New research suggests that, although many of the costs associated with living in London are similar to the rest of the UK, a minimum socially acceptable standard of living is substantially more expensive in the capital. Matt Padley summarises the findings.
Since 2008, the Centre for Research in Social Policy has published annual reports looking at what the public say is needed for a minimum socially acceptable standard of living in the UK and at what this living standard costs for a range of different household types. The Minimum Income Standard (MIS) is based on detailed discussions with members of the public about the goods and services that different households in the UK need in order to reach an acceptable standard of living that covers essential needs and enables participation in society.
Our latest research, funded by Trust for London, builds on this on-going programme of research, for the first time systematically looking at the difference in minimum costs between London and elsewhere in the UK. The research brought together groups of Londoners from different backgrounds and socio-economic groups to consider what a range of households in Inner and Outer London need for a minimum acceptable standard of living. Although many of the goods and services needed to reach this standard are the same as those elsewhere in the UK – and cost the same – there are key differences which have a dramatic impact on the minimum cost of living in London.
Some of these differences are related to prices: the price of public transport, housing and childcare all contribute to the additional cost of a minimum budget. The biggest additional cost in London, as might be expected, relates to housing, but childcare is also significantly more expensive in the capital for those who need it – a three hour nursery session in London costs more than a three hour nursery session in Stoke. Some differences are related to the unique infrastructure of London, most notably the public transport network which brings with it different and additional costs. And some of the differences are related to ways of living in the capital that are, in some respects, different from elsewhere in the UK: this is not about a minimum living standard that is higher in London, but rather reflects, for example, a lack of space for entertaining friends which may necessitate eating out cheaply more often rather than sharing a takeaway in your home.
The impact of all of these differences on what households need in order to have this minimum standard of living is stark. Figure 1 shows some of these differences for three selected household types. A couple with two children (aged 3 and 7) living in Inner London need around £164 a week (22%) more – including the cost of social rent and childcare – than their counterparts living outside of London for a minimum socially acceptable standard of living; in Outer London the figures are very similar – a family of four need £157 (21%) more each week. Lone parents with a young child under two require £134 (25%) more in Inner London and £125 (23%) more in Outer London in order to reach this minimum standard. When a private rent for a studio flat is taken into account, this living standard costs 47% more for single working-age adults in Inner London – about £131 a week more than elsewhere in the UK. In outer London, single adults need 35% more (£97 a week).
Figure 1: the additional weekly costs of a minimum standard of living in London
Notes: Out of London costs based on urban areas; rents and childcare costs are averages for East Midlands. Rents assume private (lower quartile) rent for single person, average social rent for households with children. Childcare costs based on parents working full-time
What is clear is that the cost of a minimum standard of living, as defined by the public, is higher in London. For families with children, much of this difference is driven by the additional costs of childcare, although higher transport and housing costs also contribute. For single working age adults, the higher costs of a minimum are overwhelmingly driven by housing.
These higher costs means that a minimum standard of living in the city will be unaffordable for a significant proportion of the population: we estimate that around 1 in 3 Londoners do not have the income needed for this standard of living, rising to 4 in 10 for families with children, and around 1 in 5 for pensioners. To put this another way, there are many individuals and families currently working and living within the capital who, on a daily basis, will have to make decisions about what to prioritise as they do not have enough to reach what the public define as a minimum standard of living. Reaching a minimum is particularly difficult for those working at or around the National Minimum Wage (NMW) in London, as Table 1 shows. Indeed, a single parent with one child is actually nearer to reaching the minimum budget on safety-net benefits than they are on the NMW.
Table 1: Londoners’ income compared to MIS: benefits, minimum wage
So what can be done to address the higher cost of a minimum in London, to ensure that the city remains a place where people of all incomes can live and thrive? Increasing the number of employers who are paying the London Living Wage would go some way to ensuring that more people living within the capital are able to afford this minimum standard of living. There are examples of innovative ideas to encourage the adoption of the Living Wage across London councils: for example, Brent became the first council in the country to offer firms a discount on business rates if they became living wage employers.
But it is not enough to just tackle wages. Costs need to be addressed as well, particularly in relation to housing, transport and childcare. As on the wages side, there are examples of moves that have been made to address costs: Transport for London have introduced a range of discounted and concessionary fares for people looking for work or in apprenticeships. But much more could be done. The construction of genuinely affordable homes and public investment in social housing could assist with high housing costs. Improved and increased bus routes across the city could cut the high cost of travel. An increase in the childcare offer (from 15 to 30 hours a week) could help lower the cost of childcare, but may also have a knock-on impact on maintaining low wages within this sector.
Samuel Johnson claimed that ‘there is in London all that life can afford’. What our research has highlighted is that there is much that needs to be done to ensure that as many as possible are able to afford that London life.
Note: This article gives the views of the author, and not the position of the British Politics and Policy blog, nor of the London School of Economics. Please read our comments policy before posting.
