Families 15% worse off than 5 years ago

FAMILIES are at least 15 per cent worse off than they were five years ago as costs surge ahead at a far faster rate than incomes, according to a new report.

Accountants Ernst & Young said that the amount being spent on essentials such as mortgages, gas, electricity and running a car rose by £137 a month more than the amount coming into the average household.

While net monthly income for a family with two children under 16 increased from £2352 in 2003/04 to £2,859, spending per month on essential outgoings powered ahead to £2,086, compared to £1,442 five years ago.

The figures do not include the cost of food – which has spiralled in recent months – suggesting that families could be even worse off than the report suggests.

It comes as separate research has found that four million households have taken out personal loans or used credit cards to cover mortgage or rent payments in the past year.

Jason Gordon, director of retail at Ernst & Young, said: "UK consumer spending power has fallen dramatically in the face of massive hikes in the cost of living.

"Fixed household costs account for 53 per cent of a typical household's gross income, compared with 45 per cent in 2003/04."

The figures show how families have less money left over at the end of the month now than they have had in recent years, reducing the amount they can spend.

High street giant Marks & Spencer said earlier this week that it was seeing the effects of the consumer spending slowdown with like-for-like sales declining by 5.3 per cent in the 13 weeks to June 28.

And in another sign of the impact on the high street of families' stretched budgets, John Lewis said today that last week's sales in its department stores were 8.3 per cent lower than the same week last year.

The company said sales of electrical and home technology goods in the week to June 28 plunged 15.8 per cent, with sales of homeware down 13 per cent. But fashion sales rose by 2.2 per cent.

Among the costs that are taking their toll, according to the Ernst & Young report, are mortgage payments, which are 78 per cent higher than five years ago at £735 a month.

Petrol spending rose 29 per cent to £193 in the same period, while average monthly energy bills are 110 per cent higher at £95.80 a month.

Financial comparison site moneysupermarket.com said more than four million hard-pressed consumers have resorted to personal loans or credit cards to cover mortgage or rent arrears in the past year.

But Tim Moss, moneysupermarket.com's head of loans, said: "Having a roof over your head has to be your top priority but funding that with a loan you might default on or a credit card that will eventually charge you interest of over 15 per cent isn't the solution."