Cost of living: People will end up 'on the streets' says Hollinrake
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In July, the UK’s annual inflation rate hit double digits for the first time in 40 years, reaching 10.1 percent. At the same time, real wages fell by three percent, their biggest knock since records began. According to research by RIFT Tax Refunds, the average person in the UK would require a £3,500 salary increase to keep pace with current inflation, and an almost £5,000 raise at the predicted inflation peak of 13.3 percent in October.
The Consumer Prices Index (CPI) – the official inflation metric that tracks the price of a broad basket of goods and services – rose to 10.1 percent in the year to July 2022, its highest level since 1982, according to the Office for National Statistics (ONS).
Up from 9.4 percent in June, the main driver of this month’s increase was food and non-alcoholic beverages.
Annual food inflation hit 12.7 percent in July, its highest level since August 2008, principally due to the upward contribution of cereals, milk, cheese and eggs.
Although energy costs are touted to drag inflation to new heights when the price cap is raised in October, fuel prices started to fall during the course of the month.
According to Labour Force Survey estimates released last week, in the April to June quarter regular pay increased by 4.7 percent over a year.
However, due to this figure being dwarfed by inflation, real wages – pay adjusted for inflation – fell by a record three percent.
CEO of RIFT Tax Refunds, Bradley Post, said: “Many households are struggling to combat the increased cost of living due to the current rate of inflation, with many attempting to do so on a stagnant level of income that hasn’t seen the same level of growth.
“In fact, in order to match this pace, the average person would need to see quite a considerable boost to their annual earnings to the tune of £3,500.
“However, the unfortunate reality is that many simply won’t and this will leave them at a severe disadvantage when it comes to managing their household finances.”
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According to Salary Expert, the average annual gross salary in the UK is £37,235.
However, with the cost-of-living soaring at such a dramatic pace, living standards are falling fast.
According to new research by RIFT Tax Refunds, the average person would need their pay check to increase by at least £3,500 to match last month’s rate of inflation.
While this would add £1,164 to their tax bill each year, it would also leave them with an additional £2,336 to buy the goods and services to which they are accustomed.
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The average beautician would need a £1,461 increase in their annual gross earnings in order to keep up with inflation, paying £486 more in tax contributions but taking home an extra £975 per year.
Construction workers would need a pay rise of £3,074, boosting their annual net income by £2,053 while pushing up their tax bill by £1,022 a year.
Nurses would need to make an additional £3,138 per year, increasing their net income by £2,095 annually while seeing them pay another £1,043 per year in taxes.
Teachers also needs to earn £3,331 more than the current average earnings in order to battle the impact of inflation, seeing them take home an additional £2,223 after tax and paying £1,107 more in tax contributions.
Going by the July 10.1 percent inflation rate, the average wage bump necessary would be closer to £3,750.
In early August, in a bid to curtail rising prices the Bank of England (BoE) hiked the interest rate by 0.5 percent to 1.75 percent, its sharpest one-off increase in 27 years.
At the same time, BoE governor Andrew Bailey announced his expectation that inflation would hit 13.3 percent in the autumn, more than six times their two percent target.
By the same methodology as above, this inflation rate means the average worker would require an almost £5,000 salary increase to sustain their standard of living.
This would provide approximately an extra £3,300 for spending after £1,650 is deducted for additional taxes.
However, such a vast pay rise is highly unlikely to materialise.
On one hand, unionised workers across various sectors from transport to the judiciary have been striking for better pay over the past few months, with few if any resulting in a settlement even close to inflation.
On the other hand, economists warn of dreaded wage-price spirals, in which employers continually raising workers’ pay are compelled to increase consumer prices to safeguard their margins.
The only feasible solution is for inflation to come down, and for that it appears the country must endure a recession.
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