On average, families this year, [will be] £2,620 worse off under these Tories. That is the cost of the Tories.”
In a speech launching Labour’s local election campaign, and on Twitter, party leader Sir Keir Starmer said that families would be an average of £2,620 worse off this year under the Conservatives.
The Shadow Chancellor Rachel Reeves made the same claim on Sky News. And it has also been widely used by the Labour Party on Twitter and Facebook, and been reported in the Mail, the Evening Standard, the Independent, the Mirror, the Guardian, Sky News, the New Statesman, the Week, the Metro, the Express, the Times and the Morning Star.
This figure of £2,620 is not correct. It was calculated using flawed assumptions and does not appear to take account of any rises in wages or benefits which have also taken place.
Full Fact has asked Labour four times to share details of how the figure of £2,620 was calculated. At the time of writing, it had not responded. However, the Guardian has reported where the figure comes from, and highlighted some of its shortcomings, as has the BBC.
The average household in the UK is expected to be significantly worse off this year. But independent estimates suggest the fall is likely to be significantly less than Labour’s figure.
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Where did £2,620 come from?
According to reports in the Guardian, BBC News, Metro and a graphic shared on Twitter by shadow business minister Seema Malhotra, the Labour estimate of £2,620 is the total of five smaller estimates for different cost rises for the average household in 2022.
- tax rises: £1,060
- energy: £690
- petrol: £300
- food: £275
- mortgage: £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.
How much households can afford to buy is affected by changes in earnings, taxes, benefits and prices. Labour’s figure only takes into account some price increases and tax rises. It doesn’t appear to include any changes in wages or benefits at all—and the cash value of some wages and benefits is rising, including wages of people employed by the government.
As Labour has not replied to us, we also don’t know whether its estimates account for the Energy Bills Rebate (some of which will be repaid to the government). The Office for Budget Responsibility (OBR) said last month: “Taking account of both energy and non-energy pressures on household incomes, the policy measures announced since October offset a third of the overall fall in living standards that would otherwise have occurred in the coming 12 months.”
In Mr Starmer’s speech, he said that the government’s response to the cost of living crisis was “to take more than they give, to take more, so on average, families this year, £2,620 worse off”.
But none of the “giving” has been accounted for in that £2,620 figure.
What about the actual numbers?
There are also problems with some of Labour’s cost estimates themselves.
For example, the Guardian reports 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.
Although some people’s housing costs will rise for other reasons, for instance because of rises in rent, Labour’s assumption that the average household in the UK has the equivalent of a £100,000 variable-rate mortgage does not seem reliable.
Labour’s estimated tax rise is also not reliable if it is based, as the Guardian reports, 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.
While many of these price rises are happening “under” the Conservative government, it is also questionable whether some are truly the “cost of the Tories”.
Some reflect rising inflation, which is currently a problem in many countries. The cost of variable mortgages is ultimately influenced by the Bank of England, an independent body, when it adjusts the Bank’s interest rate. And the price of domestic energy is currently effectively set by the independent regulator Ofgem through a price cap, which was raised in April.
How will household budgets be affected in 2022?
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.
(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 a figure 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.