be run.

    All the governments since the tories were last in power seem to be taking us for fools and throwing away everything we ever had. Time this country was run for the people of this country, not the politicians who must be from outer space.

  • Comment number 16.

    12. At 07:49am on 21 Mar 2011, kwikki wrote:
    I am semi-retired and spend much time at a (modest) apartment I bought on Tegernsee (Bavaria)

    Drink some of that lovely lovely beer for me. Nothing like it.

  • Comment number 17.

    NewshoundUK wrote that 'most pensioners do not run a car'. Out of touch with reality, I am sorry to say. We are just as affected by rises in petrol prices as anyone else. We are already a group that has lost more than most. And now the chancellor is talking of combining National Insurance with Income Tax. Pensioners do not have to pay NI at present. NI is levied on workers so that effectively the government is compulsorily saving for them to pay for their State Retirement Pension. If NI were added to Income Tax it would mean pensioners would be paying to save for other people's pensions. Something wrong here, surely?

  • Comment number 18.

    A few of those taboo subjects that should never be discussed over a dinner table. Must be a European policy upon further integration into the common market place:. Be prepared, to lose control over your finances and with any luck your fianchetto will be itemised under full state control.

  • Comment number 19.

    SF ' ... low interest rates help banks rebuild their balance sheets by widening the gap between what they charge borrowers and what they pay to savers.'
    ------------------------------------------------------------------------

    I thought that the way banks repair their balance sheets in a low interest environment is by rolling down the yield curve. Which is why not much lending is going on. Why bother when the BOE gives you essentially free money and you make a ton of cash buying and selling bonds.

  • Comment number 20.

    Record low interest rates ,record high inflation and record high regressive indirect taxation (VAT, fuel duty etc). Money printed via quantitive easing. Corporation tax on business profits at record low levels. Banks helped to "rebuild their balance sheets by widening the gap between what they charge borrowers and what they pay to savers" and incidentally pay a few squillions in bonuses. Government debt devalued. House prices still ridiculously high.
    Policy seems hell bent on reducing this country to a place where a few highly paid businesspeople, professionals, civil servants and local authority chiefs lord it over the serfs. The only people who can afford to retire will be the civil servants who are still on course to retain their inflation-proofed pensions. No race to the bottom for them!

  • Comment number 21.


    I think that most people would agree that:
    In the UK we have a government which needs to borrow money.
    And we have savers that would like to invest and protect the value of their savings.

    December 2009 RPI = 218.0
    December 2010 RPI = 228.4
    Inflation = 4.77%

    If you are able to receive a rate of return on your savings of 4.77% (after tax) then the value of those savings is not diminishing.

    It was of course entirely possible for the average Joe to do this until June of last year.
    National Savings and Investments offered RPI linked savings certificates which paid RPI + 1%. Which, when you think about it, is not such a bad deal, because they’re tax free.

    So why have they been withdrawn we may ask ourselves?

    Why withdraw an age old investment product, when government needs to borrow and savers want to protect the value of their savings?

    Best answer wins a coconut.

  • Comment number 22.

    Post #17. If income tax and NI are combined, I'm sure that if enough awareness is raised about pensioners losing out, then a compromise could be reached (higher personal allowances maybe?) Thousands of administrators working on NI could be reduced if the two were combined, and people would have a better clue as to exactly how much they are paying if we simply have a single income tax. NI should simply be used as a 'credit' for benefit purposes with any financial element removed, and even this could be simplified especially if we move to a flat rate pension as proposed.

    Post #7. Removing ourselves from the EU doesn't have to stop us importing items, though if we reduced the number a foreign cars, it may persuade somebody to build a few more here. What we would see is an end to all our money used to subsidise French farmers, prop up failing economies in southern Europe, and stop us being forced to import tasteless French apples at the expense of our far superior ones.

  • Comment number 23.

    As a pensioner, I am finding this period difficult - but- it's the pain we all have to bear to get us on the right track. We expect far too much these days and we do need to get things in perpective. If we personally don't have money, the bank is charging too much to borrow and it adds up to far more interest than we could ever repay, we choose to go without. The unfortunate thing is that the government has to make the choice for us as to what we go without. PLEASE take this on the chin, and let this coalition have enough time to get us on the other side of this pain. Don't let us start going backwards again. PLEASE

  • Comment number 24.

    I really do not understand the results of your survey Stephanie. You claim that pensioners and savers have lost just 360 pounds a year. Now as this can be directly attributed to the collapse in interest rates this suggests that pensioners and savers have only a savings pot of 12,000. How does this explain the size of the pension posts of pensioners which are substantially more than this and have been subject to the same pressures on interest rates? (I.E. Annuity rates have also halved over the last two years.)

    Your statistics appear to be inconsistent and if not entirely rubbish than so ludicrously selective as to make them a fiction being used to support a political agenda. Who paid for this 'research'?

    Income from savings and pensions pots have halved in the last two years. That is the reality. Rejecting this reality risks seriously destabilizing the whole economic debate. This 'research' must therefore be considered highly suspect. This is the real destruction in the price of money - not some tiny £360 a year, but a catastrophic rebalancing away from prudence to imprudence. These economists are completely out of touch with the real results of policy and need sacking.

  • Comment number 25.

    Here we go again! Statistics based upon other statistics, assumption upon assumption and hence conclusions that miss the point completely.

    It's not just a question of figures. You have to look at what those fugures actually mean (and how they feel) upon a household basis if you want to undertsand what is going on. A figure of £350 or £77 loss in overall income is meaningless. You then have to go on and see how these differing households are being affected in both their spending habits and their confidence in the future.

    Look at the growth of TV advertising for firms such as Wonga offering short term loans to top-up monthly shortfalls. Look at the growing numbers searching through the reduction sections in the supermarkets. Does that not make you think that the reality of the statistics may be different to the conclusions that are being offered.

