London's Cost of Living Tracker: pre-pandemic expenditure
This section takes London households’ basket of goods and services from before the pandemic and looks at the proportion they spend on different item groups in that basket. This allows us to see the differences in spending between different groups. Use the drop-down menu to see the data split by income group, age group and those in and out of poverty.
Average weekly spending on goods and services as a proportion of all expenditure for household income quintiles in London - baseline (April 2017 - March 2020)
The biggest and most consistent inflation in prices throughout 2022 was in energy bills and food and non-alcoholic beverages, and the headline inflation figures were, to a great extent, driven by these increases. Households on lower incomes spent a much higher proportion of their total expenditure on these products. For London households in the lowest income category, expenditure on food and non-alcoholic beverages represents 17% of their total expenditure and expenditure on energy bills represents 7%. Households in the highest income category spent 8% of their total on food and only 3% on energy bills.
Average weekly spending on goods and services, in pounds, for household income quintiles - baseline (April 2017 - March 2020)
London households in the lowest income category spent £57 per week on food and non-alcoholic beverages and £23 on energy bills, while those in the highest income category spent £78 per week on food and non-alcoholic beverages and £24 on energy bills. The difference between income categories is larger in what could be considered non-essential spending, such as on restaurants and hotels and on recreation and culture. Those on the lowest incomes spent, on average £30 and £21 per week on these categories, respectively. In contrast, those in the highest income households spent £153 and £93, respectively.
Key findings
£57 and £78 - average weekly spend on food and non-alcoholic beverages by households in the lowest and highest income categories, respectively.
17% and 8% - the percentage of the total expenditure that this money represents for households in the lowest and highest income categories.
Total average weekly spending on goods and services, in pounds, by household income quintiles, in London and the rest of England - baseline (April 2017 - March 2020)
London households in the lowest income quintile spent an average of £336 per week before the pandemic on goods and services. Those in the highest income quintile spent £965 per week. Expenditure was higher in London than in the rest of England for each of the five income groups.
Differences in weekly average spending between high and low income London households and the median group, by type of product or service - baseline (April 2017 - March 2020)
Households on the lowest incomes spent less in total than the median and those on the highest incomes spent more. This is true for almost all spending categories. All households, regardless of income, spent a similar amount on energy bills, although this represents a varying proportion of their total expenditure.
Go to the next section Inflation Impact Tracker or scroll up and use the drop down menu to see the data split by age group and poverty status.
This section takes London households’ basket of goods and services from before the pandemic and looks at the proportion they spend on different item groups in that basket. This allows us to see the differences in spending between different groups. Use the drop-down menu to see the data split by income group, age group and those in and out of poverty.
Average weekly spending on goods and services as a proportion of all expenditure for London households by age - baseline (April 2017 - March 2020)
London households headed by younger people spent over a quarter of their total expenditure on rent (29%), compared to households headed by older people, who only spent 5% of their total expenditure on rent. This difference is not necessarily offset by older groups being more likely to own their homes, as mortgage capital repayments, interest and other housing costs account for a much lower proportion of total spending for older age groups (7%). Additionally, it is this ‘essential’ spending that households have little control over. This might make it difficult for younger households to adapt their budgets in order to accommodate price increases in other products and services.
Younger-aged households also spent a lower proportion on food and non-alcoholic beverages (8% compared to 14%) and a similar proportion on restaurants and hotels (14% compared to 13%) as older-aged households.
Average weekly spending on goods and services, in pounds, for London households by age group - baseline (April 2017 - March 2020)
Households headed by people aged between 20 and 35 years old spent, on average, £211 on rents in the three years leading up to the pandemic (2020 Q1), making it the largest proportion of spending for that group. Households headed by people over 65, on the other hand spent, on average, £69 on recreation and culture and £63 on food and non-alcoholic beverages - representing the highest spending proportions.
Key findings
£211 - average weekly spend on rent by the youngest London households.
29% - the percentage of the total expenditure this represents.
Total average weekly spending on goods and services, in pounds, by household age, in London and the rest of England - baseline (April 2017 - March 2020)
In total, younger households tended to spend more on products and services than older ones. In the three years leading up to the pandemic (2020 Q1), households headed by 20 - 34 year olds spent, on average, £728 per week on such items, while those headed by over 65 year-olds spent £442. Spending was higher in London compared to the rest of England.
Go to the next section Inflation Impact Tracker or scroll up and use the drop down menu to see the data split by income group and poverty status.
This section takes London households’ basket of goods and services from before the pandemic and looks at the proportion they spend on different item groups in that basket. This allows us to see the differences in spending between different groups. Use the drop-down menu to see the data split by income group, age group and those in and out of poverty.
Average weekly spending on goods and services as a proportion of all expenditure for London households by poverty - baseline (April 2017 - March 2020)
In the three years leading up to March 2020, almost half (47%) of the expenditure for London households in poverty was taken up by rents, food and non-alcoholic beverages and energy bills. This contrasts with less than a quarter of the expenditure (23%) for London households that are not in poverty.
Key findings
47% - is the percentage spent on essential items such as food and non-alcoholic beverages, rents and energy bills, by London households in poverty.
23% - is the percentage spent on the same items by London households not in poverty.
Average weekly spending on goods and services, in pounds, for London households by poverty - baseline (April 2017 - March 2020)
In the three years leading up to March 2020, London households in poverty spent, on average, £220 per week on food and non-alcoholic beverages, rents and energy bills. Households that were not in poverty spent £172 per week, on average, on the same items.
Key findings
£135 - average weekly spend on rents for London households in poverty.
29% - is the proportion of total spending this represents.
