Living standards

Key statistics

Before the start of the pandemic:

  • With housing costs taken into consideration, London was the region with the highest poverty rate in the UK (27%)
  • Rates were even higher in Inner London (30%)
  • 15% (more than 530,000) of London households were in fuel poverty, disproportionately impacting disabled people, those on lower incomes, and single parents
  • More than 1 in 5 Londoners had low or very low food security, meaning that at times their food intake was reduced or their eating patterns were disrupted due to lack of resources

Since the start of the pandemic:

  • The increase in in- and out-of-work benefits claimants has been around two times higher among the 20% most income-deprived communities compared to the least deprived
  • More than 2 in 3 Londoners reported increases in their cost of living during the first months of 2022, mostly as a result of rising food prices and gas and electricity bills
  • 1 in 4 of those experiencing a rise in the cost of living report using their savings to cover the increased spending, and 15% are going further into debt
  • Estimates show that by April 2022 more than 38% of Londoners
    (3.6 million) will live below the Minimum Income Standard (MIS), up from 35% before the pandemic

Poverty was a serious issue in London prior to the pandemic, and many struggled with the costs of housing, heating and food. Despite higher incomes, more expensive housing means that the 2019/20 (pre-pandemic) poverty rate in London almost doubles when housing costs are taken into account (from 16% to 27%), making London the region with the highest poverty rate in the UK.

Poverty rates are even higher in Inner London (30%), where they are 5 percentage points above many parts of the North of England. For some groups, the rate was even higher; for example, the poverty rate amongst non-White households in London was 39%, and for single parents it was 53%. (1) Poverty rates varied significantly across London’s boroughs and high levels meant that many were already struggling to afford basic living costs before the pandemic, such as fuel poverty: (2)

  • 15% of London households (more than 530,000) were experiencing fuel poverty in 2019
  • 1 in 5 neighbourhoods had fuel poverty rates of 19% or above, with some reaching as high as 37%
  • The neighbourhoods with the highest proportion of residents in fuel poverty are concentrated in East London, with some pockets in the North West and South

Figure 1: Fuel poverty across London (2019)

In 2019, more than 12% of Londoners were unable to keep their houses warm in winter. As Figure 2 shows, this proportion was more than three times higher for Londoners out of work due to long-term sickness or disability, and more than twice for those with income in the lowest 20%, those renting from a Housing Association or Trust, single parents with children, and the unemployed.

Figure 2: Percentage of adults in London unable to keep their house warm in winter for different socio-demographic groups: 2018/19 (2018/19)

Many Londoners were also struggling to afford adequate food before the pandemic. More than 1 in 5 Londoners had low or very low food security, meaning that at times their food intake was reduced or their eating patterns were disrupted because of a lack of resources. (3) This rate was more than three times higher for Londoners out of work due to a disability or a long-term health condition (3 out of 5 of whom experienced low or very low food insecurity in 2019), and around two times higher for single parents with children, those living in households in the lowest income quintile, unemployed or of Black, African, Caribbean or Black British ethnicity.

Figure 3: Percentage of adults in London living in low or very low food security for different socio-demographic groups: 2018/19 (2018/19)

More Londoners, in and out of work, are now relying on benefits to make ends meet - and the benefits cap is starting to bite

Although comprehensive data on the evolution of Londoners’ incomes during the pandemic is not yet available, we know this period saw a substantial increase in the number of Londoners relying on benefits to make ends meet. This includes an increase in the recipients of both out-of-work benefits, as people lost their employment, and in-work benefits, as people saw their hours and pay reduced during the pandemic. In both cases, this increase has been significantly higher in neighbourhoods that were more income- deprived before the pandemic.

Between February 2020 and August 2021, the increase in out-of-work benefit recipients among the 20% most income-deprived communities has been two times higher than among the least deprived ones. As a result, by August 2021 the proportion of adults claiming out-of-work benefits in London’s most deprived communities (just below 18%) was twice as high as the proportion in the least income-deprived ones (9%). (4)

Figure 4: Working-aged Londoners on out-of-work benefits by deprivation quintile: February 2020 - August 2021 (February 2020 - August 2021)

A similar picture emerges when looking at the claimants of in-work benefits, whose increase was two times higher among the most income-deprived communities as in the least deprived ones. In the former, the proportion of working age adults receiving in-work benefits rose steadily from 2.7% in February 2020 to 7.9% in August 2021, whereas in the latter it increased from around 1.4% to 4% over the same period. (5)

Figure 5: Working-aged Londoners on in-work benefits by deprivation quintile: February 2020 - August 2021 (February 2020 - August 2021)

As the number of people receiving in- and out-of-work benefits has risen so sharply, so has the number of Londoners affected by the benefit cap. In fact, this number has almost tripled from just below 20,000 in August 2021 to just below 60,000 in August 2021. (6)

Figure 6: London households affected by benefit cap: August 2013 - August 2021 (August 2013 - August 2021)

