01There is a geography to the cost of living crisis
Inflation is higher in the UK’s poorest cities
Inflation is worryingly high in all corners of the country, but the cost of living crisis is hitting some places harder than others. It is the UK’s poorest cities – those that are the least able to cope – that are likely to be the most negatively impacted by the downturn on living standards.
Figure 1 shows this very clearly: inflation rates in May 2022 were higher in cities that entered the crisis in an already precarious position, where lower average wages reflected a weaker economic performance. In these places, people were also more likely to be facing high levels of debt- making it even more difficult to absorb a new shock on costs.4
Figure 1: Cities with lower pre-inflation wages are the ones hardest hit by inflation
Figure 2 shows there is a clear geography to this. Many of the cities and large towns that were facing higher inflation rates in May 2022 were located in the North, Midlands and Wales, while those in the South (particularly in the Greater South East) are relatively more sheltered from rising costs.
Burnley, Blackburn and Blackpool are the hardest hit- with an inflation rate between 11 and 11.5 per cent. This is nearly three percentage points higher than in southern cities like London, Reading and Cambridge. In the latter group of cities, stronger economic performance meant that more people were in high-paid jobs and levels of financial stress were consequently much lower.5
Figure 2: Inflation is up to 30 per cent higher in cities in the North
Energy and petrol consumption account for most of the differences between places
Take the two cities that sit on each end of the spectrum, with the highest and lowest inflation rate: Burnley and London. Burnley’s inflation rate is estimated to be 2.7 percentage points higher than London’s. The breakdown of that inflation rate for each city shows that most of the gap is accounted for by the energy and vehicle components (Figure 3). Combined, they accounted for 58 per cent of Burnley’s inflation rate (6.7 percentage points), against 40 per cent in London (3.5 percentage points).
Figure 3: The inflation differences between Burnley and London are mostly explained by energy and petrol
Burnley is hit particularly hard by the cost of living crisis because it is much more exposed to these two components (energy and petrol), which have by far the highest inflation rate (see Appendix). In Burnley, energy and petrol account for 21 per cent of all spending, against nearly 13 per cent in London.
Burnley and London are representative examples of wider spatial disparities. The reason why a number of cities in the North have higher inflation rates is because these two components, energy and petrol, have a higher weight in their total consumption baskets.
Three reasons explain why that is the case.
The first is the nature and quality of the housing stock.
The leakiest, least insulated stock tends to be concentrated in the North. Previous Centre for Cities research has shown that of the 10 cities and large towns with the least energy-efficient housing stock, seven are in the North or the Midlands. 6 In Burnley and Blackpool, for instance, between 75 and 80 per cent of the housing stock is inefficient (below EPC band C), against less than 60 per cent in London and around 50 per cent in Milton Keynes and Peterborough. Energy bills vary significantly as a result: Table 1 shows that the annual cost of domestic energy can differ by up to £400 per year across cities and large towns.
Box 3: The role of housing stock in the current cost of living crisis
The average annual cost of domestic energy varies significantly depending on the energy efficiency of the dwelling. A dwelling with an Energy Performance Certificate (EPC) band F can cost 7.6 times more than a dwelling within bands A and B. Generally, dwellings that are categorised as energy-inefficient (below EPC band C) tend to be more expensive to run.
Centre for Cities estimates, based on the spatial distribution of efficient and inefficient dwellings for 2019 show how costs vary between cities. Table 1 shows that households paid on average more than £1,150 per year in cities and large towns where more than 70 per cent of the housing stock is below band C, such as Bradford and Blackpool. This can be £300 to £400 higher than Milton Keynes, Crawley or Swindon, where roughly half of the housing stock is below band C.
Table 1: Average domestic energy costs per year (2021), top and bottom 10
|City||Ten highest annual costs (2021)||City||Ten lowest annual costs (2021)|
Source: ONS, EPC Certificate, Centre for Cities’ calculations. Methodology: Weighted average of annual cost by the distribution of dwelling per band (2019 data). Costs are updated using the “Electricity, gas and other fuels” inflation component (ONS).
As a consequence, an increase of 5 per cent in energy bills would mean an additional cost of £63.6 in Burnley and £44.5 in Milton Keynes.
The second reason is private vehicle usage, and so spending on petrol. Cities where households are more reliant on cars to get around are more exposed to increases in fuel prices, particularly when they drive longer distances. This varies between places: as Figure 4 shows, in cities like Barnsley, Telford, or Blackburn, people are much more likely to own a car than in London, Cambridge and Oxford. They are also likely to use them for longer journeys. In Barnsley and Telford, for instance, a fifth and a third of all commuters (respectively) drive more than 10 kilometres. In London and Cambridge, where less than 15 per cent of commuters travel long distance, more people use public transport or active travel (see Figure).7
Figure 4: Share of spending on vehicles is highly correlated with the share of commuters using private-vehicles
The third reason is related to income levels. Poorer households earn less, but heating their homes or driving their car costs the same (or even more, depending on where they live – see Table 2). As a result, they spend a higher proportion of their income on essentials like energy bills, petrol and groceries, sectors where inflation is currently high.8 At the national level, it has been estimated that the poorest 10 per cent face an inflation rate of 10.9 per cent, three percentage points higher than the 10 per cent richest.9
On domestic heating, the spatial disparities are particularly striking. For many cities in the North, where a higher share of the housing stock is inefficient, heating costs are high and incomes tend to be lower. The result is that costs as a share of wages are much higher than in a number of cities in the Greater South East. Centre for Cities’ estimates shows that average energy costs account for around 6 per cent of average wages in Burnley and Blackpool, compared to 3 per cent in London or Milton Keynes (see further details in Table 5, Appendix).
Figure 5 summarises how these factors play out across the country. The cities that tend to have higher mean wages, a more energy-efficient housing stock, and a lower proportion of their residents’ income spent on fuel tend to have a lower inflation rate (bottom left). It’s the opposite for those in the top-right quadrant, most of which are in the North.