Total average weekly spending on goods and services, in pounds, by household poverty, in London and the rest of England - baseline. (April 2017 - March 2020)
In 2020, London households in poverty spent an average of £464 per week on the items that make up the “basket of goods” that inflation is measured on. Those not in poverty spent £737 per week. Expenditure was higher in London than the rest of England for both groups.
Go to the next section Inflation Impact Tracker or scroll up and use the drop down menu to see the data split by income group and age group.
Overview
This analysis explores what the impact of inflation would be if households were to continue spending in the same way as they did before the cost of living crisis. As such, it gives an indication of what impact inflation has had on the ability of households to maintain the same standard of living.
This is not an inflation measure in itself but tells us the effect that inflation has had on specific baskets of goods and services, that is, how much the prices that consumers pay for a specific shopping basket have changed over the last two years.
This allows us to understand how inflation affects different population groups and in the long run it will show how much prices have changed in total, even as inflation falls. Headline inflation figures alone will not give information about the price increases that remain after inflation has gone down.
One thing to keep in mind is that consumers change their behaviour when prices change. This means that the shopping basket of 2017-2020 will not be the same as the shopping basket today as many consumers will have made different choices in response to price rises. The analysis therefore cannot give us an exact picture of households’ current expenditure nor can it tell us how this has changed due to high inflation.
In addition, inflation indices represent average national prices, which means that we don’t have region-specific information on price changes. Therefore, it is likely that inflation figures underestimate London price increases, as the capital tends to be more expensive than the rest of the country. However, the analysis provides a useful reference point and contributes to our understanding of the impact of inflationary pressures on household spending.
Why this is needed
We are in a cost of living crisis and have been since late 2021 (Institute for Government). This has mainly been caused by high inflation outstripping wage increases - the Consumer Price Index, including housing costs (CPIH), has seen consistent month-to-month increases since March 2021. Prices of food and non-alcoholic beverages, housing and household services (driven mainly by energy bills), clothing and footwear, restaurants and hotels have all seen fairly consistent increases over the past year.
The Office for National Statistics (ONS) measures inflation by tracking the prices of several items in a "basket of goods" - as the price of the individual items change, so does the total price of this basket. The basket includes over 700 items ranging from food to rents. The ONS collects prices from different shops (e.g. supermarkets or off-licences) and in different parts of the country, which means that each month, around 180,000 prices are collected to calculate inflation.
Individual price changes are monitored monthly and presented in the form of a year-on-year change (inflation). This figure represents the percentage by which prices have increased for the whole of the UK population. However, these price increases are felt differently by different groups of people. The impact depends on people’s income and how much headroom they have to accommodate price increases, what they spend their money on and the part of the country in which they live. Also, inflation is not equal across products and services, so the headline inflation figure may be experienced as higher or lower depending on what households spend their money on.
We have conducted this detailed analysis to understand what these headline figures mean for the lived experience of certain population groups that are likely to be more seriously affected, with a focus on households in poverty or low incomes.
London had the highest rate of in-work poverty, when compared to the rest of the UK, which means that people living here could be particularly vulnerable to price increases. 41% of Londoners had an income below the minimum income standard in 2019 – this proportion has increased during the pandemic and through the current cost of living crisis. London also has much higher property prices than the rest of England and this can affect how inflation is felt. The price of rental properties is also increasing faster in London compared to the rest of the UK. Rents increased by 15% in inner London and 20% in outer London between 2014-19, compared to 10% outside of London. When surveyed, 24% of Londoners said they would not be able to afford an unexpected bill (this is similar to the UK average). Investigations by the Minimum Income Standard in 2019 revealed that it is up to 58% more expensive to reach a decent standard of living in London than in other urban areas of the UK, this is due to higher housing, childcare and transport costs.
Data
CLASSIFICATION OF INDIVIDUAL CONSUMPTION BY PURPOSE (COICOP)
This is the standard international classification of products and services for household expenditure. It is hierarchical, with individual items grouped into progressively higher categories. At its highest level, there are 13 categories (divisions) that describe all items of household expenditure.
We used the highest order categories to present expenditure data. We separated out some elements of division 04 (Housing, water, electricity, gas and other fuels), into the following categories: Rents (04.1 Actual rentals for housing), Mortgage interest and endowment policy premiums (04.2 Imputed rentals for housing), Energy bills (04.5 Electricity, gas and other fuels), House maintenance, water rates and council tax (all the rest 04 categories).
CPIH FIGURES, ONS
We used the disaggregated index of CPIH inflation available from the ONS. The index tracks price changes for each COICOP category as well as overall. The index base is in 2015 and we rebased this to the dates during which baseline expenditure data were collected (2017 Q2 to 2020 Q1).
LIVING COSTS AND FOOD SURVEY (LCFS)
We used three waves of the LCFS in order to have an adequate sample size. We decided not to use data collected during 2020/21 as pandemic lockdowns created exceptional circumstances; we instead used pre-pandemic data (2017/18 - 2019/20) as they were more representative of usual spending patterns. The survey runs in financial years, meaning that only 1-2 weeks out of the total of 36 months represented in the data we used, were impacted by lockdowns. We don’t expect this to affect our estimates significantly.
We extracted the LCFS expenditure variables that are included in each of the COICOP categories indexed in CPIH. We used COICOP+ codes to assign LCFS expenditure codes to COICOP class codes. This resulted in a long list of C- product codes, of which we only used the household totals (i.e. C- expenditure codes with a -t suffix). For expenditures without estimated totals in the LCFS, we used the Family Spending methods to calculate them.
We included mortgage capital repayment spending in the baseline expenditure, even though it is not tracked by CPIH, as it constitutes a big part of household spending. This expenditure remained the same at baseline and after inflation was applied. The household shopping baskets used in this project do not represent households’ total expenditure.