On average, families this year, [will be] £2,620 worse off under these Tories. That is the cost of the Tories.”
In a speech launching Labour’s local election campaign, and on Twitter, party leader Sir Keir Starmer said that families would be an average of £2,620 worse off this year under the Conservatives.
The Shadow Chancellor Rachel Reeves made the same claim on Sky News. And it has also been widely used by the Labour Party on Twitter and Facebook, and been reported in the Mail, the Evening Standard, the Independent, the Mirror, the Guardian, Sky News, the New Statesman, the Week, the Metro, the Express, the Times and the Morning Star.
This figure of £2,620 is not correct. It was calculated using flawed assumptions and does not appear to take account of any rises in wages or benefits which have also taken place.
Full Fact has asked Labour four times to share details of how the figure of £2,620 was calculated. At the time of writing, it had not responded. However, the Guardian has reported where the figure comes from, and highlighted some of its shortcomings, as has the BBC.
The average household in the UK is expected to be significantly worse off this year. But a better estimate, using official statistics, suggests that the true loss of living standards would be worth roughly a third of Labour’s estimate, or about £700-800.
Where did £2,620 come from?
According to reports in the Guardian, BBC News, Metro and a graphic shared on Twitter by shadow business minister Seema Malhotra, the Labour estimate of £2,620 is the total of five smaller estimates for different cost rises for the average household in 2022.
These are:
- tax rises: £1,060
- energy £690
- petrol £300
- food £275
- mortgage £295
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.
How much households can afford to buy is affected by changes in earnings, taxes, benefits and prices. Labour’s figure only takes into account some price increases and tax rises. It doesn’t appear to include any changes in wages or benefits at all—and both the cash value of wages and benefits are rising for some people, including wages of people employed by the government.
As Labour has not replied to us, we also don’t know whether its estimates account for the Energy Bills Rebate (some of which will be repaid to the government). The Office for Budget Responsibility (OBR) said last month: “Taking account of both energy and non-energy pressures on household incomes, the policy measures announced since October offset a third of the overall fall in living standards that would otherwise have occurred in the coming 12 months.”
In Mr Starmer’s speech, he said that the government’s response to the cost of living crisis was “to take more than they give, to take more, so on average, families this year, £2,620 worse off”.
But none of the “giving” has been accounted for in that £2,620 figure.
What about the actual numbers?
There are also problems with some of Labour’s cost estimates themselves.
For example, the Guardian reports 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.
Although some people’s housing costs will rise for other reasons, for instance because of rises in rent, Labour’s assumption that the average household in the UK has the equivalent of a £100,000 variable-rate mortgage does not seem reliable.
Labour’s estimated tax rise is also not reliable if it is based, as the Guardian reports, 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.
While many of these price rises are happening “under” the Conservative government, it is also questionable whether some are truly the “cost of the Tories”.
Some reflect rising inflation, which is currently a problem in many countries. The cost of variable mortgages is ultimately influenced by the Bank of England, an independent body, when it adjusts the Bank’s interest rate. And the price of domestic energy is currently effectively set by the independent regulator Ofgem through a price cap, which was raised in April.
How will household budgets be affected in 2022?
In a report that includes the forecast effects of the Chancellor’s Spring Statement, the OBR specifically estimates the change in living standards over the next year.
This takes into account earnings, taxes, benefits and prices, to give a comprehensive measure of how households’ purchasing power is expected to change.
It says: “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.”
Using estimates from the Office for National Statistics for median household disposable income in 2020/21, which are the latest figures available, a real fall in household disposable income of 2.2% would mean households being approximately £700 worse off in 2022/23.
As the OBR says, this is a very substantial fall indeed. But Labour’s estimate is still roughly three or four times too large.