MEASURING INCOME AND POVERTY AT A NATIONAL LEVEL Sian Rasdale Social Justice Analysis, Scottish Government

Purpose Target 5: SOLIDARITY To 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 / ( ) = £100 Couple with one child under 14 £100 / ( ) = £83 Single adult with one child under 14 £100 / ( ) = £115 Modified OECD scaled to couple Without Children First adult0.67 Spouse0.33 Other second adult0.33 Third adult0.33 Subsequent adults0.33 Children aged under Children aged

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 calculated 1.Calculate the median equivalised net income for the UK £362 in 2005/06 2.Calculate 60% of that – the poverty threshold £362 X 0.6 = £217 3.Any-one in the dataset with an equivalised income of less than the threshold is poor

Income distribution with poverty Person 1 £10 Person 2 £55 Person 3 £60 Person 4 £70 Person 5 £362 (The Median) Person 6 £500 Person 7 £600 Person 8 £1,000,000 Person 9 £1,000,000,000 Person 1 £250 Person 2 £250 Person 3 £250 Person 4 £250 Person 5 £362 (The Median) Person 6 £500 Person 7 £600 Person 8 £1,000,000 Person 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 calculated 1.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 scale

How Solidarity is calculated 1.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 statistics

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

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 Sinéad Power –

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:

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

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