Local variations in costs

Elaine Kempson, Fran Bennett

The researchers examined local variations in the costs of housing, some utilities and some discretionary charges and find that there are big differences both between the most and least expensive local areas and also within these areas.

They conclude that the introduction of regional benefit rates would merely substitute one form of rough justice for another, although there is a case for imposing some limits on the variation in costs.

Summary

Summary

Differences in the amounts which people living in different parts of the country have to pay for basic services are significant and seem to be widening, according to a new study by Elaine Kempson of the Policy Studies Institute and Fran Bennett. They examined available evidence on local variations in the costs of housing, council tax, water and electricity, and in some discretionary charges which certain groups of people may also have to pay (meals-on-wheels, school meals and home care). They found that:

  • There are big differences between the most and least expensive local areas across all the charges studied, varying from a difference of £115 a week in average rents in the private rented sector to just under £1 a week difference in electricity charges. With the exception of school meals, these differences have increased in recent years.
  • There is some continuity over the recent past in terms of the areas which are cheaper or more expensive - but also some important changes.
  • Variations in costs/charges within regions of the UK can be every bit as great as the differences between regional averages, especially in housing.
  • Social security benefits provide some protection for individuals and families on low incomes from the impact of certain costs/charges - but this is partial and limited in its coverage, and does not provide adequate protection for many people.
  • The authors conclude that:
    • on the evidence of this report, the introduction of regional benefit rates would merely substitute one form of rough justice with another, incurring additional administrative costs in the process;
    • additional means-tested benefits for specific costs should not be ruled out if there is very wide variation, such as in mortgage interest payments; but the case for other benefits of this kind is less convincing, and the proliferation of such benefits contributes to other problems;
    • current policies are moving away from constraints on charges; but there is a case for reversing this trend and imposing some limits on the variation in costs.

Background

Research on the geography of poverty and inequality in the UK has largely focused on income, or proxies for income. Yet if similar households with identical incomes are faced with different levels of costs or charges for basic services, depending on the area in which they live, they will also have different living standards.

These differences are of particular concern because of their impact on:

  • income support claimants, who may not be fully protected from the effect of charges;
  • the incentives for people to enter employment, or to earn more, if means-tested benefits are paid to compensate for the effect of specific charges which vary widely;
  • people just above the qualifying level for means-tested benefits, who have to bear the full burden of varying charges with no compensation.

The authors set out to examine variations in the level of unavoidable costs and charges for basic services at regional and local level; the types of household most likely to be affected by any variations; and whether any divergence was increasing or lessening over time.

Overall impact of geographical variation in costs/charges

Quite significant differences were found in the charges for housing, council tax, water and electricity between different localities in the UK. (In most cases, the unit of analysis was district councils, boroughs and unitary authorities; in the case of utility charges, the analysis was undertaken at a county, borough and unitary authority level.) For some individuals and families in particular situations, these differences could also be exacerbated by variations in local authorities' discretionary charges for additional services which they need to use - school meals for families with children of (primary) school age, and meals-on-wheels and home care for elderly and disabled people (see Table 1).

Table 1: Local variations in average weekly charges
  Highest charge Lowest charge difference
Council rents £82.84 £19.46 £63.38
Private rents £175.00 £60.00 £115.00
Mortgage repayments
- First time buyer (1) £93.00 £40.74 £52.26
- remortgagor (2) £67.19 £29.44 £37.75
Council tax
- Band D £19.35 £5.67 £13.68
- Band A £12.90 £3.80 £9.10
Water £6.33 £2.06 £4.27
Electricity (3) £5.99 £5.04 £0.95
Meals-on-wheels (4) £10.50 £3.10 £7.40
School meals (4) £6.25 £3.85 £2.40

(1) Assuming a mortgage for 90 per cent of the average purchase price of a flat or terraced house (whichever is the cheaper) and an undiscounted repayment mortgage with an interest rate of 7.25 per cent.

(2) As above, but assuming a mortgage for 65 per cent of the purchase price.

(3) Based on an annual consumption of 3,300 units

(4) Based on 5 meals per week

For most local costs and charges (except primary school meal prices), the differences have been widening over the recent past. In terms of the localities with high and low charges, there is a degree of continuity over time - but also some important changes. For some services, especially housing costs, the variations within regions are every bit as great as the differences between average charges at a regional level. In general, variations are greatest in areas where charges are high, with more uniformity in low charge areas.

On the basis of the most recent information available, the areas with consistently high charges across the board include Avon, Dorset and South Glamorgan. By contrast, Doncaster, Leeds, Bradford, Kingston upon Hull, North Lincolnshire, Derbyshire, and in Scotland Scottish Borders, Falkirk, Dumfries and Galloway, Orkney and Shetland, are the areas with charges consistently towards the bottom of the range.

Overall costs for different types of low-income household

Low-income households are protected to some degree from the full effects of a number of charges. In some cases, this protection is restricted to individuals and families on income support. In others - like rents and council tax - those on low incomes but not on income support are also covered, either fully or partially. It is difficult to build up a comprehensive picture of how local variations in charges affect low-income households as a group, because some costs are incurred by almost everyone whereas others only apply to people in specific circumstances. But the study shows the difference between the highest and lowest costs across Britain/the UK for specific groups of low-income households.

Tenants receiving full housing benefit and council tax benefit

Single people or childless couples who are tenants, living on incomes low enough to get help with all their rent and council tax and not needing to use local authority services for which there are discretionary charges, will be affected only by variations in water and electricity prices. Assuming a constant level of consumption, people in this situation living in the most expensive area, Cornwall, would pay an additional £4.60 per week compared with people in the cheapest area, the West of Scotland. This may seem only a small amount; but it must be seen in the context of current benefit levels. (In addition, private tenants whose rent is restricted for housing benefit purposes would have to find significant extra sums from their benefit.)

