IFS - Londoners may have the highest average incomes, but their spending (excluding housing costs) is lower than other regions

11 Apr 2025 09:21 AM

New research calculates measures of average household consumption for every local authority in Great Britain.

If you measure living standards by looking at how much people spend on goods and services (excluding housing-related expenditures and adjusting for household size) you get a starkly different picture of regional inequalities than what you get looking at average income per person.

New analysis by researchers at the Institute for Fiscal Studies and Economic Statistics Centre of Excellence (ESCoE) calculates measures of average household consumption for every local authority in Great Britain - combining information from a household budget survey, credit and debit card data and local energy consumption. It finds that:

On average, London local authorities rank at the top of the distribution for income per person when comparing across regions (39% above the Great Britain mean) but are bottom of the distribution for household consumption after housing costs (7% below the Great Britain mean). This will be in part because Londoners spend so much on housing, but it also reflects the fact that many people live in London while their earnings are high, and they can save, then move away at later stages of life when their earnings are lower (e.g. when they retire), drawing down these savings to maintain high consumption spending.
Certain local authorities in London exhibit particularly stark falls in their national ranking when looking at household consumption after housing costs. For example, both Islington and Tower Hamlets rank in the top 10% of local authorities based on income per person, but the bottom 5% based on household consumption spending after housing costs.
Even when including housing-related expenditures, London falls to fourth in the regional household consumption distribution (below the South East, South West and East of England), and is only 2% above the Great Britain mean.
Income per person is far more unequally distributed across areas than household consumption, both within and across regions. Local authorities at the 90th percentile of the income distribution have incomes 65% higher than those at the 10th percentile, while for the household consumption spending distribution this gap is 35%. This suggests that regional disparities in living standards may be less extreme than income-based comparisons indicate.
Neither the income nor the consumption spending estimates we have discussed account for differences in the prices of goods and services in different areas (except for housing which we subtract from our consumption spending measures). This reflects the lack of local data on price levels.

Gautam Vyas, Research Economist at the IFS, ESCoE Research Associate, and an author of the paper, said:

“People care deeply about regional inequalities, but rankings of living standards across areas depend greatly on how you measure them. Our findings challenge the conventional wisdom that the typical London household enjoys higher living standards than their counterparts across the country. Rather, it seems that a combination of higher housing costs and differences in saving behaviour implies that high incomes do not translate into higher consumption spending for Londoners.”