28 June 2007
As our Gordon settles into his new job, some newspapers have attempted to compare the Blair legacy with that of previous Prime Ministers. There is no doubt, the UK has enjoyed a remarkable period of growth, and from an economics point of view the last decade has perhaps been less dominated by crisis than any other ten year period. Some have drawn analogies with Harold Macmillan's "you have never had it so good" era, but then Super Mac was speaking just as the economy was set to enter a protracted period of crisis.
But, hold on. Maybe we are not quite as well off as we thought we were. According to Ernst and Young, our discretionary income is at its lowest level in five years.
Ernst and Young says that after tax contributions, mortgage payments and monthly household bills, the average family now has just over 22 per cent of its gross income left over, as opposed to over 28 per cent in 2003. And Tim Sleep, director of Retail at Ernst & Young says "We’re seeing above inflation rises on a host of fixed costs such as council tax bills, water rates, pension contributions and petrol - the consumer is being squeezed from many directions."
The typical household now faces monthly mortgage payments of £698.85, that's 65 per cent higher than in 2003. The same household now spends £156.23 per month on petrol, that's 11.7 per cent upon 2005/06. Other debt repayments (loans, credit cards, overdrafts) are up more than 30 per cent since 2003/04 to £103.83 per month, and Ernst and Young says average household unsecured debt now stands at £8,028.43, compared with £6,568.32 in 2003/04.
Furthermore, council tax is up 20 per cent since 2003/04 to £110.10 per month for a band D property, and monthly pension contributions to defined benefit schemes are typically some 65 per cent higher than in 2003/04, up from £144.26 to £238.78.
Ernst and Young says the average household now has £837.53 to spend each month after total fixed monthly outgoings, compared with £898.54 in 2003/04. But there is some good news; gas and electricity bills are down on last year - although still up on the year before, and fixed line telephone charges are in long term decline. Apparently, car running costs have also declined since 2006, driven by lower servicing charges and tyre costs.
Ernst and Young says "after five years of household costs rising faster than wage inflation, the consumer is feeling highly fragile, and the average family will find it very difficult to cope with a further rise in interest rates.”
And so with consumers so stretched, the rate of interest likely to rise even higher, what should retailers do? Tim Sleep puts it simply, "Opportunities overseas offer the prospect of strong growth… There’s no denying that for many emerging markets, the time is now. Early movers have already proved the attractiveness of markets such as Russia, India and China, but competition has yet to peak. Of course there are huge challenges taking your brand overseas but these markets offer the prospect of strong sustainable top-line growth - something that certainly isn’t true of the UK."