The cost of living in 1995

By Emma Tyrrell

02 March 2005

To celebrate Yahoo's tenth birthday (aaah… how we've grown) we've taken a leap back in time to 1995, to find out whether we're any better off now than we were then, or whether we're spending and borrowing ourselves into a big black hole.

As you might expect, it's a mixed bag - nothing's ever simple is it? We're paying more tax, we're more in debt than ever before, and we're not saving half as much. On the bright side, mortgage rates and personal loans are much cheaper, and you can pick up a PC or a DVD player for a fraction of their 1995 price tags.

Inflation +29%

The retail prices index is the figure against which all individual price and wage rises are inevitably measured. It is up 28.6 per cent over the past ten years.

Earnings +49%

Earnings tend to rise faster than inflation, meaning that as a nation we are gradually becoming more prosperous.

According to the Office for National Statistics, the way we work out average salaries has changed, making it difficult to compare 1995 like with 2005 like (it says). However, in 1995 the average gross pay for a full-time worker was £336.30 a week, or £17,487.60 a year. Since then average earnings have climbed by 48.9 per cent, which would make the equivalent figure today £26,033.68.

Independent research organisation Incomes Data Services, which monitors pay and employment issues, says that the starting salary for a school teacher has risen by an inflation-busting 56 per cent, from £11,883 in 1995 to £18,558 now, also beating the average earnings increase.

The salary of a high street bank customer service manager has soared even higher, from £10,905 to £18,960, an increase of 74 per cent

Basic state pension +38%

Unfortunately for pensioners, the basic state pension is linked to inflation not earnings, with other increases at the Government's discretion. In 1995 it stood at £ 57.60 for a single person and £92.10 for a couple. Today it is £79.60 for a single person and £127.25 for a couple.

Income tax and NI –6.5% *

Ten years ago, a single person on average earnings would be able to take home just over 72 per cent of his salary, after income tax and national insurance. Today that take home pay is just shy of 74 per cent or gross salary.

But while income tax rates have fallen, with the basic rate slashed from 25 per cent to 22 per cent, and the lower rate of 20 per cent replaced by a starting rate of 10 per cent, national insurance has climbed sharply.

Ten years ago, the main rate of NI was 10 per cent, paid on earnings between £2,964 and £22,360 a year, and capped at a maximum payment of £1,998.88 a year. Today it is charged at 11 per cent on a much wider band of earnings - between £4,732 and £31,720 – and is no longer capped, with a 1 per cent charge on everything over £31,720.

This means that although someone earning £40,000 would be paying £2,709.40 less income tax than a person on the same salary ten years ago, they would be paying £1,052.60 more in national insurance.

The higher national insurance eventually cancels out the benefit of the lower basic income tax rate, but only those earning over £205,680 are currently affected by this, and most of us couldn't care less about them.

Higher rate tax, paid on the top slice of your income, is still charged at 40 per cent, just as it was in 1994/5. But because the Government has only uprated tax bands in line with inflation, rather than average earnings, which tend to rise faster, the number of people paying higher rate tax has risen from 2 million ten years ago, to 3.4 million today.

Overall tax burden +7.4%

Although income tax rates have fallen since 1995, other tax rises, such as those on petrol and cigarettes , have pushed the overall tax burden up – from 34 per cent to a predicted 36.5 per cent for this current tax year. This tax burden represents the percentage of national income accounted for by taxes.

Personal debt +141%

We're borrowing more than ever before – over £1 trillion at the last count, including all mortgage debt and consumer credit such as overdrafts and credit cards.

In February 1995 total lending to individuals was £439.8 billion, or £439,844,000,000, if you want the zeros. In December 2004 (the most recent figure the Bank of England has) it was nearly two and half times that level, at £1.1 trillion, or £1,058,232,000,000.

If you strip out mortgages, our debt levels have climbed even faster. According to Datamonitor the amount of consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen from an average of £1,511 for every adult in the UK, to £4,004 – a rise of 165 per cent.

Savings –45%

At the last count, the average family was only saving 5.6 per cent of household income. Ten years ago, we were much happier to stash our cash away, with a household savings rate of 10.1 per cent.

