Development of regional household expenditure measures

• In September 2018, we published our first experimental estimates of household expenditure for the Nomenclature of Units for Territorial Statistics (NUTS) level 1 countries and regions of the UK, with an article describing the concepts, data and methods used to produce them; we have now updated those results and have provided the first estimates for NUTS level 2 sub-regions.

• In 2018, the highest national expenditure per person of the four countries of the UK was in England at £20,750, followed by Scotland at £19,346; the lowest was in Northern Ireland at £17,449, with Wales at £17,568.

• In 2018, the highest households’ saving ratio of the four countries of the UK was in England at 6.6%; the lowest was in Wales at negative 0.3%.

• In 2018, the highest national expenditure per person of the nine English regions was in London at £25,785, followed by the South East at £24,246; the lowest was in the West Midlands at £16,701.

• In 2018, the highest households’ saving ratio of the nine English regions was in London at 16.4%, followed by the West Midlands at 11.5%; the lowest was in the South West at negative 1.4%.

• In 2018, the highest national expenditure per person of the NUTS2 sub-regions of the UK was in Inner London – West at £40,322, followed by Outer London – South at £27,279; the lowest was in the West Midlands (metropolitan county) at £14,857, followed by Tees Valley and Durham at £16,645.

• In 2018, the highest households’ saving ratio of the NUTS2 sub-regions was in Inner London – West at 24.4%, followed by Inner London – East at 20.4%; the lowest was in Hampshire and Isle of Wight at negative 9.6%, followed by Cornwall and Isles of Scilly at negative 7.9%.  

With increased devolution of powers to local and combined authorities within the UK, the need for statistics to monitor and inform policy at a regional level has also been increasing to an unprecedented level. Users of regional statistics have been telling us for years that they need more and better data, and the recent review of economic statistics by Sir Charles Bean recommended that more should be done to provide statistics for smaller areas within the UK. The UK government’s “levelling up” agenda to address regional inequalities has only served to increase this demand.

We have responded to this need by setting up a devolution project, with around a dozen separate work streams designed to develop and provide the statistics needed by regional and local users. One of these work streams is to develop a regional measure of household final consumption expenditure (HFCE). There are many user needs that can be met through this development, including:

• information on the spending habits of householders, allowing better planning of facilities and infrastructure by local government
• improved investment planning by businesses providing goods and services
• expansion of the household account at a regional level, allowing the derivation of the saving ratio for subnational areas (a useful indicator of prosperity)

At a regional level, we currently measure the income and outgoings of households only as far as gross disposable household income (GDHI). That measures the primary income components, such as wages and salaries and property income, and the secondary distribution of income, such as the effect of taxes on income and social benefits. GDHI is a measure of the amount of money people in households have available for spending or saving.

Regional HFCE takes this to the next stage by measuring how much money people in households spend on each of a range of commodities. Once all spending is accounted for, we are left with a measure of saving.

We measure regional HFCE in two ways, known as the domestic concept and the national concept. Each is measured independently, using data collected according to that concept. The domestic concept measures all spending that takes place in a region, regardless of who is doing the spending. It therefore includes spending by foreign tourists visiting the UK as well as spending by the residents of other parts of the UK, but it excludes spending by residents of the region outside the region where they live. By contrast, the national concept measures all spending by the residents of a region, regardless of where that spending takes place.

Although these experimental estimates are the only regional measures produced on a consistent basis across the whole UK, the devolved administrations of Scotland and Northern Ireland have been independently compiling and publishing estimates of HFCE for their respective countries for several years. While our estimates are still in an early stage of development, you are advised to give more credence to the official Scottish and Irish estimates.

In September 2018, we published our first experimental estimates of household final consumption expenditure (HFCE) for the Nomenclature of Units for Territorial Statistics (NUTS) level 1 countries and regions of the UK, with an article describing the concepts, data and methods used to produce them.

Following this, we carried out a public consultation to gather feedback on the project. We wanted to confirm that there is demand for these estimates and gauge what level of geographic breakdown users are interested in. We also looked to identify any concerns people have with our data sources and methods and to confirm that the variables and level of commodity data provided are suitable for user needs.

We received 14 responses from a variety of organisations, including local and devolved governments and an academic institution, as well as from individuals. Overall, respondents were supportive of further development in regional HFCE estimates. For our experimental data, the responses indicated that the level of commodity detail and the variables presented broadly meet user needs. Most respondents were interested in having data at country, NUTS1 and NUTS2 levels, and all were interested in having local authority level data. We also received suggestions for potential improvements to data sources and methodology.

