Take-home pay down 5% in real terms since 2009, says study

http://news.bbc.co.uk/panorama/hi/fr...00/9436026.stm

The average employee takes home £1,088 a year less than two years ago when the sum is adjusted for inflation, research commissioned by BBC Panorama suggests.

It was carried out by the Centre for Economics and Business Studies and based on data on salaries from the payment processor, Vocalink, which looks after more than 90% of deposits into employees' bank accounts.

It's depressing reading.

[Traduk]

Those figures are somewhat meaningless and only really display for many the minimum damage done.

Measuring against RPI gives a buying power figure against a supposedly typical spend pattern but very few people fit within those parameters with most finding that their costs are far from typical if lifestyle brings a need for disproportionate costs on one or more of the more heavily weighted elements.

Examples would be a family where both adults need to travel by car for some considerable distance to work. Fuel has shot way above 5% with other costs such as insurance having risen by between 20\33% this year.

Energy has risen dramatically but for many has been compounded with the gradual loss of short term deals that managed for a time to hold prices down.

I am retired and still have a base line existence calculation from 2006 on what was needed for survival. It is now 45% higher which is a calculation just to meet basics. The savings interest which was relied upon to supplement other sources of income has halved which in turn has led to a slow erosion of capital. The slow spiral of descent into the abyss portrayed in the article is a rather rapid drop for many.

In the 70's\80's it took years for erosion of buying power to motivate millions to become angry but with all the coalition changes the same situation is going to become very truncated based on the speed of change.

The only lifeline left for a huge number of people is mortgage rates which for those on trackers is pegged artificially low. Interest rates should be around 3% or higher and that will be way past the tipping point for hundreds of thousands. A perfect storm of financial woes awaits and unfortunately the erosion of spending power will simply compound the storm when it arrives.

It does make depressing reading but the reality of what must come as sure as night follows day goes way beyond depressing. I have a sense of deja vue from the 70's and the same as during that time, nothing happened for what appeared to be forever then when the lid blew off it all happened in a rush.

I hoped never to see this situation again but the human life span covers two or more macro economic cycles so another was due and arrived on cue. Ironically none of the measures adopted regarding the fatal flaw in Fiat money have been addressed so the mend and make do policies of pumping liquidity may not work and it could be back to the drawing board as per the 70's. The USA which is following a completely different policy is the only one who can initiate change and our avoidance of failure depends on their hoped for success.

[Ignitionnet]

Nothing to add to the above extremely eloquent and sadly quite accurate assessment. The worst part is that there isn't a huge amount that can be done, by anyone, to mitigate it. Too many nasty things stored up in the tank and blowing up at the same time.

[Chrysalis]

The correction is a increase in salaries that exceeds increases in living costs. I acknowledge tho that is very diffilcult for a pure and simple reasons.

Shareholders and owners of companies expect growth that exceeds inflation.
Money is a limited supply.
It is impossible for companies to post increased profits and the average adult to also get increased salaries exceeding inflation, one or the other has to lose out on a overall basis. eg. companies could give out 20% wage increases next year but then they need to sell their products for more to maintain profit margin as a result, result is higher inflation.

So to me the solution is that profit margins need to shrink, but its one that will never happen in a unregulated capitalist country. Labour's credit economy only masked this problem, people were spending money they didnt have and as a nation we have been getting poorer in real terms probably for at least 10 years as a minimum.

So the only way out really is another credit fuelled boom, the problem will still exist but it wont appear that way and people will be happier again for a temporary period.

Or we could get lucky and the following all start occuring.

house prices drop to sustainable level.
imports suddenly get cheaper, which should mean lower retail price for imported stuff.
Uk has a technology breakthrough and sells it for massive premium to other countries giving extra income not from taxpayers. Similiar to thatcher getting benefit of north sea oil that funded her tax cuts.

I think outsourcing over a number of years and starting a trend where people are typically employed as temps via agencies instead of permanent is also hitting home,the impact of these type of policies was never going to be immediate but eventually become apparent.

A recovery of some sorts will eventually happen but it will never be a full recovery, in real terms the average person wont get as rich as they were say in the year 2000.

[Traduk]

Chrysalis,

You cover many different points but within them is the reality factor that governments are trying to avoid like the plague.

Recessions are the consequence of too much growth and the effect is comparable with evolution which leads to the destruction of the weak. The weak in that instance are companies which were poorly run and people who had grossly over-extended.

The last administration put in place all manner of safeguards to give short term stays of execution to the over-extended in the mortgage market and to hold back the attack dogs for companies with less than stellar bank transactions status.

In the budget the stay of execution was extended for another year for mortgage holders in trouble. It followed a comparable stay in the USA which is a relief for those in trouble but solves no problems at all.

What the gist of what you think should happen is mega destructive and thus the short term palliatives. Deflation is what must happen but it scares the living daylights out of everybody because it is competitive down pricing to find bidders and in so doing destroys not only asset values but businesses and jobs. Greenspan when he was Fed governor stoked inflation because he could control it but feared deflation because nobody knows what to do and the only real model was the 30's in the USA.

The dilemma is that for prices of houses to drop tens of thousands go into negative equity. If they are re-possessed, they and their families are homeless and if linkages exist with business loans the businesses fail. Failing businesses spreads the problems and the dominoes start to fall at a potentially alarming rate. People will tolerate pain only so far and if they are comforted by paper profits on their home at least it countermands some of the bad feelings of lowering purchasing values in income. If their house also becomes a losing liability you can imagine the psychological blow.

In the late 70's the business environment had descended into a landscape of boarded up shops and factory units. Pay was low where jobs could be found but with the supply side of the economy crippled demand picked up and with no supply, up went inflation. The economic changes brought about from the USA (fiat money) kicked in and we as a country were off to the races big time.

Fiat money has no intrinsic or tangible value as did the gold standard and relies on market forces to set values. As valuations of everything is set by ability to pay or credit worthiness you can probably appreciate that everything is inter-twined. You cannot have low value houses with disproportionately high incomes because competition will bid them back up to a high level. Poverty is the only thing that will substantially lower house prices and that will be avoided or Saturday's rally will look very small and tame.

There is no answer to our problems that is apparent currently. We cannot compete with low cost foreign manufacturing so unless somebody comes up with a brilliant answer from somewhere I have no idea where our destiny lies.

[Hom3r]

Well what about those (myself included) whose take home pay has dropped by over 90%?

[Ignitionnet]

Originally Posted by Hom3r

Well what about those (myself included) whose take home pay has dropped by over 90%?

What about you? No-one can magic you up a job they can only try and improve conditions to create them.

Evidently your skills aren't in demand at the moment, there are more people than there are jobs. Not good but that's the career you chose.

[Hom3r]

Originally Posted by Ignitionnet

What about you? No-one can magic you up a job they can only try and improve conditions to create them.

Evidently your skills aren't in demand at the moment, there are more people than there are jobs. Not good but that's the career you chose.

I've changed my career path twice, if I get the temp job that I had an interview for today it will be my third.

I'm getting fed up of spending my own cash on learning new skills time and time again.