Progress Report Philip Wales UKSA Monitoring Review event, 2 nd July

Progress Report – twin aims To set out some of the changes that we’ve made since the Monitoring Review reported 1. Alternative measures of Real Households’ Disposable Income (RHDI) 2. Supplementary analysis of trends in earnings 3. Effects of Taxes & Benefits (ETB) 4. Nowcasts of median household income 5. Real income indices for different sub-groups To get user feedback on methods and data used to produce these outputs, with a view to formalising production methods 2

1. RHDI: concept and coverage Lots of interest in statistics on livings standards over the last few months – including debate over coverage and contents of RHDI Development of existing estimates of household disposable income as a means to improve user understanding and as a possible tool to develop more timely income estimates Some additional detail on RHDI has already been published: RHDI excluding Non-Profit Institutions Serving Households (NPISH) included in the Quarterly Economic Well-being release. 3 Tom Evans

GDP & RHDI growth 4 RHDI per capita & GDP per capita, 2008=100 RHDI includes: (1) Earnings from employment (D1 & B.3g) (2) Net investment income and rent (D4) (3) Taxes & benefits (D5 & D6) (4) Other current transfers (D7) (4) Imputed social contrib. of emp. & HH (D61) (5) HH gross operating surplus (B.2g) Tom Evans

RHDI growth, incl. & excl. NPISH 5 RHDI per capita, Incl. & Excl. NPISH, 2008=100 RHDI includes: (1) Earnings from employment (D1 & B.3g) (2) Net investment income and rent (D4) (3) Taxes & benefits (D5 & D6) (4) Other current transfers (D7) (4) Imputed social contrib. of emp. & HH (D61) (5) HH gross operating surplus (B.2g) Tom Evans

Alternative HHDI measures 6 RHDI Earnings from employment (D1 & B.3g) Net investment income and rent* (D4) Taxes & benefits (D5 & D6) Other current transfers (D7) Imputed social contrib. of emp. & HH (D61) HH gross operating surplus (B.2g) Deflated by HHFCE implied deflator Survey measures Earnings from employment Gross investment income and rent Taxes & benefits Other current transfers * Including net FISIM Tom Evans

Alternative measures of HH income 7 RHDI per capita, Excl. NPISH, various measures, 2008=100 Starting with RHDI per capita... Tom Evans 2008=100

Alternative measures of HH income 8 RHDI per capita, Excl. NPISH, various measures, 2008= removing ‘imputed’ elements... Tom Evans 2008=100

Alternative measures of HH income 9 RHDI per capita, Excl. NPISH, various measures, 2008=100...excluding FISIM from savings... Tom Evans 2008=100

Alternative measures of HH income 10 RHDI per capita, Excl. NPISH, various measures, 2008= removing interest paid... Tom Evans 2008=100

Alternative measures of HH income 11 RHDI per capita, Excl. NPISH, various measures, 2008= bringing it closer to ETB. Tom Evans 2008=100

Alternative measures of HH income The NPISH sector and the imputed elements of income for households – in particular those related to employers pension contributions and imputed rentals – have an impact on the level of household income, but have had relatively little impact on growth rates since the downturn The treatment of interest payments in the National Accounts makes a much bigger impact, and brings the definition of this alternative, additional measure of household income closer to that captured by many surveys ONS is developing these measures with a view to regular publication: feedback on the use and contents of these indicators is welcome. 12 Tom Evans

2. Themed analysis & explanation ONS has also responded to the suggestion of providing more themed analysis and explanation around data sources, making greater use of existing data. Analysis has focussed on the Annual Survey of Hours and Earnings (ASHE), helping to explain: Growth of earnings at different points in the income distribution Median growth rates of earnings 13 Fiona Massey (fiona. & Philip Wales

ASHE analysis 14 Note published which analyses how the earnings distribution has changed through time, examining median earnings of the ‘full time continuously employed’ in particular. (18 th May) Fiona Massey

ASHE analysis 15 An alternative way of using ASHE is to examine the distribution of earnings growth rates each period. This approach answers the question ‘what is the average experience of earnings growth?’ Also relates closely to questions of labour market spare capacity and wage growth: while the long run determinant of wages is productivity, the ‘tightness’ of the labour market is also important – especially in the short run. Philip Wales

