Household disposable income has fallen by more than £2,500 in the last year, new research has found.
The average disposable income now stands at £14,520 compared to £17,102 in 2007, representing a drop of over 15%.
Price comparison site uSwitch says the financial crunch is largely due to a sharp rise in essential living costs, while income tax and NI hikes have further compounded household’s misery.
Switch energy suppliers here
Oil costs are central to our woes
One of the main drivers behind the rise in living costs has been the surging price of oil, which has been quickly passed on to the consumer.
According to uSwitch, the average annual unleaded petrol bill now stands at £1,655 – 28% higher than last year – while household energy bills have rocketed from £912 in January to £1,127 today (with further hikes imminent).
Clearly this is putting a massive strain on our finances, especially when you consider that over a third (35%) of Brits won’t be getting a pay rise this year.
By contrast, the sky-rocketing oil price has been a boon for the Government, who collect a sizeable percentage of oil revenues through tax. So why not pass some of this on to the struggling public?
Find a cheaper energy supplier in your area
Time for common sense to prevail
From both a logical and an economic perspective, it would make sense for the Government to ease tax when oil prices are high, then raise it again when prices start to fall.
This wouldn’t cost much, but it would be a great help to households during these difficult times, and would also increase price stability in a volatile industry.
It seems a fairly straightforward solution to the current woes faced by the public, and it is astounding the Government has so far failed to do so.
Switch energy suppliers here
Windfall tax not the answer
Of course we did hear talk at the start of the month about a possible windfall tax on energy suppliers that would help ease the burden on poor households. However, this particular approach would prove problematic for a number of reasons.
Firstly, the money wouldn’t go direct to the consumer, but into the cash-strapped Government’s coffers. They would then decide how much to allocate to the public before making the funds available through a convoluted tax system that would likely put a lot of people off.
Second is the fact that such an initiative would only help the most destitute. Obviously they are most in need of assistance, but the sky-high cost of fuel means that even some middle income homes are now feeling the pinch. Consider the following: The average net household income in Newcastle is £20,811, according to uSwitch, but the average amount spent on fuel (petrol and energy combined) is now £2,782.
If the most pessimistic oil price predictions prove accurate, and petrol rises to £2.30 a litre while energy increases 40%, fuel bills will jump to a staggering £5,377 in 2009. Clearly it is no longer accurate to assume that only the poorest households will struggle.
Switch energy suppliers here
Already earning a lot of money
The final problem with the proposed windfall tax is that the additional cost to energy companies could potentially put them off investing in vital renewable energy projects. Worse, if the Government does try and squeeze more cash from them, it's entirely possible that they will simply turn around and charge customers more to make up for the deficit.
Now, no one wants to defend the greedy energy giants, but it is worth pointing out that they do already pay a fair amount of tax to the Treasury – anywhere between 50% and 75%, compared to 28% for other businesses.
One energy industry insider claims the Government will pocket an estimated £16 billion in oil and gas industry taxes this year, so you’d think they could afford to set a few quid aside to help the public.
Switch energy suppliers here
It’s a start, but more is needed
Admittedly, Labour has made a small concession on the petrol side, reducing tax by around 3% a year since 2004, but they can do a lot more: The Government currently takes £0.70p per litre. Without this tax, consumer’s fuel would be 59% cheaper, costing around 50p a litre.
It’s worth noting that British motorists are getting a worse deal than their European neighbours, paying on average 7% more for petrol and 17% more for diesel. Furthermore, British households have repeatedly been hit with larger energy bill hikes than those seen across Europe.
Now that it is clear high prices are taking their toll on our finances, it is essential the Government take meaningful steps to alleviate this pressure by reducing the tax they levy on us for fuel. To do so would certainly be in their interest – a recent BBC poll found that 35% of Brits would be more likely to vote for a political party that promised to lower car and fuel taxes.
Find a cheaper energy supplier in your area
