Households Below Average Income 2008/09 Peter Matejic (DWP)

HBAI Publication Private households in United Kingdom Main source – DWP Family Resources Survey Measurement of living standards as determined by the net disposable income, including poverty statistics Incomes equivalised and analysed Before and After Housing Costs (BHC and AHC) Figures are rounded to the nearest 100,000 or percentage point meaning figures may not sum exactly due to rounding Thanks xxx. I am going to present new statistics in the Households Below Average Income report covering the period April 2008 to March 2009. [REINSERT PRA para if used in Press Conference] This is a quite technical set of statistics, and it is important I outline the concepts used before we go into the figures. The main source is DWP’s Family Resources Survey. FRS covers private households in the United Kingdom. This means it excludes certain types of accommodation such as barracks, prisons and residential care homes. The FRS surveyed around 25,000 households in the United Kingdom in 2008/09. Equivalised means we adjust for household size and composition so we are comparing like with like. Incomes include all sources, net of tax, National Insurance and Council Tax. Before Housing Cost incomes make no further adjustments, and are most commonly used to measure child poverty. After Housing Cost incomes also deduct rent and mortgage interest and are most commonly used to measure pensioner poverty. These results are based on survey data, we are confident in results when rounded to the nearest 100,000. All statistics are calculated on an unrounded basis which means figures may not sum.

Summary of presentation content Low-income indicators, including low-income, low income and material deprivation and persistent low income Changes since 1998/99 Changes since 2007/08 Low-income population characteristics Income distribution Income growth Persistent poverty We are looking at low income, with a particular focus on changes since 1998/99 and 2007/08. (1998/99 is the first year with UK data available) We are also publishing statistics on persistent poverty at the same time, and this will be covered here too. I will also look at the characteristics of individuals in low income and also at the income distribution in 2008/09.

‘Relative’ and ‘Absolute’ low-income indicators Relative incomes are assessed against the median of the year in question The indicator falls if the income of poorer households rises faster than the population as a whole Absolute incomes are assessed against the median in 1998/99 adjusted for inflation The indicator falls if poorer households are seeing their income rise in real terms Low income and material deprivation indicator is combination of Low-income threshold of 70 per cent below median income (BHC) Material deprivation measure The median income is the point in the distribution where half of all individuals have incomes above that level and half have incomes below that level. We use various thresholds of median income – 60 per cent of median income is most commonly used, but 50 per cent and 70 per cent of median income are also presented. Relative low income measures calculate these thresholds based on the 2008/09 median. If this decreases then low income households as a group have moved closer to the median. Absolute low income measures calculate these thresholds based on the 1998/99 median uprated annually by inflation. If this decreases then low income households as a group have seen their incomes rise In terms of the low income and material deprivation indicator, this is a third indicator of child poverty, which tries to capture the experience of poorer families. Material deprivation questions look at the ability to afford common activities or items, and is calculated by looking at a higher threshold of income and an inability to afford many of these items. Services or items considered include being able to afford to keep your home warm, to go on holiday or having two pairs of all weather shoes. I should mention statistical significance – these results are based on a sample survey, which varies depending on who is selected (and consents) to be interviewed. A statistically significant change means that a chance is likely to be a real effect, rather than just down to normal variation between samples.

Number of children in low-income households This chart shows the trends in the number of children in low income households This shows a broadly downward trend to 2004/05 or 2005/06, before small increases since with a decline in the latest year. Relative BHC The number of children in low income households in 2008/09 is 2.8 million. This is 0.1 million below 2007/08 but this change is not significant. Since 1998/99, the number of children in low income households has fallen by 600,000. This is a statistically significant decrease. Absolute BHC The number of children in low income households in 2008/09 is 1.6 million. Since 1998/99, the number of children in low income households has fallen by 1.9 million. This is also a statistically significant decrease. Low income and material deprivation The number of children in low income households in 2008/09 is 2.2 million. This is the same level as in 2007/08. This is the same level as in 2004/05. Proportions Relative BHC 22%, Absolute BHC 12%, Low income and material deprivation 17%

