Inflation a bigger sting than income tax or VAT
Savers are more likely to consult the pages of the financial press, rather than visit an adviser, and believe inflation has a bigger impact on their lives than income tax or VAT.
With an unexpected rise of inflation to 3.2% yesterday, results from a survey by specialist lenders Aldermore show how savers feel about it.
People are becoming wiser when it comes to saving and regular savers were not surprised by yesterday's increases.
Three quarters believe inflation will either rise or stay the same next year and despite the need to generate inflation beating returns, they remain risk averse and cautious about converting cash into equities.
Opinion over the Bank of England's role in economic improvement is mixed and the majority don't want to follow the bank's advice to "spend, spend, spend".
Simon Healy, head of savings at Aldermore, says: "Savers feel they've been abandoned as the spotlight remains firmly focused on the recovery. The Bank of England's primary purpose may be to keep inflation in check but savers believe it's more concerned about the prospects of a double-dip recession than inflation continuing to run out of control."
According to Alliance Trust Research Centre, which looks at how inflation affects different age groups, people aged 50-64 are facing the highest rates of inflation of 4.1%, because this group spends more of their disposable income on transport, where inflation remains at almost 6%.
The over 75s endure inflation at 3.6%, and are likely to be affected by rising gas and food prices.
The under 30s have the lowest rate of 3.5% for the second month in a row, helped by falling prices of audio-visual equipment.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).