ASHE analysis 16 Distribution of Gross Weekly Nominal Earnings Growth, % % of continuously employed who received within 0.5pp of the stated earnings growth Fraction of employees who received 0% nominal earnings growth Philip Wales

ASHE analysis 17 Distribution of Gross Weekly Nominal Earnings Growth, % % of continuously employed who received within 0.5pp of the stated earnings growth Philip Wales

ASHE analysis 18 Distribution of Gross Weekly Nominal Earnings Growth, % % of continuously employed who received within 0.5pp of the stated earnings growth Philip Wales

ASHE analysis 19 Distribution of Gross Weekly Nominal Earnings Growth, % % of continuously employed who received within 0.5pp of the stated earnings growth Philip Wales

ASHE analysis 20 Distribution of Gross Weekly Nominal Earnings Growth, % % of continuously employed who received within 0.5pp of the stated earnings growth Philip Wales

ASHE analysis 21 Distribution of Gross Weekly Nominal Earnings Growth, % % of continuously employed who received within 0.5pp of the stated earnings growth Philip Wales

ASHE analysis 22 Distribution of Gross Weekly Nominal Earnings Growth, % % of continuously employed who received within 0.5pp of the stated earnings growth Philip Wales

ASHE analysis 23 Distribution of Gross Weekly Nominal Earnings Growth, % % of continuously employed who received within 0.5pp of the stated earnings growth Philip Wales

ASHE analysis 24 Distribution of Gross Weekly Nominal Earnings Growth, % % of continuously employed who received within 0.5pp of the stated earnings growth Philip Wales

ASHE analysis 25 Distribution of Gross Weekly Nominal Earnings Growth, % % of continuously employed who received within 0.5pp of the stated earnings growth Philip Wales

Distribution of earnings growth 26 Proportion of Cont. FT employees by real earnings growth rate Philip Wales Source: ONS Economic Review, March 2015 edition

3. Effects of Taxes & Benefits 27 Provides a detailed assessment of the income experience of households at different points in the income distribution, including analysis of income levels and impact of taxes & benefits on household income Some work has already been carried out to reflect recommendations of Monitoring Review, including: More information for users on unique strengths of ETB and how it fits with other sources Improved and extended analysis of coherence of ETB with other sources Summary of methodology in bulletin in addition to detailed methodology report Extended focus on income inequality Richard Tonkin

Headlines: Effects of Taxes & Benefits 28 Richard Tonkin

Headlines: Effects of Taxes & Benefits 29 Richard Tonkin

Headlines: Effects of Taxes & Benefits 30 Richard Tonkin *ETB uses the HHFCE implied deflator

Coherence: Effects of Taxes & Benefits 31 Richard Tonkin

Coherence: Effects of Taxes & Benefits 32 Richard Tonkin

Coherence: Effects of Taxes & Benefits 33 Average earned income from ETB and AWE: four quarter moving average, £/wk Richard Tonkin

The main UK statistics on income distribution currently published around 15 months after reference period. Measures such as RHDI are timely, but do not reflect distribution In response to user feedback, ONS investigating ‘nowcasting’ techniques to provide early estimates of key ETB indicators (e.g. median equivalised disposable income, distributional measures) Initial methodological article was published 1 July ONS is seeking user views on this paper. 4. Nowcasts of median household income Richard Tonkin 34

Proposed nowcasting methodology involves: Uprating income microdata to account for changes such as growth in average wages Incorp. changes to benefits and direct taxes resulting from new rates, thresholds etc. Adjusting for labour market participation and demographic structure through calibration weighting. 2008/11 data used for 2013/14 nowcasts in initial report in order to provide robust test of methodology. Future editions would use more up to date base data where available. Nowcasting methodology Richard Tonkin 35

Median equivalised disposable income – published & nowcast estimates (2013/14 prices) Nowcasting results Richard Tonkin 1 Using the modified-OECD scale. 2 All income figures have been deflated to 2013/14 prices using an implied deflator for the household sector. 36

Quintile shares & S80/20 ratio: Published and nowcast estimates Nowcasting results Richard Tonkin 37

