Power of pound in your pocket down by 67%
THE purchasing power of the pound in your pocket has plunged by two thirds over the last 30 years as the cost of everyday goods has soared, research released today shows.
A threefold increase in retail prices means the average shopper would need to have £299 in their wallet today to have the equivalent spending power of £100 back in 1982.
Figures released by Lloyds TSB Private Banking based on prices of essential household items show the cost of a loaf of bread has tripled in the last three decades from 37p to £1.24, a dozen eggs which would have cost 73p are now £2.82, and the price milk has more than doubled, from 20p to 46p. The cost of a pint of draught bitter went up from 73p to £3.18.
The research also shows the purchasing power of cash has eroded at an average rate of 3.7 per cent a year over the past 30 years.
If inflation rises in line with government targets, customers would need to have £299 in 2042 to have the equivalent spending power as £100 now.
The researchers also found the average price of a detached house was now six times higher than in 1982, with prices soaring from £45,211 to £273,700.
Fuel costs have also risen substantially, with diesel prices now 294 per cent higher than in 1982.
Nitesh Patel, economist at Lloyds TSB Private Banking, said: “The value of money has fallen substantially over the past 30 years as retail prices and the cost of many everyday items has soared.
“Someone today would need nearly £300 to have the same spending power of £100 in 1982, meaning someone breaking the million pound mark 30 years ago would have the equivalent of £3 million today.
“Looking to the future, even if inflation is kept firmly under control and rises only in line with the government’s target, it is likely that the value of money will continue to reduce significantly and decline by more than half its value by 2042.”
David Bell, professor of economics at the University of Stirling, said there were financial “winners and losers” depending on how much an individual’s salary had risen over the timespan, with those at the lower end of the pay scale suffering most.
“On average, people’s salaries would have gone up over these three decades, but there’s a lot of people at the poorer end of that distribution whose living standards are dropping, meaning they have to reduce their consumption,” Prof Bell said.
“What we’ve seen over that time is a growing increase in inequality. At the top end, living standards have done well and well above the average, but the situation is not so good for those on lower incomes.
“The big jumps in inflation were in the mid-to-late 1970s. What we’re seeing are price increases of 2-3 per cent when 2 per cent is the target.
“The government has asked the Bank of England to ensure that prices increase by 2 per cent a year.”
Prof Bell said he was not surprised at the findings and that they highlighted the need for the government to take action.
“It is incumbent on the government to ensure that people get a return on their savings,” he said. “People should save for the future but the difficulty is to find some savings vehicle which give you a return which is better than inflation.
“People need to invest in something which will go up. Traditionally this was thought to be housing, but this is changing.”
John Dickie, head of the Child Poverty Action in Scotland, said many families on low incomes would be unable to cope with the “triple whammy” of rising inflation, rising prices and cuts to benefits and tax credit.
“The UK government needs to urgently rethink cuts to benefits. The Welfare Benefits Uprating Bill, which is being considered by the House of Lords at committee stage tomorrow, intends to cap benefits at one per cent, which is below inflation. This means that the poorest families who had some protection are going to have this safety net ripped away.”
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Tuesday 21 May 2013
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