Recent inflationary pressures are reducing Londoners’ real incomes, in a trend set to continue throughout 2022

After an initial dip, nominal wages in London rose steadily until the summer of 2021, at a quicker pace than prices, so that by June 2021 real wages had increased almost 5% from February 2020. Since then, inflation has outpaced the increase in nominal wages and real wages have declined quite significantly, with the increase since February 2020 being 2 percentage points lower in February 2022 than in June 2021. (7) The Bank of England’s forecasts for the United Kingdom as a whole predict real wages will continue to fall throughout 2022, as prices continue to rise faster than nominal wages, whose growth is expected to halt. (8)

Figure 7: Change in wages and inflation during the pandemic: February 2020 - February 2022 (February 2020 - February 2022)

Just comparing official inflation measures to median wages, however, underestimates the hit to the living standards of those on the lowest incomes. Modelling by the Institute for Global Change estimates that in the fiscal year 2022/2023 those in the lowest income deciles will endure an inflation rate above 7%, compared to less than 5% for the richest three income deciles. This disparity arises due to large increases in energy prices, with households in the lowest income deciles spending a higher proportion of their income on energy. As a result of the higher rate of inflation, lower increases in nominal incomes, and more dependency on benefits (which are set to experience a below-inflation yearly rise) the poorest 10% of households are projected to suffer a 4% drop in their real incomes, the highest of any income group in the country. (9)

As their real incomes fall, Londoners are struggling with the cost of living and their finances are deteriorating

A range of sources are pointing to the impacts of the falls seen in real incomes. For example, following the definition of poverty developed by the Social Metrics Commission. (10) The Legatum Institute estimates that poverty rates in London have remained the highest in the country during the pandemic, but without significant variation. The poverty rate increased from 28.8% in the 2019/20 financial year to 29.3% in Q2 2020, and is then projected to fall to 28.1% by Q2 2022. (11)

The report highlights that these changes are driven by a combination of this seemingly flat tendency is the result of:

  • the negative impact of the labour market, which by Q2 2020 pushed 230,000 more Londoners into poverty, down to 70,000 by Q2 2022, and
  • the protection offered by the Government, through temporary and then permanent changes to the benefit system, which lifted 130,000 Londoners from poverty in both periods.

Nevertheless, the report warns of the negative impact that rising prices may have on people’s living standards, since even if their income is not affected in nominal terms, they may see their purchasing power significantly reduced.

According to modelling from the New Economics Foundation by the second quarter of 2022, 38% of residents in the capital (some 3,600,000 Londoners) will live below the Minimum Income Standard. (12) Not only is this rate 4 percentage points higher than the UK average, but those living below the MIS in London are further away from it than those in other regions, falling short by more than £10,000 on average. This highlights the depth of the cost of living crisis in the capital.

Now, polling from the ONS has shown that more than 2 in 3 Londoners (67%) reported increases in their cost of living in the first months of 2022. (13) 86% of those experiencing increases to their cost of living report the rising price of food as a reason, and for 8 out of 10 one of the causes was higher gas and electricity bills, even before the 54% increase to the energy cap in April. The rises in food prices and energy bills

are common to the rest of the country, yet there are some specific dimensions to the cost of living crisis in London. Londoners experiencing increases to their cost of living are less affected by the rising cost of fuel, but suffer more from increases in the cost of public transport, as they are more dependent on it for their mobility. Additionally, those struggling with the cost of living in London are more likely to report rising housing costs as a reason than those who live in England as a whole. This is in line with the significant impact of housing costs on poverty rates in the capital before the pandemic.

Figure 8: Self-reported reasons for increases in cost of living: January - February 2022 (January - February 2022)

More than 1 in 5 Londoners were already experiencing food insecurity before the pandemic. This means that the rise in the price of food, (up more than 5% between June 2021 and February 2022) across the UK, is of particular concern. (14) During the pandemic the number of Londoners relying on food-banks to put food on the table has increased significantly, and more intensely than in the rest of England. Between April and September 2020 Trussell Trust food banks in London distributed 210,000 food packages to people in the capital, more than twice as many as during the same period in 2019. The situation improved in 2021, but remained worse than before the pandemic. The number of food packages per 100,000 households is now higher in London than in the rest of England. (15)

Figure 9: Food packages distributed by food banks: 2019 - 2021 (2019 - 2021)

Data from the UK CPI shows that the prices of electricity, gas and other fuels have increased much faster than nominal wages, being up 23% in February 2022 compared with a year earlier. (16) The Resolution Foundation (17) and the Joseph Rowntree Foundation (18) forecast that these increases, together with the additional rise in April, will have a disproportionate impact on those on lower incomes. It is thus likely that the proportion of Londoners in fuel poverty and struggling to keep their houses warm will increase over the coming months.