Regarding geographic breakdown, there was clear demand for multiple levels of geography, including down to local authority level and beyond. However, there were also concerns about the quality and coverage of current data sources, and we recognise the trade-off with quality if we were to produce smaller regions with our existing data.

In accord with the responses we received, we believe the best strategy going forward is to continue to develop the statistics we have already produced. This includes improving the quality of our existing data and continuing to pursue commercial credit and debit card data. We are also looking to explore Survey of Living Conditions (SLC) and Value Added Tax (VAT) enhancements. Changes have been made to the SLC that should improve our modelling using Living Costs and Food Survey (LCF) data. Meanwhile, using VAT data instead of Annual Business Survey (ABS) turnover could give us better coverage and more granularity for regional estimates. Subject to success in these pursuits, we will look to add lower-level geographies when we are confident that the data are sufficiently robust and reliable to meet user needs.

Further details of the issues raised by respondents and the decisions we have taken following the consultation can be found in the consultation response document (DOCX, 26.6KB).

Full details of the data and methods used to produce our first experimental estimates of household final consumption expenditure (HFCE) for the Nomenclature of Units for Territorial Statistics (NUTS) level 1 countries and regions of the UK can be found in the article we published alongside the data.

The first change to note is that we have updated the estimates to take on revised UK data published in the UK National Accounts, The Blue Book 2019 and regional gross disposable household income (GDHI) published in June 2020. This also means the time series now run from 2009 to 2018.

We have also produced estimates for NUTS2 sub-regions for the first time. The Living Costs and Food Survey (LCF), our principal data source for estimates of national expenditure, has its sample designed and drawn at the NUTS2 level. Although the sample size for some NUTS2 sub-regions is rather small, in general we believe the survey data to be sufficient to produce reasonable quality results for a high-level commodity breakdown. Crucially, the NUTS2 sub-regions that are geographically contiguous with combined authorities have relatively large sample sizes, so results for these areas should be more reliable. However, we feel this is as low as we can possibly go without some more comprehensive data source on household spending at a local level.

In Annex A, you can find a summary table showing the achieved sample size of the LCF for each NUTS2 sub-region of the UK. This may be of use in assessing the reliability of results for each area.

For source data, the biggest change we have made is the introduction of turnover provided in Value Added Tax (VAT) returns to replace turnover estimates from the Annual Business Survey (ABS), a major component of our estimates of domestic expenditure. The VAT dataset is a near-census of businesses across the UK and therefore provides much greater coverage than the survey, particularly for small and medium-sized businesses. This change has also allowed us to improve the precision of some detailed industry components, providing a better fit to the commodities of interest.

Other changes to specific Classification of Individual Consumption According to Purpose (COICOP) commodities are:

• Water supply (COICOP 04.4.1) and Sewerage (COICOP 04.4.3): we have made improvements to reflect that residents of Northern Ireland do not pay separately for water and sewerage services (charges being subsumed within their Council Tax payments); for Scotland, we have used data provided by Scottish Water on household revenue for national expenditure at the NUTS1 level, with the NUTS2 allocation using LCF data on water and sewerage
• Hospital services (COICOP 06.3): national expenditure now uses ABS commodity data for NHS receipts to better reflect the regional distribution of spending
• Postal services (COICOP 08.1): domestic expenditure now includes other postal and courier activities as well as universal service to reflect the increased use of delivery services
• Financial Intermediation Services Indirectly Measured (FISIM, COICOP 12.6.1): our source for domestic expenditure only provides data at the NUTS1 level, so for the NUTS2 allocation we have used VAT turnover on banking activities; national expenditure uses data on property income from GDHI to reflect the regional distribution of loans and deposits, but it now only uses property income paid (reflecting mostly mortgage interest payments) and excludes property income received, which is dominated by dividends from share ownership (interest on deposits is now very small)

We have made one change to the commodity list for which we provide estimates. In our first publication, we included a detailed breakdown of the purchase of vehicles (COICOP 07.1), to show separately the amounts spent on motor cars, motorcycles and bicycles. However, the data on purchases of motorcycles and bicycles are quite limited, so we have withdrawn this additional detail and only published combined estimates for purchases of all vehicle types.

