Research found that while London local authorities rank highest for income per person, they fall to the bottom for household consumption after housing costs.
Researchers at the Institute for Fiscal Studies and the Economic Statistics Centre of Excellence (ESCoE) measured the average household consumption for every local authority in Great Britain.
The analysis combined information from a household budget survey, credit and debit card data, and local energy consumption.
The study measured living standards by looking at how much people spend on goods and services, excluding housing-related expenditures and adjusting for household size.
It showed that this approach produced a very different picture of regional inequalities compared to looking at average income per person.
On average, London local authorities ranked 39% above the Great Britain mean for income per person.
However, when measuring household consumption after housing costs, they fell to 7% below the mean.
Researchers said this was partly because Londoners spent so much on housing, but also because many people live in London when their earnings are high and can save, before moving away later in life when their earnings are lower and drawing down savings to maintain high levels of consumption spending.
Certain local authorities in London saw particularly sharp falls in their national ranking when switching from income to household consumption measures.
Islington and Tower Hamlets both ranked in the top 10% of local authorities based on income per person but fall to the bottom 5% based on household consumption after housing costs.
Even when housing-related expenditures are included, London dropped to fourth in the regional household consumption distribution, behind the South East, South West and East of England.
It is only 2% above the Great Britain mean.
The research also found that income per person is far more unequally distributed across areas than household consumption.
Local authorities at the 90th percentile of the income distribution have incomes 65% higher than those at the 10th percentile.
For household consumption spending, this gap is 35%, suggesting that regional disparities in living standards may be less extreme than income-based comparisons indicate.
The estimates do not account for differences in the prices of goods and services in different areas, except for housing costs, due to a lack of local data on price levels.
Gautam Vyas, research economist at the IFS, ESCoE Research Associate, and an author of the paper, said: “People care deeply about regional inequalities, but rankings of living standards across areas depend greatly on how you measure them.
“Our findings challenge the conventional wisdom that the typical London household enjoys higher living standards than their counterparts across the country.
“Rather, it seems that a combination of higher housing costs and differences in saving behaviour implies that high incomes do not translate into higher consumption spending for Londoners.”