    Then go and look at the statistics offered by Credit Action and tell me why we are continually being told that people are actively "paying down debt". Even Sptephanie views the figures from the perspective of CPI at 4% whilst we know that household inflation is significantly points above that. Then you go on and relate these figures to the pound in your pocket!

    Up2snuff, comments on Wilson's "the pound in your pocket". Did any of you ever stop to think that, in terms of life at that time and the feeling of the pound in your pocket, that he may have been right? After all he could and did have control over agricultural subsidies, we gre more of our own food, a greater percentage of us used public transport, gas and electricity was state controlled, etc. etc. Contrast that with the current talk of imported inflation.

    End of rant

  • Comment number 26.

    re #21
    My head is already going fuzzy, so this won't win as it is the boring banking text book - without having looked it up - answer: inflation is so bad that NS&I cannot afford the payments on a true RPI/CPI+ bond without disadvantaging its reserves and/or other products and/or other savers.

  • Comment number 27.

    #23. AHetsgirl wrote:

    "As a pensioner, I am finding this period difficult - but- it's the pain we all have to bear to get us on the right track.

    But there is ample evidence that huge elements of the present direction in policy are completely off track! You are presently subsidizing gigantic increases in inequality where wealth is still being shifted from the mainly poor prudent savers to the rich imprudent borrowers. This was happening during the mid years of the last decade but after 2008 the rate of shifting money in this manner has dramatically increased. To say nothing of the bakers..... Is that the 'right track'?

  • Comment number 28.

    Stephanie, as always no mention of the debasement of the dollar or quantative easing as its called, and the significant inflation in commodities, stocks and shares as a result. Its all heading towards the collapse of the dollar and the chaos that will involve.

  • Comment number 29.

    re newhounduks comments I am pensioner who worked all my life sometimes having a full and part time job at the same time.My savings were wiped out in the Icelandic banks scandal and I am finding I can no longer manage financially,I should point out that I am being frugal to the point of being in danger of hypothermia and malnourishment.Now my rent has been increased by £28 per week and I can not get any help with this.The result is that I will have to leave my home of 42yrs but cannot find anywhere I can afford.Would newshound like to suggest a solution to my problem or perhaps as a worthless(frugal) pensioner I should just become a bag lady and like old soldiers fade away.At the same time EU immigrants living down my road are getting housing benefit and living in style on benefits provided by people working for their living as I did

  • Comment number 30.

    23. At 08:52am on 21 Mar 2011, Hetsgirl wrote:
    As a pensioner, I am finding this period difficult - but- it's the pain we all have to bear to get us on the right track. We expect far too much these days and we do need to get things in perpective. If we personally don't have money, the bank is charging too much to borrow and it adds up to far more interest than we could ever repay, we choose to go without. The unfortunate thing is that the government has to make the choice for us as to what we go without. PLEASE take this on the chin, and let this coalition have enough time to get us on the other side of this pain. Don't let us start going backwards again. PLEASE

    ..........
    It doesn't have to be this way, you have been misled. The problems have been cause by having a debt based monetary system (see Positive Money web site), and overaccumulation of wealth. Both can be resolved, but are not going to be by a government with a cabinet of millionaires.

  • Comment number 31.

    "If you break down that £365 loss in post-tax income for the median household, only £79 is directly attributable to loss of employment. About £203 has been lost as a result of earning less interest on savings, and another £203 has been lost as a result of their wages not keeping up with inflation."

    £79+£203+£203 = £485, not £365. Should one of the "£203"s read £83?

  • Comment number 32.

    Forget it! Just read the next bit!

  • Comment number 33.

    And there are those of us who, due to lack of work available, are working way below the minimum wage whilst having to pay out ever increasing costs. The Rowntree Trust worked out that a single person needed £14K to live on over a year. I get about £7.5K before tax on a part time job. I can survive on that because back in the 50s I was brought up to count my pennies and not to spend them if I had not got them. Hence I used to do such things as get off the bus early to save 1/2d each day to buy Beano at the end of the week. Now I have cut back on my hobby and am spending the minimum to keep current. Theoretically I should be a pensioner. I am applying for jobs wherever I can as the current job is being made redundant. At the same time I am cutting back yet more. Food gets more expensive due, amongst other things, to the fuel price hikes - pensioners not having cars is a joke presumably, they are still paying the fuel tax on anything that they buy due to the carriage costs. So I am digging up my back garden to make a vegetable allotment. Hopefully I can grow a fair amount of veg and in that way pay less to the government in subliminal taxes. I note that all governments spend money on their pet projects, some just spend, others tell us that they are doing it to save.

  • Comment number 34.


    The uber rich and the bankers of this world have taken over our media. They control the funding and system of patronage - non executive directorships awarded to politicians after leaving office - and lobby continuously to ensure the tax and business regulatory system stays the way they like it.

    They way they like it is screwing everybody else over whilst they can avoid any tax or social responsibilities. That's the real reason this country is going down the pan decade after decade with under-investment in public services, crime endemic, huge public sector debts, unemployment etc.

    Banks and multinationals do not pay workers in the country enough to live off so the government is forced to top up the wages of the working poor with tax credits and other benefits.

    Insufficient money is provided to governments so that education and public services can be properly run to eradicate unemployment.
    With wages set so low, economic migrants from the third world can compete with our indigenous population for the low skill and low quality work available.

    Right here is a sign the tax system isn't working properly. Employers are allowed to freeload their responsibilities onto the middle classes and those that run their own businesses.

    This breeds resentment amongst the middle classes that is inappropriately directed to public sector workers, immigrants and the unemployed.

    Why should the uber rich pay more? The uber rich enjoy the fruits of increased productivity that their workers and the public services of this country provide for them without paying sufficient wages or taxes.

    The modest taxes that we do levy are avoided by numerous routes using the dishonest banking system to launder money gained from exploiting workers in the developing world or exploiting workers in the UK.

    This money is hidden away in trusts and tax havens in the Cayman Islands, Jersey, Switzerland, etc. Using clever tricks such as the dishonest transfer pricing techniques the uber rich insure that they pay insignificant or no VAT, CGT or corporation tax.