In all other respects, the data and methods used remain unchanged from those described in the earlier article. It is worth reiterating here that the regional distribution of spending on narcotics and prostitution services are both driven solely by the adult population and in no way reflect actual regional variation in the use of these commodities.  

We have compiled estimates for the Nomenclature of Units for Territorial Statistics (NUTS) level 1 countries and regions of the UK, for the years 2009 to 2018, which are consistent with the UK National Accounts, The Blue Book 2019 and regional gross disposable household income (GDHI) published in June 2020.

The full set of results, including its detailed commodity breakdown, can be found in the dataset published with this article, which you can download as a spreadsheet. Here, we present a summary of the data showing the main items at a high level, to give a flavour of what is available in the full dataset. All the figures are compiled and presented in current market prices, which do not remove the effect of price inflation.

To begin, it is useful to say a little about what the data mean. The estimates of domestic expenditure relate to all spending that takes place in the region, but they do not necessarily relate to the people who live there, since people can and do travel around the country, spending as they go. It therefore makes little sense calculating domestic expenditure on a per person basis.

National expenditure for a region does relate directly to the spending by the people who live there, so calculating national expenditure per person is useful, as it allows us to compare spending across regions of different size and population. Total national expenditure is also the value that is used in the calculation of the households’ saving ratio.

Where domestic expenditure is useful lies in its use in helping us to derive estimates of net spending flows between countries and regions of the UK. In this, we also need to take into account spending by foreign visitors to the UK and spending by UK residents abroad.

Table 1 shows total national expenditure on all goods and services and national expenditure per head of population for the NUTS1 countries and regions of the UK in 2018 as well as the percentage growth in spending per person between 2017 and 2018. For comparison purposes, the overall rate of inflation for this period, as shown by the Consumer Prices Index including owner occupiers’ housing costs (CPIH all items), was 2.3%.

London had the highest national expenditure per person in 2018 at £25,785, mainly driven by the higher housing costs in and around the capital. The lowest spending per person in 2018 was seen in the West Midlands at £16,701.

In terms of growth in spending per person between 2017 and 2018, the North East had the greatest increase at 6.2%. This growth was seen across a wide range of goods and services, with the most significant increases in the miscellaneous goods and services and restaurants and hotels categories. The lowest growth in spending per person between 2017 and 2018 was seen in Northern Ireland at 0.7%.

We can explore what the people in each country and region of the UK are spending their money on by looking at the broad categories of goods and services. Tables 2 and 3 present these figures on a per person basis for 2018, so we can compare across different areas on a consistent basis.

Here, we can clearly see the much higher housing costs in London and the South East of England. We can also see that spending in the South East is generally high across a wide range of commodities, compared with most other parts of the UK.

London shows a much higher expenditure on education, more than double that of any other region, but also has the lowest spending per person on recreation and culture and on alcohol and tobacco. The West Midlands shows by far the lowest spending on restaurants and hotels as well as the lowest on transport and clothing and footwear. Northern Ireland shows by far the highest spending per person on clothing and footwear.

We have mentioned that having both domestic and national expenditure allows us to estimate the net household spending flows between countries and regions of the UK. Table 4 shows the derivation of these estimates, which are calculated as total domestic expenditure, less spending in the UK by foreign visitors, less total national expenditure, plus spending by UK residents abroad. Positive net spending figures imply that the region is a net exporter of goods and services to the rest of the UK, whereas negative figures imply the region is a net importer of goods and services from the rest of the UK.

We can see that, in 2018, only London, the North West and the West Midlands were net exporters of goods and services to the rest of the UK, although West Midlands has only a very small positive balance. In London, the largest exports are in financial services, recreation and culture, and transport services. In the North West, the largest exports are in gas supply, clothing and transport services.

Having compiled estimates of total household final consumption expenditure (HFCE) by the national concept, we can use these estimates to extend the regional household account from its current end point, gross disposable household income (GDHI), and derive the households’ saving ratio for the countries and regions of the UK. The saving ratio is the percentage of total available resources that is left after all spending has occurred (gross saving divided by total resources). Table 5 shows the stages in this derivation, using data for 2018. The transaction codes shown (B.6g to B.8g) correspond to those used in the UK National Accounts.

We can see that the households’ saving ratio varies considerably across the countries and regions of the UK, with saving in London and the West Midlands being the highest in 2018 at 16.4% and 11.5% respectively. The lowest levels of saving in 2018 were seen in the South West at negative 1.4%, followed by the North East and Wales both at negative 0.3%. These figures compare with a UK average saving ratio of 6.1%.

