Bristol resident says 'we need help' amid cost of living crisis
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Cameron Parry, CEO of gold bullion saving app Tally Money said that to understand the phrase fully, a person would need to think of their money as water in a bathtub, their salary as the tap and inflation as a “leaky plug”. Mr Parry said: “The worse the leak, the more you need your employer to turn on the tap to keep the bath topped up.
“Unfortunately, right now inflation is rising much faster than wages so the water is leaking out of the bath faster than the tap can fill it.
“That’s why most people are seeing the level in their bath and their real terms earnings fall.”
In the UK, inflation is currently at a rate of 10.1 percent and it has been predicted by the Bank of England (BoE) that it could reach 13 percent by the end of the year.
The American bank Citi predicted last week that inflation could possibly reach 18.6 percent in January next year.
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Mr Parry explained that a worker currently earning £20,000 has a “take-home pay” of around £1,394 a month after income tax, national insurance contributions (NICs) and pension contributions.
He added: “Let’s say your boss decides to push the boat out and award you a six percent pay rise to reward you for all your hard work over the past year. Congratulations!
“You’re now on £21,200 a year and taking home an extra £61 a month.”
However, with the current rate of inflation the pay increase is actually at just six percent and in real terms, the person is now four percent worse off than they were before.
Mr Parry added: “Your purchasing power has been eroded by four percent because the price of everything has accelerated faster than your wages.
“The £20,000 you earned previously has now effectively become £19,200, because you won’t be able to afford as many goods and services as before.
“Put another way, the pounds and pence you are earning now are actually worth less, in terms of what you can buy with them, than what you earned last year. In real terms, you have around £42 less to spend each month.”
Mr Parry stated that this is the issue which is causing the “showdowns” between bosses and workers right across the country, particularly in the public sector.
Over the summer, postal workers, rail staff, London bus drivers, barristers, dockers, and journalists, to name a few, from several different unions have announced or held strike action over pay.
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The unrest is continuing to spread as the GMB union are set to ballot strike action for school support staff.
The GMB is also balloting more than 100,000 local government workers over their pay deal, while the Royal College of Nursing is also preparing to consult its members on whether they would be prepared to take strike action.
The stress around pay and wages comes at the same time as a spike in energy bills, last week the energy regulator Ofgem announced that its price cap would rise to £3,500 in October.
According to official figures from the Office of National Statistics (ONS) growth in regular pay excluding bonuses is calculated as being 4.7 percent in April to June this year however, inflation at its current rate means a fall of 5.4 percent in the real value of pay.
Stacey Lowman, head of employee wellbeing at Claro Money said: “For wages to keep up with this they would have to rise by another 13.3 percent by January 2023.
“This would be almost £4,000 on a £30,000 salary, according to the ONS, for every £100 people earned last year, they will need to earn £109 this year to have the same monetary value.”
Ms Lowman highlighted that employers have a role to play in supporting their employees however “there was also a limit to the level they can increase pay”.
She added: “According to Claro Money’s latest research, 86 percent of employees say personal finance worries impact their work performance.
“There is a clear opportunity for employers to offer support via financial education, coaching and financial incentives as inflation continues to rise, to improve financial literacy and overall employee wellbeing.”
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