Alternative Measures of Real Households’ Disposable Income Tom Evans Household Accounts Development

Overview What is Disposable Income? Why are we looking at alternative measures? What adjustments have been made? Results! 2

What is Disposable Income?

4 Wages and Salaries Interest Payments Direct Taxes ResourcesUses Conceptual Transactions Imputed Rental What is Disposable Income? Transactions

What is RHDI? Take Gross Disposable Income for the Household Sector Apply an expenditure deflator Divide by the population 5

Why are we looking at Alternative Measures? Key area of policy interest – living standards debate Social surveys tend to be the leading sources of data on disposable income These sources collect a lot of detailed information but are not especially timely Real Households’ Disposable Income (RHDI) is calculated within the system of National Accounts on a quarterly basis. It’s more timely but does have some conceptual differences to social survey sources 6

ResourcesUses TransactionCodeTransactionCode Gross Operating SurplusB.2gInterest before FISIM allocationD.41g Gross Mixed IncomeB.3g(less) FISIMP.119 Wages and SalariesD.11RentD.45 Employers’ Social ContributionsD.12 Interest before FISIM allocationD.41g (plus) FISIMP.119 DividendsD.421 Withdrawals of Income from quasi-corporationsD.422 Income attributable to insurance policy holdersD.441 Income payable on pension entitlementsD.442 Collective Investment Fund shareholders – DividendsD.4431 Collective Investment Fund shareholders – Retained earnings D.4432 RentD.45 Is carried over to the next account →Balance of gross Primary IncomeB.5g ResourcesUses TransactionCodeTransactionCode Gross Operating SurplusB.2gInterest before FISIM allocationD.41g Gross Mixed IncomeB.3g(less) FISIMP.119 Wages and SalariesD.11RentD.45 Employers’ Social ContributionsD.12 Interest before FISIM allocationD.41g (plus) FISIMP.119 DividendsD.421 Withdrawals of Income from quasi-corporationsD.422 Income attributable to insurance policy holdersD.441 Income payable on pension entitlementsD.442 Collective Investment Fund shareholders – DividendsD.4431 Collective Investment Fund shareholders – Retained earnings D.4432 RentD.45 Is carried over to the next account →Balance of gross Primary IncomeB.5g Balance of Primary Incomes Account “Cash” RHDI 7

ResourcesUses TransactionCodeTransactionCode Balance of Gross Primary IncomeB.5gTaxes on IncomeD.51 Social Benefits other than Transfers in kindD.62Other current taxesD.59 Non-life insurance claimsD.72Employers’ actual social contributionsD.611 Miscellaneous current transfersD.75Employers’ imputed social contributionsD.612 Households’ actual social contributionsD.613 Households’ social contribution supplementsD.614 Social insurance scheme service chargeD.61SC Social benefits other than transfers in kindD.62 Net non-life insurance premiumsD.71 Miscellaneous current transfersD.75 Gross Disposable IncomeB.6g “Cash” RHDI Distribution of Secondary Incomes Account ResourcesUses TransactionCodeTransactionCode Balance of Gross Primary IncomeB.5gTaxes on IncomeD.51 Social Benefits other than Transfers in kindD.62Other current taxesD.59 Non-life insurance claimsD.72Employers’ actual social contributionsD.611 Miscellaneous current transfersD.75Employers’ imputed social contributionsD.612 Households’ actual social contributionsD.613 Households’ social contribution supplementsD.614 Social insurance scheme service chargeD.61SC Social benefits other than transfers in kindD.62 Net non-life insurance premiumsD.71 Miscellaneous current transfersD.75 Gross Disposable IncomeB.6g 8

Interest Payments Typically quite straightforward to decide if a transaction is observed by households or not The decision to include Gross Interest (D.41g) on the uses side is finely balanced Definitely something households observe Not typically captured by social surveys 9

Interest Payments RHDI estimates presented on two bases:  Net Interest basis: Includes interest received and interest paid. “Netted off”  Gross Interest basis: Considers only interest received and disregards interest paid. 10

Non-Profit Institutions Serving Households (NPISH) Comprised mainly of charities and universities Also includes entities like trade unions and political parties Combined with the household sector in the national accounts 11

Measures of RHDI considered United Kingdom Economic Accounts  Adjustments Interest Basis Net InterestGross Interest HH and NPISH Cash RHDI  HH Only Cash RHDI  12

Net Interest Basis Measure United Kingdom Economic Accounts£17,306£16,954 HH and NPISH – Cash Basis£14,386£13,907 HH Only - Cash Basis£13,939£13,610 13

Gross Interest Basis Measure United Kingdom Economic Accounts£17,306£16,954 HH and NPISH – Cash Basis£16,143£14,780 HH Only - Cash Basis£15,694£14,506 14

Potential Reasons for the Divergence 15

Potential Reasons for the Divergence Levels of per capita interest paid by (use) and received by (resource) the household and NPISH sector, seasonally adjusted 16

Potential Reasons for the Divergence 17

Contributions – Net Interest 18

Contributions – Gross Interest 19

Social Survey Comparisons 20

Any questions? 21