Our economy 2022: Cost of living and household spending

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Our Economy 2022 : Cost of living and household spending

How are North East households being affected by recent increases in the costs of living? What changes in regional patterns of expenditure is this likely to lead to?

Introduction

Households across the UK have been affected by higher costs of living in 2022 than in previous years. In the North East, on average, household expenditure is more concentrated on items that currently have high inflation rates. Hence, it is likely that the impact of the increased cost of living is greater for many in the region than elsewhere.

Key data sets used in this section include those from the annual Office for National Statistics (ONS) "Family Spending" publication, which is based on responses to the Living Costs and Food Survey. The latest regional data from this source is for the year ending March 2021. More up to date statistics in this section come from the monthly UK inflation rate publication, which gives national data only but provides rates for many goods and services.

An ONS publication based on responses to the regular Opinions and Lifestyle Survey provides information broken down into characteristics of different households including the region of residence. This gives a timely snapshot of experiences and responses to changes in the cost of living. Foodbank statistics from the Trussell Trust also provide up to date trends data for this section.

Overall spending

The latest available regional household expenditure dataset is for the financial year ending in March 2021. In that period, the average weekly total expenditure of North East households was only about 83% of the average across the UK.

Because of the lower total expenditure, North East households are more likely to spend a higher percentage of their total on essential items. In 2020/21 they spent, on average, 12.6% of the total on food and non-alcoholic drinks and 14.4% on transport, compared to 11.7% and 13.7%, respectively, nationally. About 13.7% was spent on housing and utilities, but, because of higher housing costs elsewhere, this was smaller than the national percentage (14.9%).

The current (September 2022) UK annual inflation rate is highest for food and non-alcoholic drinks (14.6%) and transport (10.9%), among the 12 broad categories of goods and services. As these make up a larger percentage of North East expenditure than nationally, these inflation levels have a greater impact on the region's households than they do elsewhere.

In the latest ONS public opinions and social trends survey, about 88% of North East adults reported that they had experience a cost of living increase, a similar percentage to nationally. About 92% of these people have identified a rise in food prices in the North East, with 80% citing increased gas and electricity prices and 74% experiencing increased transport fuel prices.

In response, almost three-fifths of North East adults experiencing a higher cost of living plan to spend less on non-essentials, with about 45% spending less on food and essentials. About 19% plan to use savings in response, with 17% planning to use credit more than usual. Both of these percentages are higher than the national equivalents.

Spending on food

The latest data has annual inflation rates of more than 25% for many individual food products, including milk, butter, margarines, flours and cereals, supplies of which have been affected by the Russian invasion of Ukraine.

Together these goods represented about 2.5% of average North East household expenditure in 2020/21, so recent large price increases have had an impact on family budgets in the region. In response, about 45% of the North East adults currently experiencing a cost of living increase intend to spend less on food and other essentials. This is the joint third highest percentage among English regions.

The number of Trussell Trust food parcels issued in the North East in May to September 2022 was higher than in the same period of the prevous peak year of 2020, when families were affected by Covid-19. The latest total was 55% higher than in May to September 2021, the largest annual percentage increase among the nine English regions. The increase in North East food parcels to children had an even sharper increase (up 61%).

Housing related spending

Almost 5.8% of average North East weekly household spend in 2020/21 was on net rent. This was a smaller percentage than nationally (almost 7.2%) but an additional 6.8% of North East spend was on water supply, electricity, gas and other fuels for the household, a higher percentage than nationally (6.2%).

The latest (September 2022) annual inflation rates for domestic gas and electricity were 96% and 54%, respectively, so given the higher percentage of spend on these products, the high rates have a particularly strong impact for many North East households.

In a recent survey, about 9% of North East adults reported that they were behind with their gas or electricity bill payments, the joint highest regional percentage. On the other hand, only about 1% stated that they were behind on mortgage or rent payments, the joint lowest regional percentage.

In the same survey, almost half of North East adults reported some difficulties with paying gas or electricity bills, with over 30% reporting difficulties with mortgage or rent payments. Both percentages were slightly higher than the national equivalents. Over half of North East adults affected by the increased cost of living intend to use less fuel in their home than previously.

Spending on transport

About 4.0% of average North East household expenditure in the latest data (2020/21) was on petrol, diesel and other motor oils. In addition, the cost of new or second-hand vehicles, when averaged over a week, represented 5.8% of expenditure. These percentages were higher than the UK equivalents (3.4% and 5.1%, respectively).

The higher share of expenditure in the North East means that the high inflation rates for petrol (23%) and diesel (32%) have a particularly large impact in the region. This is reflected in the plans of 48% of adults experiencing cost of living rises to cut back on non-essential journeys in their private vehicle. The inflation rates for fuel mean that, when interviewed between June and September, about 13% of North East adults reported that they had noticed a recent increase in public transport costs. This was the highest percentage outside of London.