This paper investigates distributed cell-free massive multiple-input multiple-output with non-ideal user equipment hardware under spatially correlated channels. By employing the use-and-then-forget technique, a lower capacity bound is derived based on the established generalized UE hardware impairments model. In addition, maximum ratio combining can be used to derive a closed-form expression of the spectral efficiency (SE), which offers novel insights into the impact of non-ideal UE hardware on network performance. Furthermore, a max–min SE fairness problem with UE hardware impairments is established where the optimization variables are data power and large-scale fading decoding (LSFD) vectors. Since this is a non-convex problem, we devise an iterative alternating optimization algorithm based on the bisection search to acquire the globally optimal solution. Numerical results indicate that the recommended joint data power control and LSFD design algorithm provides higher SE for the weakest UE, thus significantly enhancing the total SE of the network.