Our economy 2022: Cost of living and income

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Our Economy 2022 : Cost of living and income

Data on how incomes have changed in the North East LEP area alongside increased inflation

Introduction

This page uses a range of data sources to understand how inflation may be impacting incomes in the North East. It examines how inflation is reducing overall spending power, and how different sectors and occupations have experienced different levels of wage growth over the past 5 years.

One of the key data sources is the annual survey of hours and earnings, which is the most comprehensive source of pay data by sector and occupation in the UK. This has been used to analyse what proportion of the North East’s workforce are employed in occupations and sectors with the highest median salaries.

Other data sources covered include economic inactivity in the North East LEP area, which has increased significantly in the North East LEP since the onset of Covid-19, as well as data on the receipt of state support and pension scheme participation.

10%

31%

25%

Inflation and income

The recent increases in inflation in the UK have been considerable, with the Consumer Price Index reaching 10% in September 2022, the highest rate in the UK since 1982^[1].

This has significant consequences for individual’s spending power. The relatively low cost of living in the North East means that individual’s incomes may better insulated in some cases. Monthly salaries in the North East are 7% lower than the UK average, but the average weekly expenditure per household is 12% lower - highlighting the lower cost of living in the North East. Since September 2021 gross monthly earnings in the North East have increased by 7% for full-time employees, meaning that they have declined in real terms.

However, over the long run, wage growth in the North East has been slightly slower than in the UK overall, with median salaries for payrolled employees growing by 31% since 2015 compared to 33% in the UK. This is slower than the rate of increase in the price of electricity, gas and other fuels over the same period (88%) as well as the cost of transport services (+43%).

Wage growth also does not directly help those who are not in employment, and the North East has a particular problem with economic inactivity, which has risen considerably since the onset of Covid-19.

^{^}Office for national statistics, Consumer Price Inflation - September 2022

Income growth by sector and occupation

In terms of high-level sectors, the North East has a higher proportion of residents employed in health and care, accommodation and food services than the national average. Accommodation and food services has seen significant wage growth since 2015, linked to the fact many workers in this sector were furloughed during the Covid-19 pandemic. However, this was still the UK sector with the lowest average earnings in 2022. The North East also has fewer residents employed in high paying sectors such as finance and insurance and information and communication.

In terms of occupations, the North East has fewer individuals employed in managerial and professional occupations than the rest of the UK, only 21% of those in employment were classed as in professional occupations compared to 26% of those in the UK. These occupations have seen relatively low wage growth since 2015, however, in absolute terms the median salaries of those in these occupations are at the higher end of the income scale.

Benefits and pensions

The out of work claimant rate in the North East in recent months has been relatively low compared to levels seen in previous years. Only 3.9% of working age adults were claiming out of work benefits in September 2022, slightly more than in England excluding London and far less than at the same point last year. This is positive as those on out of work benefits may struggle with inflation as high as it is currently, although it should be noted some of the reduction will be due to adults moving from unemployment to economic inactivity and therefore no longer claiming.

According to the Department of Work and Pensions, the North East is the region with the highest level of families receiving at least some state support, with 60% of families receiving income support of some kind. This was slightly less than in 2014/15 which is likely partially because the criteria for receiving support have changed since then. The most common forms of state support received in the North East were state pension (24%), universal credit (20%) and council tax reductions (20%). Families may have their incomes at greater risk if they are unable to rely on employment income alone to meet their needs.

The North East region also has the lowest proportion of adults participating in a workplace pension scheme. This is linked to lower rates of employment in the North East, the participation rate amongst those in employment (78%) is the same as the England average. Lower employment rates also means that participation has not increased as much in the North East since the introduction of auto-enrolment in 2012. This highlights that fewer of those reaching the end of their working lives in the North East may be in a strong position to support themselves financially in the context of the rapid increase in prices seen over the last year.