Poor people in Britain are suffering from a far higher inflation rate than the rich, according to research released today by the Institute for Fiscal Studies (IFS) that shows the impact of soaring food and energy bills on those with the lowest incomes.
The thinktank said the least well off had experienced a higher cost of living than the wealthy for the past decade, but that the difference had widened sharply since the long, deep recession of 2008 and 2009.
In a study that coincides with the release of new official data today, the IFS said its analysis using the retail prices index (RPI) showed that the poorest fifth of households had faced an inflation rate of 4.3% between 2008 and 2010, compared to 2.7% for the richest fifth of households. RPI inflation has continued to rise in 2011 and stood at 5.2% in April.
The study found that the doubling of energy prices over the past decade had disproportionately hurt poor households, which on average spend twice as much of their income on food and fuel than the better off (19.6% of income on food and 9.4% on domestic fuel, compared to 10.1% and 4.4% respectively for the richest 20%).
Pensioners, and in particular those dependant on state benefits, have been hard hit by the increase in oil and other commodity prices over the past three years. The inflation rate for a pensioner reliant on state benefits was 4.6% on average over the three years to 2010, compared to 4.3% for a pensioner not dependant on benefits, the IFS said.
It added that there was a similar pattern for those of working age, where the inflation rate between 2008 and 2010 for those on benefits was 4%, compared to 2.9% for those not dependant on benefits.
Well-off households were also the main beneficiaries of the Bank of England’s decision to slash interest rates from 5.5% to 0.5% in 2008-09 in an attempt to lift the economy out of a recession that reduced the UK’s national output by more than 6%.
The poorest 20% of households spend 1.7% of their budgets on mortgage interest payments, as opposed to 8.7% for rich households. Rich households also spend more of their income on leisure goods, where cheaper computers and mobile phones resulted in a sharp drop in prices of 23.8% between 2000 and 2010.
The IFS said official poverty and inequality figures in recent years had failed to pick up the way in which inflation was bearing down hardest on those with the lowest incomes.
“Over the past few years relative price changes have tended to hit poorer and older households harder,” said an IFS research economist, Peter Levell.
“Of course, this pattern may well change in the future, but it does mean that poorer households will have fared worse over the period of the recession than poverty and inequality statistics that don’t account for these differential inflation rates would suggest.”
The IFS said that in 2008 – a year when the price of crude oil peaked at $147 (£90) a barrel – the RPI rose by 4%, but fuel prices rose by 18.9%.
“This rise in energy costs added 1.8 percentage points to the average inflation rate experienced by the poorest 20% of households, but just 0.8 points to the rate experienced by the richest 20% in that year,” it said.
The thinktank said the department of energy and climate change predicted that fuel prices would continue to increase as a result of the trends in commodity prices and government policies designed to meet targets for use of renewable energy and to cut greenhouse gas emissions.
Milly and Ed Milband and the rest of you fuckers – whilst you live out your prejudices and make yourselves feel all good, we’re still human beings and we are paying for ALL YOUR THINGS.