Perfect storm takes quarter of Britons to brink of ruin

Published on Tuesday 10 May 2011 18:57

HOUSEHOLDERS are facing a "perfect storm" of financial instability - stretching their resources to a crisis point when they will not be able to make ends meet.

Almost a quarter of the UK population believes they are already on the brink of their financial "tipping point" - and will not be able to pay basic bills and living costs if their outgoings increase any further, new research has revealed.

Soaring utility bills, food prices, tax reforms and the rocketing cost of petrol have lifted the cost of living dramatically for the average household.

A further 30 per cent of people claim that a rise in their outgoings of less than 100 a month could stretch their finances to a limit where they would be unable to meet their debts, according to the survey carried out by Moneysupermarket.com.

The pressure of the increasingly difficult financial situation has become a serious worry for many people, with more than a quarter saying they are suffering from stress as a result.

"The increase in the cost of living is something UK adults have had to bear the brunt of over the last 12 months," said Clare Francis, personal finance expert at moneysupermarket.com.

"The rising price of petrol and everyday basics such as food and energy have hit consumers hard, and at times it can feel like it is impossible to make any more savings when essentials are rising so steeply."

According to figures published last week by the British Retail Consortium, food prices rose by 4.7 per cent per cent over the past year, while the cost of a litre of petrol recently jumped to above 1.33 for the first time.

The survey of more than 2,000 adults revealed that the average householder has suffered an average 54 rise in weekly outgoings, leaving them with just 247 a month after paying off all bills and essential living costs.

A recent survey by consultancy Deloitte said the average household's disposable income is forecast to fall by a further 780 this year.

"2011 is set to be another tough year for many households, with finances continuing to be pushed to the max," added Ms Francis. "People should be reviewing all of their outgoings as a priority to see where they can get better value."

Inflation - which is calculated by measuring the price of a selected basket of goods which the Office of National Statistics believes accurately depicts the typical spending habits of a consumer - has hovered at about double the government target of 2 per cent since the beginning of the year.

Lucy McTernan, chief executive of Citizens' Advice Scotland, said the service had been flooded with people facing problems in staying financially solvent. More than half a million cases relating to debt problems were dealt with in Scotland alone last year and Consumer Advice Bureaux (CABs) are still dealing with an unprecedented number of cases.

"Sadly these figures are confirmed by evidence from CAB offices every day," she said. "Scottish CAB advisers continue to see thousands of people who have reached the 'tipping point' - or who have already gone past it.

"Scots are facing a 'perfect storm' of circumstances that is hitting them in the pocket, including pay freezes, job losses, price hikes, a lack of lending, public sector cuts and changes to the benefits system."The survey showed that although householders feel costs have increased, their salaries have not followed suit. Almost two-thirds of people - 61 per cent - say they have not had any form of salary increase in the last year, while four in ten say they are worried because they are unable to save any money and have reached the point where they can budget no further.

"While the technical recession may be over, it is clear that the general public will continue to feel the effects of the financial crisis for some time to come," said Paul Crayston, spokesman for National Debtline Scotland, which offers expert advice on money worries.

"Financially speaking, 2011 may be the toughest year that many families have ever faced. It is therefore not entirely surprising that so many people are living right on the edge of their means. It is, however, deeply concerning.

"With few people predicting improvements in the labour market and interest rates poised to go up, there is a real danger that many people will be pushed over the edge of the financial precipice."

Sarah O'Neill, head of policy at Consumer Focus Scotland, advised struggling consumers to shop around for services. "The savings won't always be dramatic, but competition means you will often get a better deal."