Tax contributions, monthly bills and mortgage payments have all contributed to making Brits 15 per cent worse off since 2003, with the average family’s leftover income at 20 per cent compared to 28 per cent five years ago.

This can also be seen in spending figures, with the proportion of household income used for discretionary monthly spending falling by almost 12 per cent in 2007-2008, the fastest this figure has fallen since 2003.

Just half a decade ago, the average household had more than £900 a month left over after fixed monthly outgoings, but this has fallen to £722.79 in 2008. Wage inflation has been relatively modest compared to household costs, said Jason Gordon, director of retail at Ernst & Young, explaining the change in household expenditure.

Fixed monthly household costs have risen 45 per cent in 2007/2008 compared to 2003/2004, now swallowing 53 per cent of a typical home’s gross income, compared to 45 per cent five years ago.

Mortgage payments have risen dramatically, up 78 per cent on 2003/2004, due to rising mortgage rates and large jumps in house prices, which has meant larger mortgages.

Energy costs are up significantly, having risen 110 per cent to £95.80 a month for gas and electricity. Petrol is almost 30 per cent higher, at £193.61 per month on average.

Other household costs have also increased, such as the debt payments on loans and credit cards which now stand at an average of £114.81 per month – a 44 per cent rise. Council tax is more expensive, up 25 per cent, and monthly pension contributions have had to increase with the cost of living, growing from £144.26 per month to £255.20.

“If we go one step further and factor in food price inflation, which official figures have placed at 8.7% in the last year, it’s clear that household budgets are under enormous strain.” Mr Gordon said. “Add in the impact of falling house prices on the consumer’s propensity to spend, and the consumer economy is undoubtedly on a knife-edge.

“Worryingly, though, the worst could be yet to come. If, as predicted, utility prices rise by as much as 40% later this year and interest rates are increased to control rising inflation, consumers and consumer facing businesses will face even bleaker times.”

While consumer spending has remained relatively strong during the credit crisis, the evident decline is being reflected in the retail sector, Mr Gordon continued, as consumers no longer have the same amount of spare cash to spend as they have in the past.

“We expect trading to become tougher in the second half of 2008.” he said “Many retailers will be forced to offer deeper discounts than last year. With the ensuing pressure on margins inevitably becoming even more intense, we anticipate that the high level of retailer profit warnings and administrations will continue.”

© Fair Investment Company Ltd