Cost of living crisis? What cost of living crisis?

While the cost of living is undoubtedly going up, household budgets are proving surprisingly resilient.

I've been in long conversations with a few readers and a couple of MPs about the real level of household income in the UK for ages. I and they keep pointing out that the PAYE or simple wage statistics don't tell the whole story about how much money we are all making and getting. Why? Because modern workers so often have more than one source of income.

You might have a day job and a freelance job done in the evening or a spare day. You might have a non-executive position at another company. You might have a buy-to-let or two. And then there is of course general investment income. Or perhaps you buy and sell bitcoins.

Ask around the middle classes and you will find that multiple streams of income are par for the course. The same is clearly true for the working and non-working poor benefits in the form of cash or tax credits are clearly streams of income.

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Look at it like this and you will see how I have with some trepidation even wondered if the numbers we use to look at house prices (simple average earnings versus prices) make any sense in the modern world of work. Perhaps we should be looking at total household earning versus prices. It's complicated.

It's good news that the living wage/cost of living crisis debate has now brought to everyone's attention the fact that things might not be as bad as everyone thinks and the stats that explain it.

Yes, average employee earnings have only risen 2% a year since 2009 (versus inflation of 3.1% a year). But it turns out that household incomes have risen some 4% a year. How? As Peter Warburton of Halkin Services points out, entrepreneurial income is up 6.8% a year, property income is up 3.5% a year and welfare payments are up 3.7%.

The key point is this: actual employee wages only count for 45% of total household income. However, on the income front, it is also worth looking more closely at what the Office of National Statistics' 2013 Annual Survey of Hours and Earnings (ASHE) has to say.

It puts growth in median gross weekly earnings for all employee jobs at 2.2% from the spring of 2012 to that of 2013 (that's £417 a week) that's rather more than previously thought, so suggests less of a wage squeeze than previously thought.

What does it mean? We'll think on that one for a bit.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.