Under the Tories, families are £2,620 worse off.
Last Thursday, the Deputy Leader of the Labour Party, Angela Rayner, tweeted that families are £2,620 “worse off” under the Conservatives. This tweet was also shared by the Shadow Minister for Further Education and Skills, Toby Perkins.
This appears to be the same misleading claim that we have checked twice before.
Labour has told us that the £2,620 figure was calculated by adding together five estimated cost rises that it expected the average household to face this year. However, these estimates have not been fully explained, and some are not reliable.
Crucially, Labour has also not accounted for any changes in wages or benefits, both of which are rising in cash terms.
We have asked Labour repeatedly to properly explain or withdraw this claim, but it has done neither. At the time of publication, it also continues to use it in political adverts on Facebook and on campaign leaflets on sale to its supporters.
Households are certainly facing a historically large fall in living standards this year, but Labour’s estimate appears to overstate the size of it significantly.
Where did this number come from?
After our first fact check was published last month, Labour confirmed that the total was reached by adding together estimates for rising costs from tax (£1,060), energy prices (£690), petrol (£300), food (£275) and mortgages (£295). An obvious problem here is that these five items don’t cover all changes to income and expenditure that a typical household might expect to face.
In particular, Labour’s total doesn’t appear to include any changes to wages or benefits at all—and the cash value of some wages and benefits is rising, including wages of people employed by the government.
Labour has not shared the full details of how its estimates were calculated, but some also appear to be unreliable, based on details reported when they were first announced.
For example, the Guardian reported that Labour calculated the mortgage figure based on “the impact of interest rate rises on the cost of servicing a £100,000, 20-year variable rate mortgage”.
But only about 30% of households have a mortgage, at least in England in 2019/20, according to the latest English Housing Survey. What is more, about three quarters of those with mortgages have a fixed-rate mortgage, which means their payments won’t immediately rise in response to interest rate rises, unless their fixed-rate period runs out this year.
Labour’s estimated tax rise is also not reliable if it is based, as the Guardian reported, on a rise in the estimated overall tax burden when shared between the total number of households. This is because some taxes, such as business taxes, are not paid by households.
By how much will living standards fall?
Forecasting changes to living standards is always tricky—particularly at the moment when inflation forecasts are changing rapidly. Estimates will also vary depending on the methodology being used.
That said, independent estimates which factor in both rising costs and increases in benefits and wages put the likely impact on the average household significantly lower than Labour’s figure of £2,620.
The Office for Budget Responsibility has specifically estimated the change in living standards over the next year. It said in March: “Real household disposable incomes per person fall by 2.2 per cent in 2022-23, the largest fall in a single financial year since ONS records began in 1956-57.”
Estimating the size of this impact on the disposable income of the average household depends on which definition of the “average household” you use.
You could apply the 2.2% fall to the latest available data on the disposable income of the “average household”. Using the Office for National Statistics’ (ONS) figure for the mean non-equivalised household income produces a figure of about £1,000.
(Non-equivalised here means that this is simply the mean average household disposable income without any adjustment. The ONS defines equivalisation as “a standard methodology that adjusts household income to account for the different financial resource requirements of different household types”.)
Another simple way to estimate the change in living standards is to roughly calculate the size of a 2.2% fall in the whole country’s disposable household income in 2021, then divide this by the 28.1 million households in the UK. This gives a figure of about £1,200.
Other independent researchers have also attempted to estimate the fall in the standard of living over the next year, using different methodologies. For example, talking about non-pensioner households specifically, the Resolution Foundation estimates there may be a 4% drop in median equivalised household disposable income in 2022/23, which it says would equate to a fall of about £1,100.
In an earlier research document, published in February before the invasion of Ukraine and the Chancellor’s Spring Statement, the National Institute of Economic and Social Research estimated that each household would be “about £1,000 per annum worse off”, although this did not include all costs and for example excluded changes in food and fuel prices.
All of the estimates above come with different caveats. But while there are various arguments for different methodologies, and a range of estimates as a result, none of the figures we’ve seen which factor in increases in benefits and wages are close to Labour’s estimate of £2,620.
Labour must correct this
We have made contact with the Labour party many times about this claim, but it has not substantiated it or addressed these criticisms.
Labour has been quoted saying: “Other independent groups arrive at similar figures.”
In an email to us, the party mentioned an estimate from the Resolution Foundation that the average two-earner couple will see their cost of living rise by £2,600.
This appears to refer to the Resolution Foundation’s estimate of a £2,648 rise in the cost of living for a couple both working full-time up to the end of September 2022.
If so, this is an estimate before wage rises, National Insurance changes and energy support measures have been accounted for. It therefore does not describe how much “worse off” they will be as Labour’s claim suggests.
When the Resolution Foundation accounted for changes in tax, benefits and incomes, it estimated that such a couple would experience a £392 fall in real income.
In her tweet, Ms Rayner said about the government: “you can’t trust a word they say”.
It is important that Labour shows the same commitment to accuracy that it expects from others.
It must stop using this claim.
Image courtesy of David Woolfall