Matt Padley is Senior Research Associate at the Centre for Research in Social Policy at Loughborough University and a Lecturer for the Open University.
Are there any figures on how much this is costing the taxpayer – in terms of in-work benefits such as Housing etc?
A good article drawing the attention to the issue that cost of living us out of kilter with income but ignores a few key facts.
“Notes: . Rents assume private (lower quartile) rent for single person, average social rent for households with children. Childcare costs based on parents working full-time”
I think you are under estimating the average rent. Only a quarter of people who rent can be in the lower the lower quartile of rent!
Assuming that families live in social rented homes(with very low costs I think it is 60% of market rent) hides large parts of the population in the private rented sector (PRS) at much higher housing costs. Home ownership for post baby boomers is simply beyond most. With little new council homes and little change in existing tenants then the Social tenents will be beyond child rearing age. If someone is of childrearing age will most likely be in the PRS and gave much higher cost of living. The PRS should definitely be analysed seperately.
The artical implies that giving more income to the people affected will solve the issue. Unfortunately we have a huge housing shortage and rent levels in PRS are determined by a process of supply and demand. The landlords rents out to the wealthiest based upon who can pay the most. Throwing more money into a market without increasing supply simply pushes up rents; the income goes directly to the landlord and the person you are trying to help simply has higher income but also higher housing cost. This disadvantages the those just above that level of income who are then forced accept higher rents to compete. The problem can actually get worse; more people paying higher rents.
There is only one way to resolve the issue in London and it is to lower the cost of living. This requires to over supply homes. This pushes down rents, and creates a gap between living cost and income.
What is required is that government to get serious about building homes faster than households form. This is not easy but without it the suppy of homes will outstripping number of families and rents will eat up most of people income; no matter what other policies dictates.
Unfortunately, none of the political parties are serious about increasing supply of homes. They may say thing that sound positive but are really just token gestures.
The real policies would be unpopular; they would require governmemt to stand up to NIMBYs and local council who don’t want addition homes in there area. It would change brownfield first rules; ensure that land for building was inexcess of 10 years supply including resolving the backlog (the time required to build the homes). A review of greenbelt policies. Huge investment in infrastructure to open up land not practical for housing.
Instead every policies announced appears to mention the limited available brownfield sites(and therefore a very limited solution) more often than housing. Or simply throws more money at the problem forcing up costs but doing nothing for supply.
Or the announcement is simply aimed at distracting attention, blame others for a few thousand empty homes when we need millions, blame builders for not building sites quicker than the market dictates. Or preventing foriegners from funding construction of the needed homes.
It is time the government was serious about reducing the cost of living and therefore poverty. Unfortunately I do not see any party being willing to take the side of the poor. It far easiest to win votes for the baby boomers and grey votes who would not want see more homes in the area; or rents and house prices falling. Then deflect criticism with a few token affordable homes and some photos of one of the few young families to benefit for this token scheme.
Whilst “improved and increased bus routes across the city” would always be welcome, it is not immediately obvious how these would “cut the high cost of travel”, since this is dependent on the fares and ticketing policy. There is a flat rate fare of £1.50 for any bus journey in London, irrespective of its length, and a daily cap of £4.40 for bus and tram users – i.e.less than the cost of three bus rides. Data on the cost of bus travel per mile are not available nationally. Average bus journey costs outside London are higher, but this is probably due to the fact that fares there vary with journey length and journeys are typically longer. London is certainly an expensive place to live, but I am sceptical about the extent to which bus travel is a contributory factor. Rail fares are a different matter …
There are a number of flaws in the methodology behind the research. I will highlight one specific aspect relating to costs for a single working person: the assumption that the norm is for a single person to live in a 1-bed flat. This ignores the trend in London lifestyle with huge growth in flatshares in London over the past decade. The norm for young working professionals is to share a 2-bed or 3-bed flat/house with other working professionals. Websites like spareroom.co.uk advertise hundreds of double rooms in decent quality flats/houses shared with a total of up to 3 people with shared lounge, in zones 1-2, in the price range £130-£160pw inclusive of council tax and utility bills. Young professionals with friends and acquaintances can rent an entire 3-bed flat via Rightmove.co.uk for the lower end of this price range, per person, exclusive of council tax and bills. Quality of housing can be increased or rental costs can be reduced significantly by living in zone3. Rental can be reduced further if the lounge is used as a large bedroom, as is common for flatsharers in central London. Central London covers a large area. Provided one lives within walking distance to a tube station, and in the section of zone 3 close to the workplace in zones 1-2, the commute can be kept within 30-45 minutes – the typical commute for most working professionals in London, including those on higher income owning their property and with a family.
Finances will still be tight for young professionals in London earning below the median national income. The important policy objective should be to ensure it is a transitional phase in their working life, with prospects for career and wage improvements over time.