Debts Loom for Families as Inflation Outstrips Pay Rises

A new report has warned that millions of families across the UK will be forced into debt to pay for essential living expenses, as any wage rises are wiped out by the rising cost of living.

The figures from Incomes Data Services (IDS) have revealed that nearly all workers who receive a pay rise do not receive an increase commensurate with the rate of inflation.

Of the 29.1 million workers in the UK, around 23.1 million – approximately 80% – are employed in the private sector. And it is these individuals who have been hit the hardest by the combined effects of rising costs and measly pay rises.

Inflation is currently at 3.5%, far lower than it was last September, but with the typical pay rise only 3%, most workers are not able to keep up with the current rate of inflation, never mind the increases in costs most families have had to endure in previous months.

However, those who were handed a 3% pay rise may consider themselves lucky compared to around one in twelve who were subjected to a pay freeze. The majority of these employees work in either the not for profit sector or in manufacturing.

And rather than blossoming, pay rises are shrinking as, according to IDS, in April the average pay rise dropped slightly, to just 2.9%.

Many families have had to turn to debt experts such as Baines and Ernst to help them find affordable ways to repay their debts so that they can still keep on top of rising household bills, food and fuel costs.

Whilst low interest rates have helped those with a mortgage it hasn't been all good news. Anyone with savings will have seen the real value of their money slowly eaten away by inflation, as most accounts now offer negligible returns on deposits. And although mortgage repayments have fallen, those on a fixed rate will not have seen their monthly rate change, despite the drop in interest. Many providers have also recently announced an increase in their variable rate, even though the Bank of England has shown no sign of upping the base rate, a further kick in the teeth for struggling households.

And elsewhere costs have continued to rise, pressurising overstretched pockets to breaking point. Basic essentials, such as fuel for the car and food, have spiralled higher, rising more sharply than the general rate of inflation. Diet staples, such as meat and eggs, have both become much more expensive, with food in general climbing by 4.3% in the last year, making it harder for cash-strapped families to put a meal on the table.

Inflation has continued to batter personal finances since the credit crunch in 2008, with pay rises less than the hike in the cost of living in the last four years. The last average pay rise that was more than the rate of inflation was in December 2008, when inflation was at 3.1%, but the average worker received an increase of 3.6%.

The figures from IDS are based on data from the first three months of 2012 and were described by the group as ‘very much an emerging picture.'  It covers approximately 114 companies, which includes 450,000 workers. And whilst this only represents a small fraction of British workers, the same pattern is likely to be reflected all over the country.

If you are struggling to find enough money to get through the month, it's essential to take action sooner rather than later. Many people wait until things get truly desperate before they seek help, in the hope that something will happen – such as a pay rise, or finding work with a higher salary – which, in the vast majority of cases, never materialises.

There are many debt management companies which can offer solutions, such as Baines and Ernst, but before you get in touch, it's a good idea to have a look at your monthly budget. By sitting down and seriously looking at your finances, you may be able to find a way to cut costs which free up enough cash to make things a bit easier. A free income and expenditure form is available to download from the Baines and Ernst website

However, if you have already racked up unsecured debts which you cannot afford to repay or simply have already squeezed every last penny out of your finances, it may be worth speaking to experts such as Baines and Ernst for a no-obligation financial review.

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