User demand for more timely data on the distribution of household income. Nowcast based estimates cannot perfectly reflect changes in distribution, particularly for small population subgroups Next steps: Intend to enhance methodology further over summer through user feedback Subject to feedback, intend to publish experimental early estimates for 2014/15 later in year Nowcasting 38 Richard Tonkin

5. Sub-group real income measures 39 Common inflation rates is a key assumption of many household income analyses. Work undertaken to relax this assumption following the Johnson Review: “ONS should develop an annual analytical publication that produces inflation indices as experienced by a range of different household types, along with appropriate advice on what income measures these analytical indices can be compared to” (Johnson (2015), p95) To which the UKSA linked one of their key recommendations: “We note that one of our principal recommendations – that there should be an annual summary or compendium drawing together a coherent picture from the range of income and earnings statistics – aligns well with the findings of the [Johnson Review]. [...] Addressing the second part of [Johnson’s recommendation] could be facilitated by an annual analytical publication that includes comparable income and earnings data.” (UKSA (2015) p5) Philip Wales

Sub-group real income measures 40 User consultation over the exact content of price indicators: Need income measures to ‘match’. Consequently, several price/income measures being developed Johnson argues that deflators and income measures must be consistent in their treatment of prices which affect both household costs and household incomes, including costs of interest, insurance and housing. If gross (net) costs of interest/insurance are included in the deflator, then gross (net) receipts from these sources should be included in the income measure as well. Sub-group income and inflation measures must meet this standard Four price measures developed, as well as four ‘matched’ income measures Article which explores these issues will be published over the summer Philip Wales

‘Matched’ prices and income measures 41 Philip Wales Price measurePrice indicator contents Starting pointInterest paymentsOO Housing CPI CPIHCPI+ Imputed rentals CPI & MIPSCPI + (Gross) Mortgage interest payments CPIH & MIPSCPI + (Gross) Mortgage interest payments + Imputed rentals

‘Matched’ prices and income measures 42 Philip Wales Price measureIncome indicator contents Starting pointInterest paymentsOO Housing CPIETB Disp. IncomeNet interest received CPIHETB Disp. IncomeNet interest received+ Imputed rentals CPI & MIPSETB Disp. Income (Gross interest received) CPIH & MIPSETB Disp. Income (Gross interest received) + Imputed rentals

Preliminary: Alternative price measures: inflation by equivalised income decile, % Alternative sub-group price indices 43 Philip Wales

Preliminary: Alternative price measures: inflation by equivalised income decile, % Alternative sub-group price indices 44 Philip Wales CAAGR = 2.8%CAAGR = 2.7%CAAGR = 2.6%

Preliminary: Alternative price measures: inflation by equivalised income decile, % Alternative sub-group price indices 45 Philip Wales

Preliminary: Alternative price measures: inflation by equivalised income decile, % Alternative sub-group price indices 46 Philip Wales CAAGR = 2.8%CAAGR = 2.6%CAAGR = 2.4%

Sub-group nominal income indices 47 Preliminary: Alternative income definitions, all households, average £/wk Philip Wales

Sub-group nominal income indices 48 Preliminary: Alternative income definitions, all households, average £/wk Interest Paid Philip Wales

Sub-group nominal income indices 49 Preliminary: Alternative income definitions, all households, average £/wk Average imputed rentals Interest Paid Philip Wales

Sub-group nominal income indices 50 Preliminary: Alternative income definitions growth by equivalised income decile, , % Philip Wales

Sub-group nominal income indices 51 Preliminary: Alternative income definitions growth by equivalised income decile, , % Philip Wales Interest Paid

Sub-group nominal income indices 52 Preliminary: Alternative income definitions growth by equivalised income decile, , % Philip Wales Imputed rentals

Sub-group real income indices 53 Preliminary: Alternative real income definitions growth by equivalised income decile, average , % Philip Wales

Sub-group real income indices 54 Preliminary: Alternative real income definitions growth by equivalised income decile, average , % Philip Wales

Sub-group real income indices 55 Preliminary: Alternative real income definitions growth by equivalised income decile, average , % Philip Wales

Sub-group real income indices 56 Preliminary: Alternative real income definitions growth by equivalised income decile, average , % Philip Wales

Conclusion 57 Work has been started to address the themes of the Monitoring Review. In particular: Work to improve and explain NA measures of income has been started More themed analysis has been undertaken Effects of Taxes & Benefits has been published, taking into account some of the Monitoring Review’s recommendations Work to improve the timeliness of key income measures Links to the Johnson Review’s central recommendation have been established, and a set of proto-type indices will be made available over the summer. In particular, we’d welcome comments and suggestions on the published ‘nowcasts’ paper. Following the publication of our article on alternative price and income measures, we would welcome user feedback on their contents and approach.

