Soaring costs send families reeling

KEEP an eye on your bank balance in the coming months: the chances are it's shrinking faster than an iceberg in the Southern Ocean.

Research by Scotland on Sunday has shown the nation's wallets are under an unprecedented assault by a damaging combination of price hikes for food, fuel, and mortgage costs.

A typical Scottish family is likely to be between £1,000-£4,000 worse off in the coming year for these categories alone, easily wiping out the much-vaunted benefits of the council tax freeze and rejigging of income tax.

From April 5, a family with a household income of around £55,000 will annually save around £400 in income tax and about £53 as a result of the council tax freeze.

But over the past year, their £150,000 mortgage is likely to have soared by £100 a month, fuel for two cars by about £50 a month, and food and drink by £70 a month.

Together with gas and electricity hikes, they are likely to be worse off by at least £2,000 a year.

Families on six-figure incomes, and lifestyles to match, are likely to be out of pocket by at least double that amount.

Consumer groups last night warned that a growing number of families could find themselves in financial trouble simply because they are unaware of the extent to which many basic costs are rising.

In the past year, the price of petrol in Scotland has risen from 89.4p a litre to 106.4p. Interest rate increases have raised the price of a £200,000 mortgage, from £892 in January 2007 to £992 in January of this year.

And food prices have risen 11% on average in the past year with some prices rising much more steeply as a result of hikes in transport and production costs, especially animal feed.

But there is little evidence so far that soaring costs are having an effect on consumption. Last month, motorists bought 4.8 billion litres of petrol and diesel, compared with 4.6 billion in February 2007. And last week supermarket giant Sainsbury's reported that like-for-like sales in the first 12 weeks of the year had jumped 4.1%.

Cary Cooper, professor of organisational psychology at Lancaster University Management School, said: "People are finding that their costs are going up very dramatically, and many will now be finding that they are in much more trouble than they might think they were.

"Fuel is affecting everything. It costs more to fill up the car, and then train costs are going up more than inflation too and it affects the price of other goods, especially food. Consumers are now having to struggle to pay for the basic costs.

"I was out last night with my wife at an Italian restaurant and we noticed that the place was almost empty. It would normally be full, and we asked the manager what was happening. He said that people were cutting back on going out. People can't really cut back on food and transport, but they will be cutting back on eating in restaurants, families on two holidays a year will cut back to one a year, which might be good for the British holiday industry, and a lot of second homes might be sold. "

A spokeswoman for the National Consumers' Council said: "People are feeling a lot of discomfort when they see prices of the basics rising by much more than the official figures seem to say that they are. It's going to be especially bad for all those coming off fixed-rate mortgages who will then see their costs increase considerably."

The spokesman added: "There are some things you can do to cut costs. You can switch to a cheaper energy supplier, which can save you quite a bit of money and which is a lot easier and simpler than it used to be.

"Pay off your credit cards as quickly as you can, they are by far the most expensive way to borrow money. And we advise people to get a budget together. Take some time, sit down, and go through all your spending so you can see it on paper in front of you, and it will help you spot some savings."

Julia Clarke, the Scottish spokeswoman for consumer organisation Which?, said: "The key thing when the debts are mounting up is don't be an ostrich. Act as soon as you can and don't let things pile up. Go to Citizen's Advice. Get in touch with companies you owe money to and talk to them about things."

The Scottish Government defended the freeze on council tax, arguing that had the tax gone up it would have added even more to the cost of living rises.

A spokesman for Finance Minister John Swinney said: "The freeze means no council tax payer in Scotland will see any increase in their council tax bill this year – after a 60% council tax increase in Scotland since 1997.

"That will be a huge relief as people face real pressure on their household budgets as other bills such as food and fuel continue to rise."

A Treasury spokeswoman said: "The UK has seen the fastest rise in income per head of any G7 economy since 1997 - including the US. Real household disposable income is expected to grow at 1.5 to 2% this year before picking up to around 2.5% a year over the forecast horizon."

David Mundell, the shadow Scottish secretary, said: "It's time that the Government faced up to the fact that their official figures for inflation are not reflecting the reality in the shops. It maybe that technological items like iPods are coming down in price, but that's not much comfort when you are on a fixed income and you see the prices of the things you need to buy going up all the time."