FTSE 100 + 64%

If we'd stashed that 10.1 per cent of income in the FTSE 100 ten years ago, we'd be pretty pleased with ourselves. Ten years ago the index of the UK's hundred largest shares stood at 3049.3, and despite a rollercoaster ride since then, it's still 64 per cent up from that point today.

Not all investors will have chosen to track the index, however, and some will have done much better or much worse. According to broker Hargreaves Lansdown, the best performing unit trust over the past ten years is the Discretionary unit trust, which invests in small and medium sized UK companies, and is up 455 per cent. A £1,000 investment into the fund would now be worth £5,554.50. If you had instead chosen to invest in a Japan unit trust, you could have lost up to 48 per cent of your money, however.

House prices +161%

According to the Halifax, the average house price has soared from £61,369 in early 1995 to £159,956 today. That's great news if you're planning to sell up for the last time or trade down to a cheaper house or area, and terrible news if you're a first-time buyer desperate to get onto the housing ladder.

Interest rates –30%

Money is a lot cheaper today than it was ten years ago. In 1995 the Bank of England base rate stood at 6.75 per cent, compared to 4.75 per cent now. But while savers haven't felt the full force of this drop, many mortgage borrowers haven't received the full 2 per cent cut.

Halifax's standard variable rate mortgage has fallen from 8.35 per cent to 6.75 per cent. Meanwhile the average instant access savings account rate has dropped by much less, according to Moneyfacts, from 4.13 per cent to 3.15 per cent.

Unsecured personal loans are much cheaper, perhaps explaining why we're so heavily in debt. The typical rate in 1995 stood at around 13 per cent, while today 7.9 per cent rates and lower are readily available.

The cost of …

…a family holiday in Europe 0% to +40%

According to Thomas Cook, a two week half-board stay at the 3 star Hotel Pollensa Park in Majorca in June, would have set you back £499 in 1995. This year it's £200 more.

But while many prices have gone up, some are as cheap as ten years ago. Seven nights bed & breakfast at the 4 star Sheraton Luxor Resort in Egypt during October 1995 cost £465. It costs exactly the same in October 2005, probably as a result of slackening demand following the bombs in Egyptian tourist resorts last year.

Choice has expanded rapidly. Thomas Cook says most summer destinations were in the Mediterranean ten years ago, while this year there are affordable packages to places like Cuba, Croatia and the Dominican Republic.

… a family car +13%

Ford says a 1.4l Escort Encore 5 door car cost £10,180 in 1995. Today the equivalent car, a 1.4l Focus 5 door, costs from £11,495.

On a bigger scale a Ford Galaxy people carrier cost £23,300 in 1995. Today it is just 10 per cent more expensive, starting at £25,165

…a PC –67%

Ten years ago the average retail price of a PC was around £1499, according to retailer PC World. Specifications have improved exponentially since then, so it is impossible to do a direct comparison, but today the average PC costs around £500. Bargain!

… a cinema ticket +31%

Screen Digest, a media research consultancy, says the average cost of a UK cinema ticket was £3.43 in 1995, compared to £4.49 today. Tell that to the cinema bosses in Leicester Square.

… a CD –32%

The British Phonographic Industry, which represents the UK record industry, says the average price of a CD has dropped from around £14 in 1995 to just £9.48 today. A casualty of competition from cheap (and free) internet downloads.

… a packet of fags +75%

So that's where all the taxes went… A packet of 20 king size cigarettes would have set you back a typical £2.56 ten years ago. Today they'll hit your pocket for a whacking £4.48 a pack.

… petrol +49%

Filling up your car in 1995 was a lot cheaper, costing 53p a litre for unleaded petrol, compared to 79p today.

… a pint +45%

A pint of lager cost £1.63 in 1995, while today it will set you back a typical £2.36. Bitter has gone up from £1.45 to £2.05

… a pint of milk +3%

Cor, what a bargain! A pint of milk, which cost 35p in 1995, should now set you back just 1p more.

*The 6.5 per cent fall refers to the fall in the proportion of income tax and NI paid by someone on average earnings, between 1995 and 2005