Archive for February 2011

Time to think again about the way we measure inflation?

Matthew Whittaker

As was widely expected, annual inflation increased again last month. A combination of the VAT rise and higher oil prices helped push CPI from 3.7% in December to 4% in January – twice the government’s official target of 2 per cent. The wider RPI measure also increased, from 4.8% to 5.1%.

There is, however, a big question over how accurately these figures capture the extent of the price increases in different households.

As reported by Larry Elliot and Simon Briscoe, some statisticians are concerned that official measures of inflation understate real trends in the cost of living being faced by consumers.

Low-to-middle earners to bear brunt of latest prescription price increase

Matthew Whittaker

Despite the passing of legislation in the Scottish Parliament to remove prescription charges north of the border and pressure from the British Medical Association to follow suit in England (prescriptions are already free in Wales and Northern Ireland), the government announced last week that the cost of prescriptions will rise by 20p to £7.40 per item from April 1st.

Doctor-writing-a-prescriptionFor many, the decision has little relevance. A range of exemptions mean that around half of the population – for example, schoolchildren, pensioners, the unemployed and those on income support – are not liable for prescription charges.

Work incentives?

Katherine Green

The annual Daycare Trust survey published today shows that the costs of childcare are still rising above wages: for example, the cost of a nursery place for a two year old rose by 4.8% over the last year, compared to an average 2.1% increase in wages. For low-to-middle earners with kids who already face stagnating or frozen wages and rising costs of living, the issue is even more stark. Put that alongside the already announced but not yet implemented cuts to the part of working tax credits (WTC) that cover childcare costs and it adds up to a pretty grim picture. Cuts to the WTC mean that nearly half a million low-to-middle income working families with children are due to lose an average of nearly £450 a year from April in support for childcare costs [link to our PN]. These are losers that are in work, on low and modest incomes, paying the basic rate of tax. Aren’t they exactly the group the Government says it is trying to help?

The type of social mobility no-one talks about

James Plunkett

Ed Miliband today addressed the issue of social mobility in a speech in Gateshead. His argument was built around the concept of the ‘British Promise’ – the idea that each generation of children will do better than their parents. It’s our own rather less lofty version of the American Dream, and it’s a promise, he says, that’s in danger of being broken. With young people trapped out of employment and housing, and increasingly pushed out of education by fees and cuts, this is a generation that risks being left behind.

Miliband is not alone in his pessimism about social mobility in modern Britain. Leading researchers put us near the bottom of international league tables, and evidence suggests that things are getting worse over time. But what’s less widely understood is that almost all of this evidence (and Miliband’s speech) refers to just one of the two main measures of social mobility. Data on this commonly-discussed measure is undeniably gloomy. But when we look at the other measure, we see a different story emerge.

Considering income alone is never enough when looking at living standards

James Plunkett

The Independent reported yesterday that ‘middle England’ will be ‘hit hardest’ by upcoming changes to taxes and benefits. Research commissioned by the paper finds that families in the £40k-£50k bracket are set to suffer a four-way hit from:

Inflation and the poverty squeeze: where will it strike?

Donald Hirsch

Donald Hirsch

Of all the ways in which trends in living standards are changing, possibly the most important and least expected has been the insidious impact of inflation on the living standards of people on low incomes. For the first time in my lifetime, the worst-off people in Britain are getting systematically and steadily worse off in real terms, as their incomes fail to keep up with rising prices.

We all complain when the higher gas bills come in and our supermarket bills go up. But those of us who have seen our mortgage payments fall, our Blackberry subscriptions become ever cheaper and the cost of electronic goods plummet are likely to have overall living costs not very different from before the downturn. On the other hand, people on lower incomes, whose spending is more focused on the essentials whose costs are rising rapidly, face inflation rates well above the official ones. This matters a lot to people whose incomes, even when the recession is over, may go up only as fast as the Consumer Prices Index because they rely heavily on index-linked pensions or benefits rather than wages...