MEASURING INCOME AND POVERTY AT A NATIONAL

LEVEL

Sian RasdaleSocial Justice Analysis, Scottish Government

Purpose Target 5: SOLIDARITYTo increase overall income and the

proportion of income earned by the three lowest income deciles as a group by 2017

Decrease the proportion of individuals living in private households with an equivalised

income of less than 60% of the UK median before housing costs

National Indicator 14: POVERTY

Source of data: Family Resources Survey

• The FRS was established in 1994/95• Owned by DWP• Contracted to ONS• Provides detailed information about:

– Household composition– Income from all sources – employment, benefits, tax

credits, savings, assets, investments, pensions– Tenure and housing costs– Occupation and employment

• All householders are interviewed where possible

Source of data: Family Resources Survey

• Stratified clustered probability sample drawn from the Postcode Address File

• Covered GB until 2001/02, now includes NI

• UK sample size ~ 28,000• Scotland sample size ~ 4,500 households• Scottish Government funds a boost since

2001/02

Source of data: HBAI

• The Households Below Average Income (HBAI) datasets are derived from the FRS

• HBAI not restricted to households below average income!

• HBAI arranged at benefit unit level

• HBAI contains equivalised income

Equivalisation

Reason for equivalising: Two people living together need more, but not twice as

much, income as one person living alone, to achieve a comparable standard of living

Equivalisation adjusts household income according to the size and composition of the household

Every-one in the household is allocated the same equivalised income, including children

Extra needs of disabled people are not considered

Equivalisation

Household net income BHC = £100 pw

Couple without children

£100 / (0.67 + 0.33) = £100

Couple with one child under 14

£100 / (0.67 + 0.33 + 0.20) = £83

Single adult with one child under 14

£100 / (0.67 + 0.20) = £115

ModifiedOECD

scaled tocoupleWithoutChildren

First adult 0.67

Spouse 0.33

Other second adult 0.33

Third adult 0.33

Subsequent adults 0.33

Children aged under 14 0.20

Children aged 14+ 0.33

Before and After Housing Costs

• BHC because some people choose prioritise nice housing

• AHC because some housing is expensive but not particularly nice

• Overall, more people are in poverty AHC• The exception is pensioners, because they are

more likely to have paid off their mortgages• BHC is the internationally recognised measure

of poverty

Relative and Absolute

• Relative – the poverty threshold is 60% of the median in the same year– 2005/06 threshold was £217 per week

• Absolute – the poverty threshold is 60% of the median in 1998/99, adjusted for inflation– 2005/06 threshold was £188 per week

Strengths & Weaknesses of the FRS & HBAI

STRENGTHS• Robust• Reliable• Internationally

comparable• Internationally

accepted• National Statistics

WEAKNESSES• Representative only of

people in private households• Time lag• Equivalisation not perfect• May not match individuals

experiences• No consideration of benefits-

in-kind

How poverty is calculated1. Calculate the median equivalised net

income for the UK

£362 in 2005/062. Calculate 60% of that – the poverty

threshold

£362 X 0.6 = £2173. Any-one in the dataset with an

equivalised income of less than the threshold is poor

Income distribution with poverty

Person 1 £10Person 2 £55Person 3 £60 Person 4 £70 Person 5 £362 (The Median)

Person 6 £500Person 7 £600Person 8 £1,000,000Person 9 £1,000,000,000

Person 1 £250Person 2 £250Person 3 £250 Person 4 £250 Person 5 £362 (The Median)

Person 6 £500Person 7 £600Person 8 £1,000,000Person 9 £1,000,000,000

Income distribution with no poverty but the same median

and poverty threshold

These 4 people have an income less than £362 X 0.6 = £217

No-one has an income less than £217

These 4 people have an income less than £362 X 0.6 = £217

How Child Poverty is calculated1. Absolute poverty

Equivalised income <60% 1998/99 median

2. Relative poverty Equivalised income <60% same year median

3. Combined low income and material deprivation

Equivalised income <70% same year median AND material deprivation score >=25

Child poverty Tier 3• 10 child MD questions

– “Does your child go swimming at least once a month?”

• 11 adult MD questions– “Do you have household contents insurance?”

• All answers are “Yes” / “No - can’t afford it” / “No – don’t want it”

• “No – can’t afford it” answers are weighted by prevalence

• Translated to 0-100 scale

How Solidarity is calculated1. Rank all the Scottish data by equivalised annual income and split

into 10 evenly sized group – the deciles

2. Sum all the income values

£109,520m in 2005/06

3. Sum the income of the lowest three deciles

£15,240

4. Calculate the percentage of income received by the lowest 3 deciles

14%

Where to find the statisticshttp://www.scotland.gov.uk/Topics/Statistics/Browse/Social-Welfare/incomepoverty

Publications• Scottish

Households Below Average Income 2006/07 published yesterday

• Scottish Economic Statistics – later this year

Main Analyses

Published on the Income and Poverty website shortly after the SHBAI is published

Includes:– Details of the income distribution– Trends in median income– Sources of income– Additional analysis of poverty– And more!

• Click on the charts to download the data

Scotland Performs

http://www.scotland.gov.uk/About/scotPerforms

• Longitudinal survey of children in Scotland• Following 8,000 children annually, until age 5 • FRS Material Deprivation questions have been added to

Sweep 4• Currently in the field• Sweep 4 results available in 2010

http://www.growingupinscotland.org.uk

Sinéad Power – 0131 244 0322

Wealth and Assets Survey• Longitudinal survey of private households across GB• 1,400 households in Scotland South of the Caledonian Canal• Covers:

– Housing wealth, mortgages & equity; pensions; inheritance, trusts– Household goods, collectables, vehicles– Economic status, work history, income (earnings, benefits, etc)– Savings and debt– Major items of expenditure– Attitudes to debt; attitudes to risk; financial expectations; budgeting– Health, ethnicity, religion, household composition

• Will provide estimates of total wealth held by households in Scotland• Sweep 1 data will be available Spring 2009

Experimental data from the first half of Sweep 1 are available here:http://www.statistics.gov.uk/STATBASE/Product.asp?vlnk=15074

UK Household Longitudinal Study (UKHLS)

• Longitudinal survey of adults in private households across GB

• 4,000 respondents in Scotland• Incorporating of the British Household Panel Survey

sample • Should provide Persistent Poverty estimates for Scotland• Fieldwork starting soon• Results hopefully available in about 18 months

http://www.iser.essex.ac.uk/ukhls/

• Is there anything crucial being missed at a National Level?

• Should we continue to monitor ‘absolute’ poverty?• Is the OECD equivalisation scale working?• Are you interested in the Wealth and Assets

Survey / the UK-HLS? How would you like the results to be disseminated?

• Should we estimate the value of benefits in kind?• Have you ever used the Income and Poverty

website? How could it be improved?

Discussion Points