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Posts Tagged ‘transport poverty’

When the Chancellor delivers his Budget next month and it comes to the thorny issue of the cost of motoring in general and the rate of fuel duty in particular we hope he will have read the latest set of official statistics from the ONS.

A set of numbers – previously unpublished but requested by the RAC Foundation – collected as part of the Living Costs and Food Survey show once again just how much money the poorest households are spending on buying and running a car.

The data suggests around 800,000 car-owning households spent at least 31% of their disposable incomes on buying and running a vehicle in 2012, the latest year for which official data is available.

In the previous year they spent 27%.

These very poorest families (with the lowest tenth of household incomes in the country) had a maximum weekly expenditure of £167.

Of this £167, £51.40 (31%) went on the purchase and operation of a car.

Of the £51.40:

  • £16.40 was spent on petrol and diesel
  • £9.50 on insurance
  • £6.10 on repairs and servicing

Whichever way you cut it this puts them deep into transport poverty.

These figures are about as definitive as you can get. They give the official picture of the financial sacrifices being made by the UK’s poorest families to remain mobile.

They aren’t estimates of what people are spending. They aren’t models. They are the real world experience of people in the UK, collected as part of an authoritative survey of household outgoings.

It is of course true that these numbers are historical, in the sense that they relate to 2012. And since then there has been some marginal relief at the pumps and reported falls in insurance prices. But if you are spending almost a third of your disposable income on staying mobile then seeing prices retreat slightly from their highs – welcome though this is – will not radically alter your world.

Before Christmas the RAC Foundation detailed how record numbers of people now commute by car, including more than half of workers in the most deprived areas of the country, this data shows the cost of transport is a big hurdle to taking up employment.

For the poorest car owners there is unlikely to be much opportunity to reduce their motoring costs further. They will already be driving as little as they can and will have cut back on things like maintenance. Nor are they likely to be able to afford to swap their car for a newer model with better fuel economy and reliability.

Before tax we have some of the cheapest petrol and diesel prices in Europe but when you add in fuel duty and VAT the picture changes dramatically.

The Chancellor rightly points out that he has frozen fuel duty since March 2011 yet almost 60% of the pump price still goes into his pocket.

The chart below shows how the cost of motoring has changed over the past decade. While the prices of new and used cars have actually fallen, running costs have increased far faster than inflation. (To see an interactive version of this chart, click here.)

Cost_of_motoring_over_past_ten_years
The Budget is scheduled for Wednesday 19th March. Given the data we have highlighted today the Chancellor is going to come under a lot of pressure from politicans and campaigning groups (like FairFuelUK) to go further than freezing fuel duty and actually cut it again.

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The latest ‘Family Spending’ report from the Office for National Statistics published earlier this week says that the average UK household spent £489 per week in 2012. Approximately 13% (£64.10) of this went on transport.

Interestingly, this was the first year since 2001/02 (when the data were first collected in a comparable form) when transport wasn’t the biggest single area of household expenditure.

Housing and fuel costs rose from £66.40 in 2011 to £68 in 2012 to ‘top the poll’, whilst transport spending fell from £67.20 in 2011.

So why are people spending less on transport? Probably not because it is getting any cheaper to run a car but rather the opposite; transport remains expensive but the cost of domestic heating is also rising significantly and hard choices have to be made.

The ONS says:

“Prices of domestic energy, such as electricity and gas, have increased in the UK over recent years. Households may have had limited opportunity to reduce their usage of these fuels, leading to higher expenditure over a period of price rises.”

Looking at transport spending in particular, the ONS suggests:

“A significant factor is likely to be spending on petrol and diesel. The prices for both types of motor fuel have increased over recent years, and there is evidence that households have taken steps to reduce the amounts used. The 2011 Census showed that fewer people are driving to work, compared with 2001, and more were using public transport, while the National Travel Survey reported a fall in the number of journeys taken by private transport between the mid 1990s and 2012. Furthermore, fuel efficiency in car engines has improved and there is evidence more people are using diesel engine vehicles in an effort to reduce spending.”

This is not quite right. Actually, as our report out earlier this month showed, a record 16.7 million people are now driving to work or getting a lift. What is true is that the proportions have fallen slightly over the past decade but this has been offset by a rise in population. These are the commuting by car (or van) figures:

1981 10.6 million

1991 13.1 million

2001 14.5 million

2011 15.8 million

2011 16.7 million

Spending on transport did not just drop in 2012 but has been in more or less continuous decline since 2001/02, when the average UK household spent £87.10 (in 2012) prices. This is equivalent to a drop in spending of over a quarter over the past decade. Commenting on this, the ONS reiterates that:

“The price of petrol increased substantially over this period, and it’s likely that motorists have responded to this by reducing journeys.”