Home-buyers on income support

Home-owners on income support affected by the recent cutbacks in government help with mortgage interest could be suffering the full impact of regional variations in house prices. Taking into account mortgage, water and electricity payments, Surrey is the highest cost area and Northern Ireland the lowest, with a difference of £56 per week for the first-time buyer or £42 per week for others (and premiums for mortgage payment protection policies adding an extra £3 or £2 respectively). Other high cost areas are largely in the South of England, especially the home counties, Oxfordshire, Hertfordshire, Buckinghamshire, Berkshire, Cambridgeshire, Avon and Dorset - but also North Yorkshire. Low cost areas are, as expected, largely in Northern Ireland and the North of England - including Staffordshire and the former metropolitan areas of Humberside, South Yorkshire, Merseyside and Cleveland. House prices are also generally low in Bedfordshire. (Information was not available for Scotland.)

Pensioner or disabled tenants on full housing benefit and council tax benefit and needing meals-on-wheels

Even on full housing benefit and council tax benefit, pensioners or disabled tenants would need to meet water and electricity charges in full. In addition, if they needed to use meals-on-wheels these charges would also have to be met in full. Someone living in Cornwall, for example, would have to pay £9.35 a week more than a similar person in Angus for water, electricity and weekday meals-on-wheels. Other expensive areas for this combination of charges are Avon, Dorset and Pembrokeshire, while the cheapest ones include Leeds, Derbyshire and most of Scotland and Northern Ireland. It has not been possible to give full details of home care charging policies. But most of the areas identified as low cost for meals-on-wheels also make no charge for home care, while all the high cost areas do.

Tenants on low incomes but not on income support

The maximum effect of the charges studied is among households (tenants and home-buyers) who qualify for neither housing benefit nor council tax benefit, and so would have to meet not only water and electricity charges but also rent and council tax in full. On this basis, a local authority tenant in Berkshire or Surrey would be paying up to £69 a week, nearly £26 a week more than a similar tenant in Aberdeenshire (1995/96). Other high cost areas for council tenants included all the London Boroughs (with the exception of Bromley, Barking and Dagenham, and Havering), and parts of Kent and West Sussex, but also some less prosperous areas such as South Glamorgan, Dorset and Cornwall. Other low cost areas were Rotherham, Leeds and Derbyshire.

For private sector tenants, in 1996, the maximum difference was far higher - up to £116 a week difference between Surrey and the Scottish Borders (£195 compared with £79). Other high cost areas for private tenants were in London and the home counties, including most of Greater London, Berkshire and Buckinghamshire. Other low cost areas were the Scottish Borders, Doncaster, Lincolnshire and Nottinghamshire.

People on incomes just above the level to qualify for means-tested benefits may also need to use one or more of the local authority services with discretionary charges - such as meals-on-wheels, school meals and home care. If a tenant in this position needed meals-on-wheels five days a week, for example, the difference in charges would increase to £31 if they rented from their local council (Surrey compared with Aberdeenshire) and £121.50 if they rented from a private landlord (Surrey compared with the Scottish Borders).

Policy implications

The impact of geographical variations in costs/charges for basic services, especially for those on lower incomes, is a cause for concern. Various policy changes could be considered. Three options are examined in the study: regional benefit rates, 'tied' means-tested benefits and price constraints.

Recently there has been some debate about introducing regionally varying benefit rates. On the evidence of this study, a regional element to benefits would be undesirable. Variations in costs/charges for these basic services within regions are at least as great as those between them. A regional benefit would merely substitute one form of rough justice for another, and incur additional administrative costs in the process.

'Tied' means-tested benefits already exist, to take account of specific costs, as well as individual/family circumstances. They could be extended to cover some of the costs/charges examined in this study. The strongest case can probably be made for a mortgage benefit, to help owner-occupiers on low incomes in the same way as housing benefit helps tenants with their housing costs, and to dampen down the effects of local variations in house prices. Arguments can also be put forward for a water benefit and a care benefit; but the case for these is less convincing - and to introduce them would add to the disadvantages of over-reliance on means-tested benefits, including low take-up, disincentive effects and increased pressures for public expenditure savings on benefits.

Whilst additional benefits should not be ruled out, therefore, the case is also made in the study for reversing the current trend towards removing constraints on charges. There have been calls recently for long-term care to be free at the point of use, and for a greater emphasis on 'bricks and mortar' housing subsidies rather than personal benefits.

The need for transparency

There is also a need for greater transparency in the area of geographical variations in costs/charges. Some figures are available, but are not brought together regularly or systematically for comment. Other information is not readily available, especially in policy areas where local authorities have discretion over charges. Current policy developments - such as the devolution of education budgets to schools, and the increasing variety of local authorities' charging policies for community care - are likely to exacerbate these problems. This lack of transparency is in itself a policy issue, as it results in a gap in our knowledge about variations in living standards across the UK. The researchers recommend that government should aim to facilitate the regular collection and analysis of local variations in costs/charges, to contribute to a more informed debate on the impact of such variations and their policy implications.

About the study

The authors used desk research to investigate the available evidence about geographical variations in the costs and charges of certain basic services and utilities across the UK. They are grateful to the Labour Research Department for giving them access to the unpublished data from a survey of various discretionary charges, conducted for the GMB trades union in October 1996.

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