Running the average UK household costs £1,802,000 in a lifetime with £385,000 paid in direct taxes

4th July 2013

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The average UK household will cost a total of £1,802,000 or £29,000 a year to run over the course of a lifetime, according to new analysis by Prudential of the ONS Family Spending Report.

The figures show that household costs fluctuate over time, with annual costs peaking at £45,000 when the head of the household is aged between 30 and 49, reflecting the costs of raising children.

By comparison, pensioner household expenditure drops to £25,000 a year when the head of the household is aged between 65 and 74, and to £17,000 for those aged 75 and above.

Vince Smith-Hughes, retirement expert at Prudential, says: “These figures are startling, showing a gulf of more than £14,000 annually between income and expenditure in the early years of retirement if the householders rely solely on the Basic State Pension. This pays just £10,310 a year currently to the average retired household. To make up the difference, pensioners will have to dig deep into their savings or personal pension plans, unless they simply choose to go without.”

“Saving as much money as possible from early in working life is key to being able to supplement the State Pension and ensure sufficient income to live a comfortable retirement. Our analysis shows that the average household spends £230,000 on recreation and £128,000 on hotels over the course of a lifetime, so by tightening their belts a little people could afford to save more towards retirement.

“Although living costs do fall as people reach their twilight years, health costs tend to increase, so the average household costs are nowhere near covered by the State Pension, even in households with two pension incomes. Seeking professional financial advice could help people to plan better to be able to meet their everyday living costs in retirement, as well as those steeper health costs which can occur later in life.”

The Prudential analysis also reveals that the lifetime cost of people’s direct taxation, (income tax and national insurance contributions), is £385,000 for the average household.

Vince Smith-Hughes says: “Saving into a pension scheme can also be an excellent way of reducing tax liability as basic rate taxpayers can claw back 25p in income tax relief for every pound they save into a pension, and for high rate taxpayers this rises to 67p in the pound.”

Prudential’s analysis shows that housing is the single largest expense for a typical UK household, with mortgages, rent, repairs, energy and council tax costing, on average, a total of £508,000 over a lifetime.

The figures also provide an interesting insight into how State provision in the UK shapes the way households spend their money over the course of a lifetime. Services provided by the State in the UK account for some of the least expensive lifetime costs for households, for example the average UK household spends just £364 a year on education, and £343 on healthcare. The expenditure in these two areas combined stands at only £44,000 over the course of a lifetime. Recreation and culture is the second largest expense (£230,000), a reflection of the relatively high quality of life enjoyed by many people in the UK.

12 thoughts on “Running the average UK household costs £1,802,000 in a lifetime with £385,000 paid in direct taxes”

  1. dutch says:

    ‘UK CPI is 1.5% then you add housing costs with house prices rising at 11.7% and then you get 1.5%! Oh hang on…’

    Congrats Shaun,you’ve nailed it….it’s an absolute f****** disgrace that these so called statisticians are getting away with excluding the real cost of housing in their inflation stats.Price of apples ..yes.Price of a house….err no.

    It’s actually far worse than the scam of imputed rents in GDP calcs and that’s a scandal in itself.

    Normally,it doesn’t matter because noone else talks about it much,which is great for carney but a mouthful of baked dog turds for Joe Public. I can sort of bury my head in the sand most of the time and pretend they’re not as incompetent as I think they are,but something keeps bringing me back to learn more.

    These people have no shame.

    1. Jim M. says:

      Hi dutch and hi Shaun,

      My ignorance in these matters is both profound and well-known, but it occurs to me that the CPI better reflects my personal reality because I can actually afford an apple, whereas a house is but the stuff of dreams!

      You’re absolutely correct, dutch. they have no shame at all.

    2. Noo 2 Economics says:

      Is it that simple? If you include housing costs (purchase price) then surely you must include the cost of the mortgage?

      The effects of Help to Buy, Funding for Lending etc are very likely to reduce that housing cost inflation rate and of course the converse would apply when interest rates go up.

  2. therrawbuzzin says:

    Hi Shaun,
    If we knew what the REAL target was, we might be able to answer.
    They’re keeping it pretty close to their chests, but I suspect the govt. wants as much inflation as it dares, commensurate with a chance of re-election.
    If we can fathom that…

    1. Anonymous says:

      Hi therrawbuzzin

      I think that the game has always been to keep as much inflation as possible out of the official numbers. This was what they did when they used rents rather than house prices for owner occupiers.

      As we have no official numbers what do you think consumer inflation in Scotland actually is?

      1. therrawbuzzin says:

        It’s difficult to say, some supermarkets (Morrison’s for instance) have cut a lot of prices, but for how long?
        House prices, although they have risen a little, are not as bubbleicious as SE England, so they may well be right, but by accident rather than design.
        I note warnings of 11% energy price rises at a time when oil has slipped 12%, yet the regulator continues making empty, “light-touch” threats, like a parent telling a naughty child, “If you don’t stop that before I count to three-quarters-of-a-million…”

  3. Noo 2 Economics says:

    Hallo Shaun,

    Three questions today:

    1. What, if anything, do you feel Carney could have achieved by staying in the UK at the time of the Scottish independence vote?

    2. Is home grown food priced in dollars or pounds – I assume pounds yes?

    3. Are we not in for at least some steady inflation in the next few months given the GBP’s behaviour in relation to the US dollar?

  4. Forbin says:

    lack of wages when faced with massive housing costs means effectively

    we have the end consummerism

    Forbin

  5. baldand says:

    That may well be so. In any case, as Shaun said, there is no question that the inflation rate would be substantially higher if house price changes were included. There is no UK CPI with an owner-occupied housing component based on a net acquisitions approach for the moment. The closest official index available is the RPI ex mortgage interest ex council tax series, whose inflation rate went from 2.7% in July to 2.5% in August. Even if one removes 0.6 percentage points of inflation to convert it into an RPIJ series, the inflation rate is still 1.9%. However, there are other aspects of this series: like the omission of stamp duty and house renovations, and the smoothing of the depreciation index, that almost certainly mean that this series shows lower inflation than a CPI series with a properly calculated OOH component would.

    I suspect that QE in the UK has also pushed up prices of works of art. This won’t show up in the RPI at least, since their purchasers would mostly be concentrated among the high income households excluded from the index.

  6. Anonymous says:

    Hi Derrick

    That is an interesting point. The official/conventional view is that rising house prices lead to positive wealth effects. The mechanism you describe is a negative and may well be one of the reasons why conventional theory has performed so poorly.

  7. Jim M. says:

    Hi Forbin,

    I believe you mean that ‘we have the end of consumerism’, to which I can only say ‘Oh thank God!’

    https://www.youtube.com/watch?v=om5rbtudzrg

  8. Anonymous says:

    Yes, there may be some wealth effect but, for that to affect consumer prices, equity must be withdrawn either as cash or increased debt. Do you know if anyone has done a study recently to see to how and to what extent a wealth effect may be at play?

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