Shadow cabinet member uses misleading £2,600 cost of living figure on BBC, ITV and Sky

18 May 2022
What was claimed

The Chancellor’s Spring Statement left the average household £2,600 a year worse off.

Our verdict

This figure appears to be based on a previous Labour estimate for how much worse off families will be this year, which used unreliable assumptions and excluded changes to wages and benefits. Independent estimates suggest the average household will be significantly worse off in 2022/23, but by less than Labour’s figure of £2,620.

The Chancellor’s Spring Statement [...] left the average household £2,600 a year worse off.

The Labour MP and shadow justice secretary Steve Reed claimed on BBC Breakfast, ITV’s Good Morning Britain and Sky News that the average household was £2,600 worse off after the Chancellor’s Spring Statement.

Neither Mr Reed nor the Labour party have responded to our questions about this claim, so we don’t know for sure where it comes from. But it appears to be based on a claim Labour has made repeatedly in recent weeks—that families will be £2,620 worse off this year.

We have already checked that claim three times before when it’s been used by Labour’s shadow ministers. Labour produced this figure with estimates that have not been fully explained, and some of which are not reliable. Crucially, it also does not appear to account for changes in wages or benefits, both of which are rising in cash terms.

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 less than Labour’s figure.

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Where did the £2,620 figure come from?

 After our first fact check was published last month, Labour confirmed that its figure of £2,620 was reached by adding together estimates for rising costs from tax (£1,060), energy prices (£690), petrol (£300), food (£275) and mortgages (£295). A statement from Birmingham Labour on 27 April which gave a very similar estimate appears to give some more detail on how these calculations were made.

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 changes to wages or benefits—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.

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. Its latest figures are from March, when it said: “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.

The OBR’s 2.2% figure is now two months old, and the economic picture is changing quickly at the moment, so all forecasts are uncertain. More recently, on 5 May, the Bank of England published its own updated projection, estimating a 1.75% fall in real post-tax household disposable income in 2022. Applying this estimated fall in the same way, using the methods above, would suggest figures of about £800 or £1,000 instead.

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 currently close to Labour’s estimate of £2,620.

What Mr Reed added

Different Labour politicians have expressed this claim in different forms over the last few weeks. Originally, at his speech to launch the local election campaign on 31 March, the Labour leader Sir Keir Starmer said: “On average, families this year, [will be] £2,620 worse off under these Tories.”

In his TV appearances, Mr Reed said the Spring Statement had “left the average household £2,600 a year worse off”, that “after the chancellor sat down in his spring statement [...] the average household was £2,600 worse off” and that “when he sat down [...] people’s household budgets were on average £2,600 a year worse off”.

As Mr Reed did not respond to our questions, it is hard to know for certain what calculations lay behind his claim. But assuming his comments were based on the £2,620 figure Labour has previously used, it’s important to note that figure was not limited to how measures announced in the Spring Statement would affect the average cost of living. It was a wider estimate which also included figures for everyday costs, such as energy and food.

If Mr Reed meant to suggest this was a figure for the annual impact over more than one year, when he said it was the amount households would be worse off “a year”, then that would also not have correctly reflected Labour’s £2,620 estimate.  

Full Fact has contacted Mr Reed and the Labour party about these recent claims, but has not yet received a response.

We have also made contact with the Labour party many times about previous examples, but it has not substantiated it or addressed these criticisms. We have asked Labour to stop using this claim.

We deserve better than bad information.

After we published this fact check, we contacted Steve Reed to request a correction regarding this claim.

He did not respond. 

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