Much of the concern over inflation in recent months has centred not just on the increases in cost, but the aggravating factor of pay falling behind prices, something that may cause increasing problems for those in debt.

Rather than rising to meet the extra cost, wages have been kept down by the threat of unemployment, the struggles companies have faced to stay in business, fear of a new recession and a public sector pay freeze.

The latest inflation figures showed the Consumer Prices Index (CPI) had jumped to four per cent and the Retail Price Index at 5.1 per cent in January. CPI had been at 3.4 per cent two months earlier, so the rise has been sudden and harsh, with food and petrol among notably more expensive commodities.

In response, pay awards have now started rising, according to the latest report by Incomes Data Services (IDS). Although the three month period it covers excludes public sector pay (as there were no settlements scheduled in this time), the figure was still notable as increasing from 2.2 per cent to 2.8 per cent since the previous rolling three month period.

Of course, this is still below inflation and for those with credit card debt or facing possible repossession, there could be a greater need to seek debt management plans or even individual voluntary arrangements.

This may particularly be so because the situation is likely to get worse, according to report editor Ken Mulkearn, who said: “This gap looks set to continue if inflation continues to rise.”

And Trades Union Congress general secretary Brendan Barber noted tax rises and benefit cuts could also hit workers, claiming people are facing “one of the toughest income squeezes for a century”.

By Joe White

A growing gap between the wealth of those on middle incomes and the rich has been a major cause of the increase in consumer borrowing and consequent debt problems, it has been claimed.

Such a view was expressed by Ed Miliband, the leader of the Labour Party, speaking yesterday at the launch of a review into the squeeze on middle incomes and its causes by the Resolution Foundation.

Mr Miliband acknowledged that this trend has been occurring for many years and is not a result of the recent recession, with less of the wealth Britain produces going into wage packets and the increase in wealth of the richest outpacing the rest, something he said the Labour government of 1997-2010 bore some responsibility for because it did not fully tackle the problem when it had the chance.

He said the desire for cheap credit was strong in recent years “because wages weren’t keeping up with the pressures on families too many were forced to borrow to finance their living standards”.

But while noting credit card debt and other financial problems could be blamed on the policies of past governments, Mr Miliband said he believed the coalition’s cuts were making matters worse and pledged to ensure Labour could reinstate the “British promise” of making each generation better off than the previous one.

In the meantime, those who have run up large debts may wish to seek a debt management plan to get these under control.

The Resolution Foundation Commission on Living Standards will spend the next 18 months examining the causes and issues underlying the relative decline of middle income wealth levels.

By James Francis

Despite all the apparent lessons to be learned from the credit crunch through high levels of consumer overspending and borrowing, one expert has said one mistake continues to be made consistently.

Those who take on credit card debt are doing so not as a means of helping with cash flow and then paying it off at no or low interest, but are still thinking of how much they can splurge on purchases, according to Justin Modray of personal finance website candidmoney.co.uk.

He said: “I worry there’s still a culture of chasing cards with high credit limits rather than a decent rate of interest.”

This priority, of course, may appeal to those wanting to borrow plenty of money – but the danger may stem from consumers taking on debt levels far higher than is necessary, which may be avoided by means such as having a loan with a much lower interest rate and regular repayments.

Mr Modray noted those who do want a card should be able to find information on good rates to keep down their debt levels, but warned price comparison websites “may give most prominence to the providers that pay them the highest commissions”.

The comments come after flaws in the ways consumers use plastic were revealed in research last week by moneysupermarket.com.

It showed 46 per cent of people do not pay off the balance on their card each month, with the result that £2.3 billion of interest is added to what people owe each year.

The study also showed one-in-five are worried about their current level of credit card debt.

By Joe White