    This is ridiculously unfair and it is obscene to see the top 1% of the World owning over 40% of the worlds wealth. Let alone the arguments about unfairness- how is it fair that some companies (e.g. banks and huge multinationals) don't have to pay tax but others do (e.g. small and medium sized business)?

    How can the smaller companies compete and eventually take business from the multinationals when they start with this type of disadvantage?







  • Comment number 35.

    It's not really a true loss as you can't lose what you never had. You could say potential loss though, but then you might as well say if VAT was 0% we are making a loss of £x. I made a loss of £90 million last friday as I didn't win the Euromillions lottery.

  • Comment number 36.

    26. At 09:11am on 21 Mar 2011, Up2snuff wrote:
    re #21
    My head is already going fuzzy, so this won't win as it is the boring banking text book - without having looked it up - answer: inflation is so bad that NS&I cannot afford the payments on a true RPI/CPI+ bond without disadvantaging its reserves and/or other products and/or other savers.

    ------------------------------------------------

    Good answer Up2snuff, but I don't think it warrants a coconut.

  • Comment number 37.

    16. EconomicsStudent:

    Pah. Students... ;)

  • Comment number 38.

    Told you so at Christmas - It's the VAT, stupid!

  • Comment number 39.

    I am a 23year old male on job seekers allowance who has not long got his own flat through homeless services my monthly rent if I was working would be £340 a month for a single bedroomed flat (my mate pays £280 for a 3 bedroom mortgaged house!) although I do get some help with housing benefits and lower council tax I still only get £50 a week of which £30 goes to bills which leaves me with £20 a week to feed myself that's a whopping £3 a day to survive on... I would love to get a job but unfortunately all I ever get in response to my applications is the same old dribble "Many thanks for your application for the above post. After careful consideration I am sorry to advise you that we will not be progressing with your application." and this is from a job where I have worked before and have 2 years experience I also put down the two bosses mobile numbers who said I would have a guaranteed job as references but the applications go direct to human resources who seem to think otherwise on the matter.... if anyone has a job vacancy near edinburgh I would really like to work for you. I'm sick of getting shafted by the government...

  • Comment number 40.

    "If interest rates had not fallen so far, then the loss in savings income would have been smaller, but the loss of real earnings from employment would look a lot larger, because the RPI measure of inflation would have been even higher than it actually was. For that reason, the IFS believes it has fully taken into account the fall in mortgage rates."

    Hmmmmm, not so sure about that. This bit "but the loss of real earnings from employment would look a lot larger" is a huge estimation against an unknown quantity because many people are working part time instead of joining the jobseekers queue.

  • Comment number 41.

    INFLATION IS NOT 4% IT IS 5.1% or more!

  • Comment number 42.

    I don't think we need a blog to tell us this, the signs are all around. It is, I'm afraid, just the tip of the iceberg. Naturally, the knock-on effect of higher unemployment is more people on benefits, less money circulating, and those still lucky enough to have jobs will be paying for it. I work in the public sector, am middle income (with no debts apart from my mortgage), middle aged and have two children at university (not in their middle year). My work future is uncertain, however, theirs is bleak. Still, carry on Cameron and Clegg, wage war on the middle classes and in the middle east, let those who receive seven figure bonuses (for merely doing the job they are already paid for) enjoy the fruits of their "labours".
    People who talk glibly of "the pain that we must endure" need to spend some time going without like so many in our society. In my opinion (and that of many experts), the cuts are too great and too fast to stimulate the economy. Take a look at the rise in house repossessions as a future indicator, there isn't going to be a "right track" anymore because our infrastucture, and our country, will become unrecognisable and take decades to recover.
    Never mind, it may never happen. Sorry, I forgot, it's already started.

  • Comment number 43.

    Some inflation stats:

    Based on the retail price index RPO2 (all items)
    £100.00 in January 2011 has the same purchasing power as £3 15s 1d in 1951.

    Based on the RPI the value of the pound has fallen to less than 1/26th of its value.
    Inflation is the ‘dark destroyer’ of savings and pensions unless you’re fortunate enough to have them index linked.

    So why are there 26 times more £’s now than there were sixty years ago, and where on earth have they all come from I wonder?

    Other stats for the last 60 years:

    One troy ounce of gold in 1951 was $34.72
    One troy ounce of gold in 2011 is currently $1362.92
    Increase 39.25 times in $’s

    Average UK house prices in 1951 = £1,875.00
    Average UK house prices in 2011 = £163,244.00
    Increase 87.06 times in £’s

  • Comment number 44.

    The pound in our pocket is being used to line the pound in their pockets! The fat cats are getting fatter whilst we all suffer...

  • Comment number 45.

    There seems a long way to go in this downturn and the lower income working classes are suffering proportionately the highest burden in extra Vat, fuel duties, energy costs and food prices, which are elevated even more by commodity dealers.

  • Comment number 46.

    Why not bring back trade unions and help get wages back up to a realistic level? I take home £217 for a 40 hour week and can't change jobs because of age discrimination. I can't save and I can't travel. Why should people suffer like this?

  • Comment number 47.

    In my opinion, due to the financial crisis and the information available over the internet, people were starting to grasp what inflation really is, namely, the increase in the quantity of money.

    They were also beginning to grasp that the purchasing power of the £1 you save now after interest is added and tax deducted will always decline.

    They were also realising that the companies that create all those things we buy, ultimately also create the RPI, therefore overall their respective share values and dividend payments must be reflected in the RPI.

    So if you can crystallize the value of £1 at the point you ‘save’ it, and its purchasing power uplifted by 1% per annum, and there are no charges or taxation, it stands to reason that overall it will ultimately beat a private pension, and pretty much everything else as well (market fluctuations excepted).

    Now with index linked savings certificates, (assuming they don’t fiddle with the RPI), you could (up to June 2010) crystallize the value of your ‘savings’ + 1%.

    At the time, it sounded to good to be true, and it was of course, because if government is borrowing @ RPI + 1% it can’t inflate away its debt.