Regarding housing costs, data from the Homelet Rental Index indicates that in February 2022 the average rent (£1,757) was almost 12% higher than a year before (£1,572), the highest increase in England and significantly above increases in nominal wages over the same period. (19) To put these figures into context, between October 2020 and September 2021 the average rent for a one-bedroom house or flat in London already represented 45% of the median pre-tax pay across the capital, and as much as 70% in Westminster, (20) where rents are up 24% in the last year. However, there are many independent foodbanks, both in London and in the rest of the country, whose work is not captured by this data.

With the highest poverty rates of the country pre-pandemic, and those living below the Minimum Income Standard falling shorter than other regions, this generalised increase in the cost of living is putting households’ finances in an even more perilous situation. In the first months of 2022, almost 1 in 4 (24%) households in London reported being unable to afford an unexpected but necessary expense of £850. In fact, 1 in 4 (24%) of Londoners struggling with the cost of living reported resorting to savings in response to rising prices. (21)

In a context where the richest 10% of Londoners hold almost half (44%) of London’s wealth and the poorest 10% own none of it, the cost-of-living crisis is pushing Londoners in the most precarious financial situations further into debt. (22) An estimated 15% of those reporting increases in their cost of living are taking on more credit than usual, and 9% are borrowing money from friends and family. These figures are concerning when considering that increased indebtedness can deepen poverty (by reducing people’s disposable income). This tends to make it more difficult to recover financially, as it creates a debt-trap where servicing existing debts makes households more likely to take on further debt to cover their living costs. (23)

Figure 10: Self-reported responses to increases in cost of living: January - February 2022 (January - February 2022)

The wellbeing of Londoners has significantly deteriorated during the pandemic

Given the range of health, social and economic consequences of the pandemic, it is no surprise that Londoners’ wellbeing has been negatively impacted by the pandemic. Self-reported levels of life satisfaction in 2020/21 fell by 4% in comparison to 2018/19, and self-reported levels of anxiety increased by more than 9%, in both cases to levels not seen since 2011/12. Whilst these impacts are seen across the whole of the UK, London already had lower levels of happiness, life satisfaction and worthwhileness and higher levels of anxiety than the rest of the country. (24)

Figure 11: Change in self-reported well-being during the pandemic: 2019/20 - 2020/21 (2019/20 - 2020/21)

END NOTES

  1. Households Below Average Income’, 2019/20, DWP. Three-year averages have been used to ensure sufficiently large sample sizes
  2. Department for Business, Energy and Industrial Strategy - Sub-regional fuel poverty data, 2019
  3. Food insecurity in London: headline findings from the Survey of Londoners (2019), Greater London Authority
  4. Calculations use the following datasets: Combination benefit data, DWP via StatXplore; Mid-year population estimates 2020, ONS; English Index of Multiple Deprivation (2019), MHCLG
  5. Calculations use the following datasets: Combination benefit data, DWP via StatXplore; Mid-year population estimates 2020, ONS; English Index of Multiple Deprivation (2019), MHCLG
  6. Benefit Cap - Point in Time Caseload via Stat-Xplore, DWP
  7. ONS Consumer price inflation tables, Earnings and employment from PAYE Real Time information
  8. https://www.bankofengland.co.uk/-/media/boe/files/ monetary-policy-report/2022/february/monetary-policy- report-february-2022.pdf
  9. https://institute.global/policy/poorer-households-face- worst-living-standards-shock
  10. Regional disaggregation of the “Households Below Average Income” datasets by the DWP data during the pandemic have not been published, amid concerns about the reliability of the data collected in the context of the pandemic and lockdowns, which impedes an update of the pre-pandemic poverty rates referred to above.
  11. Poverty in London, before and during the Covid-19 pandemic, May 2022
  12. https://neweconomics.org/2022/03/23-4-million-people- unable-to-afford-the-cost-of-living
  13. Impact of increased cost of living on adults across Great Britain: November 2021 to March 2022, ONS
  14. Consumer price inflation tables, ONS
  15. We focus on the Trussell Trust because of the regularly updated datasets they make available and their comprehensive network of foodbanks across the country, which facilitates regional comparisons.
  16. Consumer price inflation tables, ONS
  17. https://www.resolutionfoundation.org/publications/bills- bills-bills/
  18. https://www.jrf.org.uk/press/rising-energy-bills- devastate-poorest-families
  19. https://homelet.co.uk/homelet-rental-index
  20. Data accessed from London's Poverty Profile based on analysis on the following data sources: Private rental market statistics (October 2020 - September 2021), ONS and Annual Survey of Hours and Earnings (2021), ONS via NOMIS
  21. Impact of increased cost of living on adults across Great Britain: November 2021 to March 2022
  22. Data accessed from London's Poverty Profile based on analysis on the Wealth and Assets Survey (Round 7), ONS.
  23. Poverty, debt and credit: An expert-led review, University of Bristol
  24. Personal wellbeing by local authority (2021), ONS