10 Nov 2017 The cost of utilities has risen at almost triple the general rate of inflation for the typical UK household in the last 20 years, according to Tilney’s Household Inflation Index. The findings come as SSE and Npower announce their merger, following the government’s proposed crackdown on the soaring cost of energy bills.
Inflation, an increase in prices and associated fall in purchasing power, is calculated by looking at the changing prices of the items in an average household’s basket of goods and services. From 1997 to the end of 2016, while the total inflation for a typical household’s entire basket of goods was 50.7%, the cost of utilities jumped by 139%.
While energy and water prices have shot up over the last two decades, the cost of clothing and shoes has halved, with prices falling by 49%, largely thanks to the rise in products being manufactured for cheaper overseas, in countries including China.
Another area where prices have risen fast, according to Tilney’s report, is alcohol and tobacco, which together saw inflation of 165% from 1997 to 2016. Housing costs, which includes the cost of buying property and maintaining homes, have risen by 98%, almost double the general rate of inflation, thanks to soaring house prices over the period.
How has inflation varied across different spending categories from 1997 – 2016?
| Spending category | Inflation experienced by typical UK household |
| Housing | 98% |
| Utilities | 139% |
| Food and drink (exc. alcohol) | 49% |
| Alcohol and tobacco | 165% |
| Clothing and shoes | -49% |
| Households goods and services | 20% |
| Health and personal care | 45% |
| Transport | 47% |
| Telephone and internet | -4% |
| Entertainment and recreation | -12% |
| Restaurants and cafes | 85% |
| Holidays | 89% |
| Total basket of goods | 50.7% |
The price of holidays and eating out have risen by 89% and 85% respectively in the last two decades, while food and drink (excluding alcohol) costs have risen by 49%, almost in line with inflation of the typical household’s basket of goods.
Other costs to have fallen over the two decades, along with clothing, are entertainment and recreation, which has deflated by 12%, and the costs associated with telephone and internet, which have fallen by 4%.
Since 1997, typical households have been hit hardest by the inflation of housing costs, the cost of running a car and the cost of insurance, due to the proportion of their spending devoted to these. Households will continue to feel the pinch from the cost of running a car, as average car insurance premiums have risen by 14.6% in the last year – five times faster than inflation.[2]
Andy Cowan, Head of Financial Planning at Tilney said: “Inflation is often seen as a single figure affecting all households in a uniform way, but price rises and falls have varied dramatically across different goods and services over the last 20 years. This means that individual households can experience inflation very differently, depending on what they spend their money on.
“In the case of the top 10% of UK households – those with an income in excess of £78,500 per year – our research found that they have endured considerably higher overall inflation than the headline figures while also being exposed to a much greater income tax burden than the wider population. These households have needed to see their savings and investments generate a return in excess of 64% over the last two decades, just to stand still in real terms after the impact of inflation.
“This is where astute financial planning to maximise tax efficiency and an appropriate investment strategy designed to outpace inflation comes into play. Soaring stock markets in recent years have rewarded investors but a squeeze on pension allowances and an uncertain economic outlook mean it is as important as ever to have a robust financial plan in place.”