    And the typical beneficiaries of the purchase and sale of government debt, won’t get as much benefit, if the public start taking an ever increasing slice of it.

    And who were the beneficiaries of the purchase and sale of government debt, we may ask ourselves?

    Best answer wins two coconuts.

  • Comment number 48.

    Stephanie.

    Please could you less us know whether the income by decile changes used in the analysis were just the change in average earnings for all incomes or whether they were the actual income changes for each decile.

    This is relevant because if the higher deciles have had real wage increases whereas the lower and median deciles have seen wage freezes and cuts then the actual position will be very different despite the tax and benefits changes.

  • Comment number 49.

    #17 ExRAFPilot

    I actually said that most pensioners do not use a car on a regular basis.

    In other words while most workers with cars will travel to work 5/6 days per week pensioners will not have to do so and thus any petrol they buy though costly will last longer.I have a car but only use 2 days a week but do accept that if prices keep rising even that may be threatened. Wonder what the oil companies will do if the UK & other countries become carless societies?

    The point you make about combining National Insurance & income tax is both interesting and worrying but it does depend on how it is done. Not having seen the details it may only relate to those under the retirement age who are working because as you say pensioners do not currently pay national insurance contributions.

  • Comment number 50.

    When are you number crunchers going to wake from the "TRILOGY" of government rabble that have "SINCE" the last sixty six years; since the rebuild of the aftermarth of the second world war! Have been the problem of "TRUTH" and "TRANSPARENCY" And the monopoly "BANKS" have engineered with the governments to show you the "PROMISSED LAND" The flock of sheep! who think the lambs are real! need to stop pulling the wool over there eyes! A bank is a "bank' as like any shop or store were ever you spend. We are in this mess because "People lack insight to hignsight!.

  • Comment number 51.

    The decline in material wealth is inevitable. Material wealth is dependant on the availability of ‘material’. The most important ‘material’ in this respect is oil. Since world oil production has been stagnant since 2005 and UK production has been declining a corresponding decline in material wealth is unavoidable. The recession is simply the mechanism that gives effect to the inevitable.

  • Comment number 52.

    I keep seeing them count the VAT rise as being part of the inflation figures. But if the 2.5% rise is being counted as part of the 4% inflation, why is VAT being charged ON TOP of the inflation adjusted price?
    If VAT was being counted in the inflation figures, this wouldn't be the case.

  • Comment number 53.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 54.

    "Far from increasing our national income, protectionism would impoverish us - a nation that lives by trade cannot restrict it."

    Nobody said anything about restricting trade. The OP mentioned getting out of the EU.

    Get rid of the costs, and the centralised laws and let trade take its natural course.

  • Comment number 55.

    UK Treasury Finances polarise as the Bankster induced collapse and recession means UK Tax Revenue drops dramatically and Unemployment payments increase. We are also feeling the disastrous consequences of over 50 years of the stupidity of UK and US misallocation of investment capital into ludicrously overpriced Housing, absurd Military spending, as well as the borrow to consume House of Cards economy.
    But we see how easy it was for the Banksters to “collapse” the Financial System and all the money mysteriously vanishes. Astronomical amounts of Taxpayer Cash transferred by the Banker Placemen to the Puppet Master. I do not see a distinction between one set of puppets and another, Conservative or Labour, Republican or Democrat.
    In the US, the Commodity Futures Modernisation Act (2000) was an absolute classic!
    The CFM Act actually banned any future US Government legislation or regulation of Credit Default Swaps! It sailed through Congress and Senate without debate. It cynically set up defences for the long planned Bankster scam. Congress & Senate are a complete joke, near total infiltration with Banker placemen. The UK is exactly the same.
    Sony Pictures Documentary Inside Job is excellent covering this arena.
    In the long term, local manufacture and trading, local supply of services, not-for-profit Local Banks and a not-for-profit National Bank, is what will emerge out if necessity. It will be arise in any case by virtue of scarcity of mineral resources irrespective of the Banksters or whichever Bankster placemen and frontmen there are in Kleptocracy UK or USA.

  • Comment number 56.

    Stephanie- some confusion about the decline you quote?
    The study reports 'Across the board, real incomes in the UK fell by 1.6% a year between 2008 and 2011, the study found'. Yet you refer to 1.6% in total from 2008 to 2011.
    Which is correct?- suspect it is the worse value!!

  • Comment number 57.

    "I have saved throughout my working life and now find that my reward is near zero savings rates against an inflation rate of over 4%."

    We don't want you to save. We want you to invest.

    Savings don't help an impoverished economy. That's what the term 'paradox of thrift' means.

    An economy needs there to be enough people prepared to buy today's output. People saving overall means that today's output remains unsold and people get laid off.

  • Comment number 58.

    Its funny that someone mentioned the military action in Libya. Thats exactly what went through my head, we are, apparently, penniless as a country, we can't ensure schools are in good order, play grounds left unfinished, a dismantling of the NHS.... all because we are skint.

    Yet we suddenly find billions to get involved in someone elses war.

    I wonder if all those who solely blame Labour would feel differently had Brown decided to not bail out the banks, if he had said "Guys, you made this problem - sort it out yourselves" . .

    Cameron and co blame the Labour party for all this, yet they would have done exactly the same & even now don't show the teeth at the banks that they said they would.

  • Comment number 59.

    At 08:35am on 21 Mar 2011, Eboracum wrote:
    "Policy seems hell bent on reducing this country to a place where a few highly paid businesspeople, professionals, civil servants and local authority chiefs lord it over the serfs. The only people who can afford to retire will be the civil servants who are still on course to retain their inflation-proofed pensions. No race to the bottom for them!"

    Don't blame the civil servants. My husband, quite high-ranking officer, faces effectively a paycut of 33% over the next few years, and that only of he is lucky enough not to get sacked. We're not rich, we only have a 2-bedroom house and our kitchen is so tiny that 2 people can't fit in at a time. Oh well, we're not starving yet.