Question & Answers 58

Appendix 59

RHDI growth, incl. & excl. NPISH 60 RHDI per capita, Incl. & Excl. NPISH, Quarter on same quarter a year ago, %

Alternative measures of HH income 61 RHDI per capita, Excl. NPISH, various measures, 2008=100 Starting with RHDI per capita... Tom Evans

Alternative measures of HH income 62 RHDI per capita, various measures, 2008= removing ‘imputed’ elements... Tom Evans

Alternative measures of HH income 63 RHDI per capita, incl. NPISH, various measures, 2008=100...excluding FISIM from savings... Tom Evans

Alternative measures of HH income 64 RHDI per capita, incl. NPISH, various measures, 2008= removing interest paid... Tom Evans

Alternative measures of HH income 65 RHDI per capita, incl. NPISH, various measures, 2008=100...excluding interest altogether. Tom Evans

Alternative measures of HH income 66 RHDI per capita, Excl. NPISH, various measures, 2008=100...excluding interest altogether. Tom Evans 2008=100

ASHE analysis 67 Distribution of weekly earnings: 2013

ASHE analysis 68 Distribution of weekly earnings: 2013

ASHE analysis 69 Distribution of weekly earnings: 2014

ASHE analysis 70 Distribution of Gross Weekly Nominal Earnings Growth, Public & Total, 2013 % % of continuously employed who received within 0.5pp of the stated earnings growth Philip Wales

ASHE analysis 71 Distribution of Gross Weekly Nominal Earnings Growth, Public & Total, 2014 % % of continuously employed who received within 0.5pp of the stated earnings growth Philip Wales

Drivers of earnings growth 72 Contributions to average nominal earnings growth by average earnings quantile: 2014 Note: Quantiles of earnings growth for the continuously full-time employed population Philip Wales

Movers and stayers 73 *The 5 th quantile contains those with 0% earnings growth, who make up more than 5% of the continuously employed population. Job-movers and stayers among the cont. emp. pop. by quantile of earnings growth, 2014 % Philip Wales

Gini coefficient: All households – equivalised disposable income: Published and nowcast estimates Nowcasting results Richard Tonkin 1 Households are ranked by their equivalised disposable incomes, using the modified-OECD scale. 74

Sub-group price indices 75 Preliminary: CPIH consistent inflation rates by income decile, % Philip Wales

Sub-group price indices 76 CPIH consistent price indices by equivalised income decile, 2005=100 Philip Wales

Alternative sub-group price indices 77 Preliminary: Contributions to inflation by equivalised income decile, % & p.p. Decile 2Decile 9 Philip Wales

Alternative sub-group price indices 78 Preliminary: Contributions to inflation by equivalised income decile, % & p.p. Decile 2 inflation less decile 9 inflation Philip Wales

Sub-group real income indices 79 Preliminary: Alternative real income measures: income by equivalised income decile, 2013 £/wk Philip Wales

Sub-group income indices 80 Preliminary: Alternative income definitions by equivalised income decile, average £/wk Philip Wales

Sub-group real income indices 81 Preliminary: Alternative real income definitions, all households, average 2013 £/wk Philip Wales

Sub-group real income indices -OFFICIAL SENSITIVE-82 Preliminary: Alternative income growth, all households, average 2013 £, % Philip Wales

Sub-group real income indices 83 Preliminary: Alternative real income growth: income by equivalised income decile, % Philip Wales

Sub-group real income indices 84 Preliminary: Alternative real income growth: income by equivalised income decile, % Philip Wales

Sub-group real income indices 85 Preliminary: Alternative real income growth: income by equivalised income decile, % Philip Wales

Sub-group real income indices 86 Preliminary: Alternative real income growth: income by equivalised income decile, % Philip Wales