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Budget 2013: fears rise as cost of living soars four times faster than earnings

By Your Money Last updated:  March 13th, 2013


Budget 2013: inflation and taxation are squeezing spending power and many fear worse to come from the Chancellor next Wednesday.

Household bills have risen four times faster than average earnings since the credit crisis began, according to the Office for National Statistics (ONS), leaving many families fearing worse to come from Budget 2013.

No wonder nearly three quarters of those questioned by comparison website said they feel poorer since the Coalition Government came to power. Worse still, 85pc of respondents claim Chancellor George Osborne “does not understand the real fears of ordinary people”.

Personal finance rather than political theory seems to be driving disenchantment. Household bills have risen by an average of 25pc over the last five years, while national average earnings edged up by only 6pc, according to the ONS. These official figures show average earnings increased from £24,900 a year in 2008 to £26,500 at the end of 2012.

But the cost of living increased four times faster, causing the purchasing power or real value of wages to fall back to 2003 levels.  Nearly half of the 1,000 people questioned had received no pay rise at all this year and more than one in three have had their pay frozen for 12 months or more. One in eight – or 13pc – have had their pay cut.

Amid the bleak mid-winter of austerity Britain, perhaps it is no surprise that 55pc of those questioned expect next week’s Budget to make things worse. Nearly six in 10 said the Chancellor must make cutting household bills a priority, while 50pc identified petrol prices and one in three said he must “sort out the benefits system”.

Wishing is not the same thing as getting, though. Michael Ossei of, said: “Consumers are anticipating next week’s Budget with a mix of dread and despair.”

Interestingly, there was widespread support for tax changes to make wealthy homeowners pay more and low earners pay less. Two in three respondents supported the introduction of a ‘mansion tax’ – as proposed by the Liberal Democrats originally and supported by Labour this week – and 84pc want the threshold or starting point for income tax raised above £10,000.

HM Revenue & Customs (HMRC) reckons that 2.2m people have been spared from paying any income tax since the Coalition Government began raising the personal allowance from its level of £6,475 under Labour to £8,105 now. While nobody expects Mr Osborne to produce a ‘giveaway budget’ next week, there is some good news on the way for low and average earners – albeit at the expense of high earners.

Richard Mannion of accountants Smith & Williamson told me: “The personal allowance is due to rise with effect from April 6, 2013, to £9,205 – a big increase of £1,100. The Coalition’s stated aim is to get the personal allowance to £10,000 by 2015 and so I expect the Chancellor to announce that next year’s allowance, taking effect from April 6, 2014, will be around £9,500.

“The purpose of the increase in personal allowance is to take those with lower incomes out of the tax net altogether and so it is likely that the increase will be taken away from those on higher incomes by adjusting the higher rate threshold.”

The starting point for higher rate tax has already fallen from £37,400 under Labour to £34,371 now. HMRC’s figures show that has increased the number of people paying 40pc or higher rates of income tax by 670,000 from 3.19m in in 2009 to 3.86m today. As somebody is bound to say next week, what the Chancellor gives with one hand he takes away with the other.

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