    The people we should be doing something about are Cameron and his tax-evading buddies. Including George Osborne. Woo-hoo! No wonder the country is going down.

  • Comment number 60.

    Sorry to change the subject slightly only I've just obtained a 'leak' from the budget. Mr Osborne is to continue his ideological path and is about to set up several enterprise zones mainly in the north of England. These zones are to be given tax advantages similar to how Hong Kong operates.Workers rights will be diminished and wages will be depressed.
    How do I know this and yet scholars like Mr Peston and Ms Flanders don't.
    Its probably down to my age and experience of living under the Tories. Their flawed philosophy of trickle down economics is unfair except to them and their rich friends.

  • Comment number 61.

    And down in the Mediterranean Sea, every Tomahawk cruise missile, launched from a British nuclear submarine, costs the equivalent of the annual salary of fifteen Staff Nurses, or would pay the tuition fees for three years, of a dozen Oxford undergraduates from an underprivileged background.
    Or is this particular waste of the public purse the fault of the previous Labour administration, as well?

  • Comment number 62.

    Having read your update Stephanie I see that you mention these things "above-target inflation" and "low interest rates and high inflation have had a much greater impact" so you are looking at inflation as having been a strong influence.
    However back on the 4th October 2010 you told us this.
    "With the possible - very limited - exception of inflation expectations, it is hard to identify a single indicator suggesting inflation is about to pick up."
    So you appear to be telling us that inflation has been a strong influence over a period when you told us there wasn't any...

  • Comment number 63.

    "That is how loose monetary policy is 'supposed' to work after a financial crisis - low interest rates help banks rebuild their balance sheets by widening the gap between what they charge borrowers and what they pay to savers."

    This is true, and it strikes me as typifying "value-free" economics (which, in practice, means virtually all academic economics - ie economics as a pseudo "science").

    It views the rebuilding of banks' balance-sheets in an entirely technical light, devoid of any moral or political dimension. In order for banks (viewed as credit-dispensing robots) to be able to resume lending when the upswing comes they must have been allowed to replenish their reserves. All perfectly "reasonable" and innocuous - so long as you see banks as robots.

    But then you remember that banks are human institutions created by humans for human ends. Banks' and bankers' actual motivation is, in a word, self-enrichment - without *any* limit. And too, that their entire empire is built upon the willingness (whether conscious or not) of the people to underwrite their existence and to bail them out whenever their addiction to gambling lands them in trouble.

    Our banks function as an extension of the public sector, whilst the hired help - the staff - cream off most of the profits for themselves. That's what "rebuilding their balance-sheets" actually has to do with. That's why they must put themselves as quickly as possible back into a position to resume lending (not least to the government itself) to the greatest extent the regulators will permit. It's what they do.

  • Comment number 64.

    My main, naïve, thought remains:


    real wage down -> quantity demanded down -> spare capacity up -> real wage down


    Assuming inflation as exogenous to this loop, inflation has driven real wage down, thus the reinforcing loop has become a downward spiral. I still hope someone will tell me why this loop is wrong, because it worries me.

    [To all who keep blaming GB and old New Labour's contribution for the current lack of choice in response to the economic situation, I think there is nothing to be gained by this. Those who know you are right know you are right. Hopefully the new new Labour Party do actually get this and rather than EM and EB continuing the points scoring will move policy options forward particularly on the rebalancing between C and I and thus increasing capital formation and productivity.]

  • Comment number 65.

    It is interesting to see the impact of so many things coming together to give us one end product, we are all poorer. I see that you mention the impact of interest-rates not following the official base rate.
    Others have been way ahead in pointing this out. For example I remembered reading this some time ago about something you discuss today.
    "Let us look at the situation now and think of the UK saver and borrower. Until this weekend it was possible to invest money on a one year basis with National Savings (backed by the UK government) and get a gross return of 3.95%. Some savings institutions are offering rates of around 3% on instant access. Now if we look at mortgages tracker rates are around 3% for new mortgages at best,and the average 2 year fixed rate according to money facts is at 4.86%."
    http://t.co/lAQX6BY

    However this was being pointed out back in December 2009 and those interest-rates were compared to the same base rate as today!



  • Comment number 66.

    The problem is the middle-class baby-boomer generation who have deprived their children of their own wealth. The baby-boomer wealth has frankly been very little to do with hard work, and more to do with riding a tide of post-war prosperity. Now, they're depriving their children of the ability to generate wealth. And now, they grow old in houses which are too big for them while young families can't afford a reasonably sized box.

    We have to pay huge tuition fees and mortgages; while we also have to pay for their healthcare and pensions. What have they done for us? Precious little. What a legacy...

  • Comment number 67.

    "Nearly everyone's feeling squeezed these days" Well, we're all in this together and it's about time we accepted that and stopped all the grumbling and special pleading and just got on with it. Does everyone think that it is someone else's problem and someone else can pay? There's still a level of discretion in this, as the contributor indicated in his decision not to buy a garden shredder. Perhaps it would have been better just to raise the basic rate of income tax by 3%.

  • Comment number 68.

    Its worth remembering why the UK is in this finacial mess.

    The primary cause was Gordan [Mr Prudence] Brown and Alastair Darling together with their Scottish cronies within the Scotts banking system; eg Royal Bank of Scotland's Fred [the shred] Goodwin.

    Its now outrageous that the Scotts demand that we in England, Wales and NI subsidise their extravagant demands for amongst other things, free prescriptions and free student tuition.

    Its time the Scotts paid back their share of the pain they caused the rest of us

  • Comment number 69.

    ...what's this? - Is Britain finally awakening as to WHO is expected to PAY for this crisis and just how much that might be?

    Oh dear - not good news really, it's all a little too late. Maybe the journalists of the UK should have informed people sooner - now they're just going to be angry.

    The 'payback' hasn't even begun in earnest yet - when it does then EVERYBODY will know - even the Economists will realise (and promptly claim they predicted it with their vague statements in the past)

    It all about the oil - that's when people will notice - that's when people will care - but unfortunately once it's reached the pumps it's far too late - the inflation will already be spiralling within the system (as all vital goods and services rely on oil to transport them).

