Towards a single index of local and national sustainable well-being

This project explored the development of  indicators of both household spending and household well-being at the level of lower tier local authorities (LTLAs).

Using statistical techniques, we combined data from a household budget survey, a broader household survey on local demographics and house types and local measures of credit and debit card spending to produce the first estimates of household spending at a local authority level across Great Britain. We then compared these estimates to other measures of the standard of living such as income, and found that the ranking of areas differed greatly depending on how living standards were measured.

We also used well-being data from a large household survey dataset to put monetary values on local environmental quality. We found that standard approaches to quantifying these values did not provide the degree of precision which would be needed to justify official publication or provide a basis for official statistics. We suggested that any future work might make use of the valuation methods underlying the UK Natural Capital Accounts, although there were issues of avoiding double-counting of health effects.

Measuring household consumption spending
A difficulty with measuring local consumption spending is that the UK’s main source of household spending data is a budget survey – the Living Costs and Food Survey (LCFS) – with relatively small sample sizes. Each year the LCFS interviews only around 5,000 households, which leaves small or non-existent samples in some local authorities. We solve this issue using a statistical estimator that combines information in the LCFS with information from additional sources. These include: a much larger dataset on local ages, family sizes, housing type and education levels (the Annual Population Survey); information on credit and debit card spending by households in different locations; and a measure of local energy consumption. When the sample sizes in an area in the LCFS are large, we can rely more on the survey to produce our estimates. When sample sizes are small, we can rely more on what the other data sources imply about local consumption. Using this approach, we obtained estimates of local average equivalised consumption spending for each local authority.

Well-being
To look at well-being, we regressed measures of well-being on income and local environmental amenities and demographics. Environmental amenities were measured at the Middle-Super Output AREA (MSOA) level. Taking the ratio of the estimated coefficients on income and local environmental features yielded an estimate of the increase in income needed to offset a unit increase in some local amenity. To account for the potential endogeneity of household income, we also used an instrumental variable in the form of the hourly rate of pay in the industry of the head of the household averaged across all relevant households except the household in question. We also explored estimators in terms of differences.  Taking first differences in incomes, local amenities and controls allowed us to control for time-constant sources of unobserved heterogeneity in well-being.

We found that measuring living standards using average household spending gives a starkly different picture of regional inequalities than using average income. Our estimates revealed large variation in weekly average equivalised consumption after housing costs across areas and that within-region gaps are often as important as differences across regions. We also compared our estimates of local consumption spending to local income measures derived from the ONS Gross Disposable Household Income (GDHI) series. We found there were significant differences between the two measures, particularly in the ranking of London boroughs. Areas like Islington and Tower Hamlets rank in the top decile of the nationwide distribution when looking at average income but drop to the bottom 5% of the consumption spending distribution.

We also evaluated methods for putting monetary amounts on environmental amenities using survey data. We found that standard methods, in both levels and first differences,  could yield perverse or noisy estimates. We suggested that working with very fine geographies such as post-codes would be one avenue for future research. We also suggested that the relevance of some of the data underlying the UK Natural Capital Accounts should be explored.

The project provided the ONS with a means of producing timely local area estimates of consumption based on big data rather than apportionment. It also demonstrated some of the difficulties arising in attempts to make direct use of well-being data.

Levell, P., Nesheim, L. and Vyas, G. ‘Small Area Consumption Estimates for UK Local Authorities’  ESCoE Discussion Paper Series, ESCoE DP 2025-03, 3 April 2025

Levell, P. ‘Which places have the highest standard of living?’ ESCoE Blog, 3 April 2025

ESCoE, IFS and CeMMAP Small Area Estimation Workshop, Institute of Fiscal Studies, 15 September 2023

Levell, P., Nesheim, L. and Chen, T. ‘Local prices and the cost of living’ ESCoE, IFS and CeMMAP Small Area Estimation Workshop, Institute of Fiscal Studies, 15 September 2023

Aitken, A. and Weale, M. ‘Consumption and health-based indicators of well-being for LowerTier Local Authorities in England’ ESCoE, IFS and CeMMAP Small Area Estimation Workshop, Institute of Fiscal Studies, 15 September 2023