Families hit as spare cash at record low

THE amount of money the average Scottish family has to spend a week has hit a record low due to a drop in earnings and the fall in the value of sterling, with no recovery in sight, according to new figures.

Supermarket chain Asda's tracker survey has revealed that the average household north of the Border only had a weekly "discretionary spend" of £118 in February.

This was 8.7% less than a year earlier and was down from £128 in January. The figure equalled the lowest level hit since the income tracker started in January 2008. The last time the amount of discretionary spend available dropped that low was in September last year. Scots are poorer than those in other parts of the UK, which has an average discretionary spend of £131.

Asda calculates the spend by taking cost of living, including food, clothing and taxes, away from total household income.

It put the recent fall in spend down to a sharp drop in earnings growth caused by a collapse in bonus payments across the economy and an increase in taxes. It said spending was also squeezed by a rise in prices, following a reversal of discounts offered during the January sales, and the ongoing effects of sterling depreciation raising the cost of imports. It added that some retailers also removed VAT cuts they had applied in December.

Average total household incomes in Scotland were £13 a week higher in February 2009 than at the same time in 2008. However, families paid £2 a week more tax than a year earlier so net household income was only up by £11 a week. This was the smallest annual rise in net income since the Asda tracker started, driven by the lowest rate of growth in average earnings since official record began in 1990. In February, the annual rate of inflation started to climb for the first time since September last year. As a result the average family's essential goods cost £22 a week more than in February 2008.

Andy Bond, Asda president and chief executive, said: "The continued weakening of the labour market and spike in inflation have pushed the income tracker to a new low. Although later this year we expect lower commodity prices to filter through, the challenge for retailers is to keep prices permanently low for consumers, and not get hooked on short-term discounts."

He added that in the longer term the best way to lock down inflation was for businesses to remove all unnecessary costs from their operations. He is also calling on the Government to actively promote competition rather than restrain it.

Charles Davis, senior economist at the Centre for Economic and Business Research, which produces the research for Asda, said a larger than expected rise in inflation in February made the hit on household incomes even worse. He does not expect inflation to drop noticeably this year but earnings g rowth is likely to approach zero and that will hit the average UK family's discretionary spend.