This will obliterate your salary

If there’s one thing that really gets car drivers going it’s the cost of filling up at the petrol station. Actually, lots of things seem to annoy car drivers -- speed cameras, potholes, road works. Perhaps they are just a grumpy bunch!

But their anger at extortionate petrol prices is fully justified, according to ASDA, which reckons overall transport costs have soared 11% in the last year, and petrol prices specifically have rocketed 26.8%. In fact, the retailer chopped its petrol costs a few weeks ago (to £113.9p for unleaded and 116.9p for diesel) to ease the financial strain on drivers.

But it’s not just driving that is stretching our pockets. ASDA has produced a report about overall family income and expenditure, in conjunction with the Centre for Economics and Business Research (CEBR), which shows that our spending power has dropped in the last year and, once essentials have been paid, we’re left with less money to buy the things that make life fun.

Rising cost of living

Inflation is running at way above target, with the Consumer Prices Index (CPI) at 3.4% in May. However, economists keep on telling us that it isn’t indicative of real price rises, rather a consequence of the VAT hike at the start of the year, sterling depreciation and high oil prices. Indeed ASDA’s report points out that when the impact of indirect taxes is excluded from CPI, it’s actually just 2% -- bang on target.

For many of us though, it feels like prices have risen. My weekly supermarket shop is certainly significantly more expensive than it was last year! ASDA agrees that times are tougher for families, and its Income Tracker report offers some food for thought. 

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Drop in income

The survey shows that there has been a 4.2% year-on-year decrease in discretionary income for the average UK household (the money we spend on nice things), which represents an £8 a week drop in the average family’s spending power.

The average UK household now has £177 a week of discretionary income, but how has ASDA worked that out?

Well, it says the average total weekly household income is £703, including wages, investment income, pensions, social security and self-employment earnings (this is based on Government figures).

Then it subtracts taxes (income tax and national insurance) at an average £130 a week.

That leaves a net income (or take-home pay) of £573.

It has worked out the average weekly cost of living at £396, including essentials like food, clothing, housing costs, bills, transport, communications costs, health, schooling, house maintenance and repair.

And this leaves the average family with £177 a week for discretionary spending, for things like holidays, cinema, theatre, eating out, toys, sports, savings, jewellery, gambling, computer software and games.

Below is a table the retailer has produced highlighting how, despite an increase in earnings growth and net income over the last year, spending power has actually reduced because of the rising cost of living.

More income, less to spend

Source: ASDA Income Tracker report

What next?

Unfortunately, there are potential problems ahead that could affect the average family’s spending power for the worse.

Ongoing concerns about the labour market are the main concern for many households and last week’s unemployment figures came as a real blow. They showed that unemployment has risen by 23,000 to 2.47m in the three months to April, and long-term unemployment reached its highest level since 1997.