    Best thing you can do is start planting food - it may just be purple sprouting broccolli you can't afford right now - but this is just the beggining.

    (prediction based on the BoE not raising interest rates and tipping the economy back into a deflationary recession)

    I have to add that now or the capitalists actually hunt through previous predicitons in a desperate effort to 'prove me wrong'.

    What a shame they do not apply such a high level of scrutiny to their leaders and economists. Still I suppose if you need to keep the lie going....you want to attack the truth tellers - not the misleaders.

  • Comment number 70.

    The VAT increase to 20% is going to cost Osborne a packet. Many small traders, tradesmen and shopkeepers are offering 20% discount ie no VAT to customers they know. It helps them to get business they would not otherwise get ,it avoids tax on any profit they make and keeps them in business.
    The Black Economy will prosper greatly in the next year until penal taxation is reduced.
    However, the ostrich approach will prevail in westminster and whitehall where the overpaid, overpensioned, underperforming incompetents rule.

  • Comment number 71.

    Many thanks to the BBC for commissioning this vital piece of research.

    It shows clearly that incomes in the UK have fallen in real terms for the first time since the 1960s and that on current trends and policies they will contiue to decline in real terms for some time to come. This is a vital insight into the prospects of the country and should be taken very seriously, when considering the likely outcome of the policies being proposed in the forthcoming budget.

    All current policies seem to be geared towards holding down or cutting incomes in real terms - from public sector pay freezes to lo interest rates, from benefits cuts to higher charges for public services, all the trends are towards further reductions in living standards for mose people.

    The budget is intended to generate private sector growth, but as household incomes continue to fall, it is clear that this growth cannot come from consumption, which will continue to fall.

    Until now growth has tended to come from retail sales, generating more jobs in shops and supply chains, but this cannot happen in the current climate. Indeed as so much of what we buy is imported and the triple whammy of a falling pound, higher world prices for oil/food and higher purchase taxes via VAT points towards real contraction in this sector, not growth.

    Public spending is to be cut back hard, so the notion of this being used to "pump prime" the economy is not possible du to the firm commitment to pay off the entire deficit in a single parliament. The concept of the public sector "crowding out" the private sector simply does not apply in this content, as the reductions in spending are not being transferred to the private sector via tax cuts - indeed tax increases are the order of the day.

    And if you extrapolate the impact on the private sector of spending cuts, there is a very large effect because so many public services are contracted out and there will also be a major impact on the construction sector - the Building Employers organisation lobbied the previous government to bring forward projects to save 350,000 jobs - along with the olympics, these projects are ending, so there is the very real prospect of 500,000 directly employed building workers joining the dole queue this year.

    Exports are doing well due to the devaluation, but in order to achieve export-led growth, the UK would need to be able to sell into our export markets, but many of these economies are not doing well either, particularly in the PIIGS. We would also need to be producing what is in demand, but unlike the German economy which still does very well from heavy industry and manufacturing, the UK lost much of this capacity over the last 30 years, so there are very real doubts about our ability to respond.

    What of investment-led growth? Building new factories, developing new products or infrastructure does create groth - could this deliver the growth the UK needs?

    The last OBR report predicted 2m+ new jobs, £600 Bn additional investment and exports would rise by a third over the parliament.

    I would like to know which sectors the OBR sees as likely to enjoy this high level of private investment, because I struggle to see were it is going to be sufficiently attractive to earn a good return.

    I would also like the OBR to explain where they see this masive number of new jobs coming from?

    Whilst I recognise the deficit is an important issue, I part company with those who think it is the only issue and I worry that the trajectory George Osborne has set us on seems to bear a remarkable similarity to what happened in Eire, where an economy with a substantial public sector then went in free fall when it has severely cut back on the basis of reducing borrowing, because the tax take fell and the benefits bill rose rapidly, so driving government borrowing up, not down.

    Those who post here claiming the the previous government were irresponsible and caused the debt level through overspending need to remember that a large proportion of the borrowing was to stop the UK banks melting down due to the global credit crisis which had nothing to do with UK public spending and that we have an asset worth £86 Bn of bank equity we can seel and use to pay of a lot of this borowing, plus the previous Conservatve government's chancellor Ken Clarke left a very similar level of debt for the Blair government to deal with.

    It's also the case that the "Darling Stimulus" just before the election has led to employment not falling anywhere near as muchas predicted, resulting in a big underspend of £20-30 Bn, so George Osborne has plenty of scope to reduce the risk of a deep, longlasting recession (as happened in Japan) by slowing the pace of spending cuts and diectl available resources into job creation.

    I am afraid that all we hear is the neocon dogma of tax incentives and deregulation - these policies will not deliver the major stimulus the UK economy needs - indeed, IMHO there were precisely what allowed the financial services sector to get out of control and cause the current level of borrowing, whilst also leaving much of UK manufacturing to shrivel up and disappear, and whilst I applaud the DWP Work Programme's attempt to put serious resources into helping people back into work, there's precious little point in this unless there are jobs out there for them to take.

  • Comment number 72.

    Question.
    If I put money in a bank, why do I get interest on it?

  • Comment number 73.

    everytime there is a negative figure, it is put down to the "finacially incompetent Labour Government".
    Every time there is any good news, it is hailed as "proof that the con-dem polies are working".

    which is it? if current poliices are already working through to the economy, then all news, upside & down reflect of the effectiveness of those policies.
    If the policies have not yet worked through, then credit must be given to the handling of the global downturn by the previous administration.

    Rather than concentrating on squeezing the general population, more money should be spent of tax investigations of the top 10% of earners (those who have control over how and where they are paid). Previous times when this was done reaped somewhere around 10x the outlay in additional resources. Benefit invesigations reap around 1/10th of the outlay.
    But, can you honestly see a Conservative led government spending more recovering unpaid tax from hard working entrepeneurs, than investigating those that find themselves in need of benefits?

