The gap in disposable income widens between highest and lowest earners

As Britain prepares for a last minute Christmas spending splurge, the latest figures from Asda’s Income Tracker reveal that:

  • As inflation jumped to 3.1%, household spending power declined again last month – the seventh time it has fallen in the last eleven months
  • Average UK household has less money to spend than at the same time last year as wage growth fails to compensate for the rising cost of living
  • Households in the lower 60% of income distribution hit hardest by inflation following benefit payment changes
  • Only the highest earning 20% of households buck the trend with 2% increase in discretionary incomes

The Asda income tracker is a measure of ‘discretionary income’, reflecting the amount remaining after the average UK household has had taxes subtracted from their income and bought essential items such as: groceries, electricity, gas, transport costs and mortgage interest payments or rent.

It measures the amount that households have left over to spend on discretionary purchases such as leisure and recreational goods and services.

The full report can be found here:

Year-on-year change in Asda income tracker

November saw yet another decrease for the Asda Income Tracker, the seventh out of the eleven months of 2017 – and the squeeze on budgets is having a greater impact on the nation’s lower income households.

Discretionary household income after deducting tax and essential spending was £0.67 per week lower in November than during the same month a year ago. This is equivalent to a 0.3% decrease on the year.

This is driven by the fact that the rate of inflation – already at its highest level for five and a half years – rose again in November to 3.1% (as measured by the Consumer Price Index).

This has resulted in households having to cope with broad-ranging price rises for essentials such as transport and electricity bills.

Rising transport prices were the main driver behind the uptick in inflation in November, with vehicle fuel and air fares, exerting upward pressure on the price level. With transport being one of the highest costs for consumers each week, rising prices are creating higher pressure on family spending power.

Prices for recreational and cultural goods and services – for example sports equipment, toys or cinema tickets – also rose at the fastest pace since January 2010, exerting upwards pressure on inflation.

Electricity bills continued on the recent trend, with an 11.4% increase in price year on year. This is the highest rate of inflation out of any of the categories in November.

Food and non-alcoholic drink prices also inflated at 3.1%, contributing to the increased cost of living in November. To help ease the pressure consumers are starting to feel on their weekly budget, Asda work hard to offer great value for its customers.

Asda recently won the Grocer 33 Christmas basket, being named the cheapest retailer for Christmas dinner essentials and reduced the price of its Christmas dinner veg to 20p over the festive period, which is a welcome relief for household budgets at a time when budgets are stretched.

Detail of the 20p veg can be found here.

Meanwhile, despite the latest labour market data showing a slight uptick in wage growth, earnings are still lagging behind the rising cost of living. Moreover, employment figures declined for a second consecutive three-month on three-month period, adding to fears that the labour market might be turning.

Growing Economic Inequality

The Asda Income Tracker also shows that the gap between the low income households and high income households is widening, especially as the freeze in benefit payments hits low income households.

Income Bracket

Weekly income

Weekly income growth

Weekly disposable income

Weekly disposable income growth

Highest income

£1,938

+2.9%

£705

+2.4%

2nd highest

£935

+2.5%

£257

0.9%

Middle

£606

+1.9%

£103

-4.0%

2nd lowest

£379

+0.9%

£38

-14.7%

Lowest Income

£180

+0.1%

-£33

-24.2%


The highest income group have seen the largest rise in gross income, up 2.9% to £1938 per week.

Conversely, gross income growth has slowed for the bottom income quintile, down to 0.1% for the lowest-earning households, whose average weekly income stands at £180 – 11 times less than then highest earning 20%. These declines are mainly driven by slower growth in income from social security due to a freeze in benefit payments.

The conclusion is that the increased cost of living is affecting the spending power of all but the highest earning households, which are the only ones to see gains in discretionary incomes.

High income households were able to increase their family spending power by 2.4% in the year to November 2017, making it the only income group to see positive growth in discretionary incomes. Their weekly spending power after deducting taxes and essential spending stands at £705 per week.

By comparison, the second highest earners recorded family spending power at £257 per week, only slightly up from the previous year.

The following three quintiles all saw discretionary incomes decline. The strongest declines were once more seen by the lowest income households, who saw family spending power decline by 24% on the year, meaning it costs £33 more to live each week than what they have coming in.

Due to their lower gross incomes, these households are especially vulnerable to increases in the cost of living.

Kay Daniel Neufeld, Senior Economist, Cebr, said: “One month before Christmas, the ASDA Income Tracker shows that households continue to suffer from the rising cost of essential spending. For the seventh month in this year, family spending power decreased in November underlining the extended squeeze in household finances.

"Meagre wage growth and the freeze in in-work benefits limit income growth for all but the highest-income households. And while high employment rates still support households across the income distribution, there are warning signs that this could change next year as well. In more positive news for households, it appears that inflationary pressures will subside at the beginning of 2018."

ENDS