Improving methods for calculating living standards with financial data

Regional inequality is frequently ranked as the most significant form of inequality in Great Britain, generating considerable policy interest in measuring and tracking these disparities over time. Using de-identified, area-level consumer banking data from the Financial Data Service (FINDS), researchers at the Institute for Fiscal Studies (IFS) and the Economic Statistics Centre of Excellence have improved methods of calculating consumption patterns across 367 local authority districts in Great Britain.

The IFS Working Paper assesses whether local consumption data can act as a better measure of household resources than income data or productivity data alone, and its potential to inform future research and policy on regional inequality and living standards.

Traditionally, researchers and policymakers have relied heavily on income data to understand how well-off people are in Great Britain. However, income does not always reflect what people are actually able to spend and consume in their daily lives. Research shows that there is strong potential for new, alternative data sources to improve how we measure living standards.

In this study average household consumption was estimated across 367 local authority districts in Great Britain. To do this, several different sources of data were combined: a household budget survey, a much larger survey with local demographic and employment information, and area-level indicators such as bank account outflows and energy use. The consumer expenditure data used in this paper is part of the smart financial data collection available for research into poverty and inequality as part of Smart Data Research UK's Financial Data Service (FINDS), and is referred to as financial footprints data.

Financial footprints data cannot tell the whole story on their own, but when combined with traditional household surveys, they can significantly improve estimates of local consumption. That raises the prospect of much more accurate and useful local measures of living standards in the near future—measures that could sit alongside income statistics and provide a fuller picture of how people are really doing.

Surveys of the public rank regional inequalities as the most concerning form of inequality in Great Britain, and there is considerable policy interest in measuring and tracking these disparities over time.

Whilst regional inequalities are typically measured in terms of income or output, in many ways consumption offers a better measure of living standards. Using small- area estimation techniques, we combine expenditures measured from FINDs with information from household budget surveys to produce new estimates even in areas where survey sample sizes are too small. Our approach shows how the combination of data on consumers financial footprints and more traditional measures to produce more accurate estimates of consumption than either data source could achieve on its own.

Dr Peter Levell, Deputy Research Director, IFS

Abstract 

We use small-area estimation methods that combine information from a household budget survey, a much larger survey of local emographics and employment, and area-level information on bank account outflows and energy consumption to estimate average equivalised consumption measures across 367 local authority districts in Great Britain. We show that including bank account data substantially improves our estimates, showing that these and other financial footprints data can play an important role in measuring local consumption and hence living standards. We also compare consumption measures that correspond to welfare under different assumptions about mobility and the capitalisation of local amenities into house prices, as well as traditional local income measures, and show that the rankings of local authorities are sensitive to the choice of measure.

Conclusion 

This paper presents estimates of average equivalised consumption across local authority districts for Great Britain combining data from a household budget survey, a much larger population survey and area-level predictors of consumption spending. Bank account data, and other measures of ‘financial footprints’ data are increasing in their availability. By themselves, such measures can provide useful indicators of living standards in different areas. But they fall short of giving a complete picture of households’ consumption levels. Our findings suggest that financial footprints data can however help to substantially improve estimates of consumption derived from household budget surveys. There are thus good reasons to hope that accurate area-level estimates of consumption spending will soon be available to complement existing income-based measures of local living standards.

This Working Paper by Peter Levell, Lars Nesheim, and Gautam Vyas was published 10th April 2026 and the full Working Paper can be accessed here.