  • Comment number 74.

    @11. Up2snuff wrote:

    "Of course, to improve reserves, they could go easy on the bonuses they pay ..."

    You're deluding yourself. Which tends to undermine the credibility of the rest of your (bank-supporting/reform-opposed) analysis.

  • Comment number 75.

    @15. taxpayer2010 wrote:

    "Maybe then some serious politicians will step up to the mark and run the country as it should be run."

    How about you, sir or madam. Put your money where your mouth is?

    I'm sure your clarion-call will see us through:- "we shall fight on the beaches..." Hang on, didn't someone already make that speech?

  • Comment number 76.

    74. At 12:55pm on 21 Mar 2011, torpare wrote:

    "You're deluding yourself. Which tends to undermine the credibility of the rest of your (bank-supporting/reform-opposed) analysis."

    Dellusional capitalists? - surely not.....

    I hate to say it - but at least the sheepeople are starting to realise there is a problem and that 'austerity' is not some form of theoretical period when we decide to have "value" rather than "best" in the supermarket likw it's some sort off novelty.

    It's the pensioners I feel sorry for - they are the most attacked and least able to defend themselves.

    It's time for the stronger to stand up for the weaker members of society.

    http://marchforthealternative.org.uk/

    Don't watch your granparents struggle with their rapidly diminishing pension until you have to subsidise them from your own dwindling pot.

    They already paid for their retirement and now it's being stolen from them - I certainly cannot live with the 'mugging of old folk' in favour of the wealthy - I find it morally reprehensible....and I'm sure 99% of the rest of you do too.

    Remember, despite our 'James Dean' outlook on life - we will all grow old one day and I would expect nothing less of the next generation should I be left in such a position at retirement.

    Fight the cuts, defend yourselves, be remembered as the generation that made changes - not just another one that followed the leader without question.

  • Comment number 77.

    re #74
    Go back and read the final bit in brackets. ;-)

  • Comment number 78.

    72. At 12:54pm on 21 Mar 2011, Eamon Sloan wrote:
    Question.
    If I put money in a bank, why do I get interest on it?
    ------------------------------------------------------

    Where else can you put it, save under the bed in notes and coins?

    If you bought shares with it.... it would end up in someonelse's bank account.

    The interest is the 'reward' for the risk you run should the bank fail to repay. It also goes some way in compensating you for the decline the purchase power your money suffers each year due to inflation.

  • Comment number 79.

    @24. John_from_Hendon:

    Oughtn't you to have read Stephanie's source (the IFS report she is citing) before shooting the messenger? Maybe it's them you should be taking issue with.

    (Not being holier than thou - I haven't read it myself. But then I'm not criticising the numbers).

  • Comment number 80.

    @71. At 12:51pm on 21 Mar 2011, richard bunning:

    I disagree.

  • Comment number 81.

    @57
    "We don't want you to save. We want you to invest."

    ...that is supposedly what a bank is for - to allow for the efficient transfer of capital between those that have it, and those that want to use it for some economically productive activity instead of it sitting idle in a bank vault...

    ...but the banks are currently going "it's my precious-s-s-s-s balance sheet I'm rebuilding" instead of doing any lending. (or lending at an extortionate rate)



  • Comment number 82.

    7. At 07:21am on 21 Mar 2011, Mildred wrote:
    "save billions by removing us fron the EU, from which we import much more than we export to" (SnoddersB) - and how we would all cheer to see Spanish oranges, Italian wines, French cars and Finnish tyres priced off the British market! Far from increasing our national income, protectionism would impoverish us - a nation that lives by trade cannot restrict it.

    ===================================

    Srry to disappoint Mildred, but dont expect me to shed a tear whenwe cant get Spanish oranges. We can also get them from S.A.
    Italian wines.....Australian and Chilean are far better.
    French cars........Buy more home made cars, even if they are Japanese.
    Finnish tyres......Again, we make them ourselves or import from the USA.

    Have you noticed anything here?

    None of the ther countries I have mentioned are in the EU.

    Wake up Mildred, theres a whole world out there we can trade with

  • Comment number 83.

    70. At 12:39pm on 21 Mar 2011, jimfo wrote:
    The VAT increase to 20% is going to cost Osborne a packet.
    ----------------------------------------------------------
    Maybe. Could put some retailers out of business.

    Many small traders, tradesmen and shopkeepers are offering 20% discount ie no VAT to customers they know. It helps them to get business they would not otherwise get, it avoids tax on any profit they make and keeps them in business.

    The Black Economy will prosper greatly in the next year until penal taxation is reduced.
    ------------------------------------------------------------------------
    I hope you were not intending to imply a link between these sentences.
    1. Retailers who are below a certain level of turnover do not have to register for VAT or charge it to their customers. This is not tax evasion, it is the law as it stands.
    2. Their earnings will still be liable to incone tax and Class 4 NIC if appropriate.
    3. Some retailers, registered for VAT are charging customers 'old' prices. Effectively, they are reducing their profits by 5%. HMR&C receive the VAT at 20%; the tax take on income, later, will be reduced because the traders profit is reduced by 5%.

    Andy C555 to correct me, please, if I have got any of that wrong.

    You appear to be suggesting that retailers are indulging in VAT and/or IT fraud. Shame on you, Sir, we are a nation of shopkeepers!

  • Comment number 84.

    re #36
    I'll settle for a free property survey one day! ;-)

  • Comment number 85.

    Pensioners have been hit very hard by the coalition. Now they want to merge NI payments and income tax. Pensions are currently exempt from NI. When income tax and NI are merged pensioners will be paying even more! Perhaps IDS better rethink his pension plans and parliament should finally approve assisted suicide!

  • Comment number 86.

    @71. At 12:51pm on 21 Mar 2011, richard bunning:

    I now agree.

  • Comment number 87.

    Re: 51 "The decline in material wealth is inevitable. Material wealth is dependant on the availability of ‘material’."

