People's spending has been squeezed by higher bills

Research by the accountants Ernst & Young says higher taxes, mortgage payments and household bills are, on average, now taking up 78% of incomes.

That is the highest proportion since 2003, when 72% was being absorbed by household overheads.

The accountants say that higher interest rates are the main reason.

"Big rises in household costs continue to outstrip wage inflation," said Tim Sleep of Ernst & Young.

"Increasing mortgage payments, driven by the four interest rate rises since last August, are having the biggest impact on the consumer."

Calculations

As well as interest payments, the accountants point to other household costs, such council tax bills, water rates, pension contributions and petrol, which have all been rising faster than general inflation.

The result is that money left over for other things - what economists call "discretionary spending" - has dropped from 28% of the average household's gross income four years ago to just 22% now.

According to Ernst & Young's calculations, this means the average home now has �51 a month less to spend than it did in 2003, after paying these monthly overheads.

The cost of overhead bills has risen by 32% in that time, driven by higher mortgage payments (up by 65% at �699 a month) and debt repayments (such as credit cards), which are up by 30% at �104 a month.

Other costs that have also risen sharply are petrol, council tax and pension contributions, although utility bills are lower, as is the general cost of running a car.