A negative saving ratio indicates that the residents of the area have spent more money than they have available in that year, reducing the overall balance of savings that they have.

We have compiled estimates for the Nomenclature of Units for Territorial Statistics (NUTS) level 2 sub-regions of the UK, for the years 2009 to 2018, which are consistent with the UK National Accounts, The Blue Book 2019 and regional gross disposable household income (GDHI) published in June 2020.

The full set of results, including its detailed commodity breakdown, can be found in the dataset published with this article, which you can download as a spreadsheet. Here, we present a summary of the data showing the main items at a high level, to give a flavour of what is available in the full dataset. All the figures are compiled and presented in current market prices, which do not remove the effect of price inflation.

Since there are 41 NUTS2 sub-regions in the UK, it would be impractical to attempt to show them all here. We have therefore chosen to show only a summary of the data available for those NUTS2 sub-regions that are geographically contiguous with combined authorities, Local Enterprise Partnerships (LEPs), and other city and enterprise regions of the UK. Note also that the Greater London Authority (GLA) and the London LEP are geographically identical to the London NUTS1 region (UKI).

Of the NUTS2 sub-regions shown in the following tables, Cumbria (UKD1), Cornwall and Isles of Scilly (UKK3), North Eastern Scotland (UKM5), and Highlands and Islands (UKM6) all have relatively small sample sizes in the Living Costs and Food Survey (LCF) (see Annex A for details). Estimates of national expenditure for these areas should be treated with caution, as they may be unreliable.

Table 6 shows total national expenditure on all goods and services and national expenditure per head of population for the NUTS2 sub-regions of the UK in 2018 as well as the percentage growth in spending per person between 2017 and 2018. For comparison purposes, the overall rate of inflation for this period, as shown by the Consumer Prices Index including owner occupiers’ housing costs (CPIH all items), was 2.3%.

In 2018, the highest national expenditure per person of the NUTS2 sub-regions of the UK was in Inner London – West at £40,322, followed by Outer London – South at £27,279; the lowest was in the West Midlands (metropolitan county) at £14,857, followed by Tees Valley and Durham at £16,645.

We can explore what the people in each sub-region of the UK are spending their money on by looking at the broad categories of goods and services. Tables 7 and 8 present these figures on a per person basis for 2018, so we can compare across different areas on a consistent basis.

We have mentioned that having both domestic and national expenditure allows us to estimate the net household spending flows between sub-regions of the UK. Table 9 shows the derivation of these estimates, which are calculated as total domestic expenditure, less spending in the UK by foreign visitors, less total national expenditure, plus spending by UK residents abroad. Positive net spending figures imply that the sub-region is a net exporter of goods and services to the rest of the UK, whereas negative figures imply the sub-region is a net importer of goods and services from the rest of the UK.

Having compiled estimates of total household final consumption expenditure by the national concept, we can use these estimates to extend the regional household account from its current end point, gross disposable household income (GDHI), and derive the households’ saving ratio for the sub-regions of the UK. The saving ratio is the percentage of total available resources that is left after all spending has occurred (gross saving divided by total resources). Table 10 shows the stages in this derivation, using data for 2018. The transaction codes shown (B.6g to B.8g) correspond to those used in the UK National Accounts.

In 2018, the highest households’ saving ratio of the NUTS2 sub-regions was in Inner London – West at 24.4%, followed by Inner London – East at 20.4%; the lowest was in Hampshire and Isle of Wight at negative 9.6%, followed by Cornwall and Isles of Scilly at negative 7.9%.

A negative saving ratio indicates that the residents of the area have spent more money than they have available in that year, reducing the overall balance of savings that they have.

Owing to the impact of the coronavirus (COVID-19) pandemic, our regional development programme has been delayed, so we are unable to say with any certainty when these experimental statistics will next be updated. What we can say is that we recognise the importance of these household final consumption expenditure (HFCE) data to users and will endeavour to make further progress as resources and development priorities permit.

To produce estimates for lower-level geographic areas, including local authorities across the UK, we will continue to pursue access to anonymised credit and debit card data that will provide the level of coverage needed to produce reliable results for small areas. Naturally, these data will also improve the quality and reliability of data for larger areas

Table 11 shows the achieved sample size (number of households) for each Nomenclature of Units for Territorial Statistics (NUTS) level 2 sub-region of the UK, financial year ending 2010 to financial year ending 2019.