    Very good point. Also global populations are increasing, further dividing the ‘material’.

    Someone on minimum wage in the UK is in the top 10% of income globally http://www.globalrichlist.com/. We all need to get used to having less. But we also need to make sure that the richest take a much larger proportion of the pain.

  • Comment number 88.

    57. At 10:57am on 21 Mar 2011, Neil Wilson wrote:
    "I have saved throughout my working life and now find that my reward is near zero savings rates against an inflation rate of over 4%."

    We don't want you to save. We want you to invest.
    ------------------------------------------------------------------------
    We've been here before - saving is investment.

  • Comment number 89.

    @71. At 12:51pm on 21 Mar 2011, richard bunning:

    Having thought about it, I now disagree.

  • Comment number 90.

    68 ethicalwoman

    Please could you clarify which Scotts you want to pay the money back. If its the Scotts with no claim on the North Sea Oil (which is the case for most Scotts) then you are probably trying to do the toilet in the wind.

    If, on the other hand, its actually the Scots, then you are still doing the same thing and clearly have no backing to your "argument" (but please feel free to provide references to the contrary). I'm particularly interested in your insight with respect to the London-centric UK financial sector that did so much to try and protect you from nasty Labour and us terrible Scots, and yet still managed to play the leading role in crashing our economy.

    Maybe in your world we are only good for (soon to be closed) airbases, but again please in the interests of a United Kingdom, prove me wrong.

    Oh, and one last thing, the point of Scottish (Northern Irish and recently expanded power Welsh) devolution is to make decisions on how to spend the formulaically agreed and supplied cash from Westminster. Feel free to come up here and take advantage of some of these decisions, you are very welcome.

  • Comment number 91.

    Stephanie,

    I'm glad you mentioned RPI.

    As you know, RPI is 5.1% - which includes Rents, Mortgage Bills and other indicators (such as Fuel costs) which more accurately show the real inflation rate. The CPI figure is

    Quantitative Easing is a big factor - or at least - will be a big factor as it will allow inflation to increase even more when the next Boom starts.

  • Comment number 92.

    27. John_from_Hendon:

    Are the *bakers* at it as well???

    If that's the case, time to shut off shop. Last one to leave switch off the lights.

    (sorry, none of us is immune from typos - just couldn't resist...childish I know)

  • Comment number 93.

    88. At 1:38pm on 21 Mar 2011, Up2snuff wrote:
    57. At 10:57am on 21 Mar 2011, Neil Wilson wrote:
    "I have saved throughout my working life and now find that my reward is near zero savings rates against an inflation rate of over 4%."

    We don't want you to save. We want you to invest.
    ------------------------------------------------------------------------
    We've been here before - saving is investment.
    _________________________________________________________

    I think Neil is referring to the circular flow of income where savings are a leakage. As leakages = injections the savings ideally need to be matched by increased Govt spending. FAT CHANCE!
    So the probable injection, to make up the difference will be a build up of stocks.

    That should take us nicely into a double dip.

    Funnily enough the build up of stocks is actually classified as.. yes Investment. Funny old world.


  • Comment number 94.

    Two serious points come to mind again! We are told by politicians that the interest the United Kingdom alone is paying on our debt is £450 million per day, forgive me but who is the beneficiary of these funds and you could argue this is storing up inflation for the long term future, but contracting the economy in the short and medium term.
    Can we assume the Bank of England is accruing finances from this monumental daily debt charge!

  • Comment number 95.

    Why do commodities like petrol and oil not go up in price when priced in either gold or silver?

    Answer: Gold & Silver are real money. They have intrinsic value. Gold and silver cannot be printed out of thin air the way paper money can, and so they retain their value.

    @Eamon Sloan
    "If I put money in a bank, why do I get interest on it?"
    Anwser: To give the illusion that your savings are keeping up with inflation and to make it easier for them to charge interest on it's loans of money they create out of thin air.

    The last thing you want to do right now is put cash in a Bank. The Government will inflate your hard earned cash away - and use it's spending power to fund another War.

  • Comment number 96.

    @Dempster

    Regarding RPI Index Linked Savings...

    "So why have they been withdrawn we may ask ourselves?"

    Because we cannot afford to pay fair savings rates and give Bankers nice fat salaries and bonuses.

    Our Government - who we all voted for (Tory, Labour or Liberal) have decided that the Banks come first - Taxpayers are required only to service the Debt to the Banks - especially the Bank of England.

    How's that for an answer?


  • Comment number 97.

    Porche sales are up 38%, so it's not all bad, eh? Someone's doing alright.

  • Comment number 98.

    You concentrate on "household income" but the pain factor is really dependent on what I call surplus income. This is gross income less what it costs you to live. People with very little surplus income will feel far more real pain than those with a large surplus income. Perhaps you should try to measure this as a more realistic indicator of the effects on inflation, the cuts, VAT changes etc. Without wishing to make a partisan political point here, "fair" is a term whose definition depends on your political standpoint. For example a rise in VAT rate means that the rich pay more tax because they spend more than the poor - "fair" by some definitions. However the same VAT rate rise has a much bigger impact on the surplus income of the poor so they feel more real pain - "unfair" by other definitions.

  • Comment number 99.

    66. At 12:12pm on 21 Mar 2011, thomash wrote:
    The problem is the middle-class baby-boomer generation who have deprived their children of their own wealth. The baby-boomer wealth has frankly been very little to do with hard work, and more to do with riding a tide of post-war prosperity. Now, they're depriving their children of the ability to generate wealth. And now, they grow old in houses which are too big for them while young families can't afford a reasonably sized box.

    We have to pay huge tuition fees and mortgages; while we also have to pay for their healthcare and pensions. What have they done for us? Precious little. What a legacy...

    --------
    I am just so angry and disgusted at thomash's above comments that I can't give an appropriately (and decent) response. Can someone else please educate him/her please?

  • Comment number 100.

    @48. Michael:

    You can download the full report here
    http://www.ifs.org.uk/publications/5516

 

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