Families £4,250 worse off this year as inflation becomes bigger issue than cuts

Tim Montgomerie

According to a report from the Resolution Foundation, and covered in the News of the World (£) Britain is facing a decade of squeezed incomes:

"Struggling families face a decade of despair from rising prices and wage freezes, a report warned last night. Working couples with children will be up to £4,250 worse off this year - thanks to a triple whammy of paltry wage rises, rocketing inflation and cuts in services. They stand to lose £2,750 in public services. The low wage rises, inflation, higher taxes and benefit cuts all add up to leave their pockets another £1,500 lighter."

Allister Heath at City AM warned on Friday that inflation is, indeed, the much greater danger to incomes:

"Politicians and the media are obsessed with spending cuts, even though these will be worth only one per cent of total state spending in real terms in 2011-12. Yet the impact of inflation on incomes will be three times larger – and everybody is being hit. The coalition would be well-advised to remember the 2000 fuel protests: they almost destroyed Tony Blair, something that not even Iraq could manage... Post-tax, post-inflation, post petrol take-home pay is dropping at an accelerating rate; the tax and price index, an official measure of the cost of living, was up 5.5 per cent in the year to the end of January. Given that average earnings were up just 2.1 per cent, Britain faced a national pay cut of 3.4 per cent over the past year."

Labour are alive to these issues and in an interview for The Sunday Times (£), Ed Balls calls for the end of the VAT rise on fuel. George Osborne has more tax revenue than he expected and is likely to use next month's Budget to bring some relief to motorists. Sadly, however, the surge in oil prices might mean that it goes unnoticed.