There we go. In the short term demand for fuel is relatively price inelastic. But faced with long term price rises, over time people try to adapt behaviour at the margins to cut back on usage. (There is also another factor at play. While the day to day running costs of owing a car have far outstripped inflation, the cost of buying a car – new and second hand – has fallen over recent years. Of course day to day running costs are for many a largely unavoidable expense while forking out large sums for a car – and even with price reductions car purchases are still major pieces of expenditure – is something that most of us can defer.)

But adapting travel habits only goes so far and in spite of these likely cutbacks the latest data indicate that the average UK household is still spending almost two fifths (38%) of its total transport expenditure on fuel. No wonder the chancellor used the recent Autumn Statement to confirm the freeze in fuel duty he had proposed at this year’s Conservative conference.

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At first glance the numbers seem incredible, but there they are in black and white, courtesy of the Office for National Statistics. The poorest car-owning households in the UK spend at least 27% of their weekly disposable income on buying and running a vehicle.

Scaling up the figures, this suggests that some 800,000 of the least-wealthy homes in the country are mired in transport poverty. If we are concerned, rightly, about fuel poverty, then we should be extremely worried about this.

The previously unpublished data, collected as part of the Family Spending survey, show that of a maximum total weekly expenditure of £167, these households spend £44 on purchasing and operating costs related to a vehicle.

£16 of this is used to buy petrol and diesel, another £8.30 goes on insurance.

For those families who regard it so important to run a car that they are willing to make an outlay of such staggering proportions – and we have always argued that for most of us car use is an absolute necessity – it is clear that every rise in costs merely adds to an already mammoth burden.

Yet for many, what choice is there? In metropolitan London people might be well served with buses, tubes, railways and taxis – but out of the capital, for most people, most of the time, the car is public transport. It is what most of us, rich and poor alike, rely on to access vital services. The difference between groups is that while owning and running a car is merely a financial headache for most, for a significant minority it is an economic nightmare, the proportions of which this data reveals.

Surely if there was a viable alternative (convenient and reasonably priced) then people would take it. To suggest that people happily pay 27% of their income to have a car because they are in any way addicted seems farfetched. They must do it because there is no option.

It is true to say that in real terms buying a vehicle has fallen slightly over the past decade, yet replacing a car is often a discretionary spend, running it is not. People have to buy fuel. They have to insure their vehicle. They have to tax and MOT it. And all these costs have risen far above the rate of inflation.

When the Chancellor makes his Budget statement on March 20th he would be well served by looking at this official data. In a way it doesn’t matter whether the figures are completely accurate or not; whether it is 27% of income that goes on car ownership, or 37% or 17%. All are of such large proportions as to be of concern.

Fuel costs are clearly only part of the equation, but it is a significant part. We would hope George Osborne remembers this when he makes his next pronouncement on the level of duty.

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Whichever way you cut it, UK citizens are paying a fortune to travel.

RAC Foundation analysis shows that of the nation’s 26 million households, a staggering 21 million are estimated to be in ‘transport poverty’ – that is, more than 10% of their incomes goes on getting about. When you consider only those homes that run a car (and the estimate is that 75% of households have a vehicle) then an astonishing 100% of households are in transport poverty. By way of comparison, and using the same monetary measure, the Department of Energy and Climate Change calculates that a ‘mere’ four million households are struggling to keep warm and so are in fuel poverty.

On the face of it, the poorest fifth of all households seem to spend the least amount on transport as a percentage of income. But this is a product of only around half of these families owning a car whereas in the highest earning fifth (quintile) of homes around 95% have a car. When you strip out the non-car owning households at the bottom end of the income spectrum then the least well off are paying more than 17% just on their vehicles, leaving aside anything that might go on public transport.

Looking at the figures another way reveals that out of an average household weekly income of £473.60, £64.90 goes on transport, making it the single biggest area of expenditure bar none.

While there has been much in the news about the price of fuel, this is only one component of the costly business of keeping mobile. Insurance costs have also soared. So too have maintenance costs. It is true that the price of both new and second hand cars has come down over recent years but while people can usually delay splashing out on still on these still very expensive items, they rarely have any option other than to travel: to work, to the shops, to take the children to school, to get to the doctors.

Transport has never been a sexy subject but it is fundamental to modern living; it is at the core of everything we do, and drives social and commercial life. When the Chancellor makes his decision on where fuel duty rates might go next, he would do well to remember that.

 

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