Number of pensioners in low-income households This chart shows the trends in the number of pensioners in low income households This shows a broadly downward trend to 2005/06, before an increases between 2005/06 and 2006/07. It is flat between 2006/07 and 2007/08, with the changes shown being just due to rounding but has fallen in the latest year Relative AHC The number of pensioners in low income households in 2008/09 is 1.8 million. This is a 0.2 million reduction compared to 2007/08, this change is statistically significant. Since 1998/99, the number of pensioners in low income households has fallen by 1.1 million. This is also a statistically significant decrease. Absolute AHC The number of pensioners in low income households in 2008/09 is 1.0 million. This is the same level as in 2007/08. Since 1998/99, the number of pensioners in low income households has fallen by 1.9 million. This is a statistically significant decrease. Relative AHC, 50 per cent of median income The number of pensioners in low income households in 2008/09 is 1.1 million. This is a small decrease from 2007/08 but the fall is lost in rounding, the change is not significant. This is a decrease of 300,000 since 1998/99. This is a statistically significant reduction. Proportions Relative AHC 16%, Absolute AHC 9%, Relative 50 per cent 9%

Number of working-age adults in low-income households This chart shows the trends in the number of working age adults in low income households This shows different trends in relative and absolute terms. In relative terms, the profile is flat to 2004/05 and then rises, while there is a downward trend to 2001/02 in absolute terms, before a stabilisation. Relative BHC The number of working age adults in low income households in 2008/09 is 5.8 million. This is an increase of 200,000 compared to 2007/08. This is not statistically significant. Since 1998/99, the number of working age adults in low income households has increased by 800,000. This is a statistically significant increase. Absolute BHC The number of working age adults in low income households in 2008/09 is 3.8 million. This is the same level as in 2007/08. Since 1998/99, the number of working age adults in low income households has fallen by 1.2 million. This is a statistically significant decrease. Proportions Relative BHC 16%, Absolute BHC 11%

More likely to be in low-income households Working-age adults in workless households Lone parent families Non-white ethnic groups Families containing someone with a disability not in receipt of disability benefits Those in rented accommodation Groups with no savings or who have bills in arrears Working age adults with no qualifications Older pensioners The Households Below Average Income publication presents a large number of breakdowns. Similar groups show higher risk of low income to previous years. Some groups with high risks of low income include… Working-age adults in workless households 53 per cent of working age adults in workless households are in households with incomes below 60 per cent of median, relative BHC Compared to 23 per cent of working age adults in households where at least one adult but not all work And compared to 6 per cent of working age adults in households where all work Lone parent families 33 per cent of working age lone parents are in households with incomes below 60 per cent of median, relative BHC (but has reduced by 7 percentage points since 1998/99) Compared to 16 per cent of working age adults overall 34 per cent of children in lone parent families are in households with incomes below 60 per cent of median, relative BHC (but has reduced by more than ten percentage points since 1998/99) Compared to 22 per cent of children overall Non-white ethnic groups Particularly high for Pakistani and Bangladeshi groups, with over half of children in households headed by some of Pakistani or Bangladeshi ethnic origin being in households with incomes below 60 per cent of median, relative BHC (but has reduced by around 8 percentage points in the last ten years) Families containing someone with a disability not in receipt of disability benefits For instance, the risk of a child being in low income in a family with a disabled adult, but no disabled child is 9 percentage points higher if the no one in the family is in receipt of disability benefits. Those in rented accommodation Particularly social rented sector tenants (i.e. council and housing association tenants) for children and working age adults. For instance around half of children in the social rented sector are in low income households. The risk has however reduced somewhat over time. Particularly private rented sector tenants for pensioners. Groups with no savings or bills in arrears Among pensioners, those in families with no savings are three times as likely to be in low income households than those with more than £20,000 in savings. Among working age adults, those in households with two or more bills in arrears are three times as likely to be in low income households than those with no bills in arrears. Working age adults with no qualifications Among working age adults, those with no educational qualifications are twice as likely to be in low income as those with a qualification at below degree level and four times as likely to be in low income as those with a qualification at degree level or above. Older pensioners tend to have a slightly higher likelihood of being in low income than younger pensioners, although this is not such a strong effect. We can also analyse the data by region. We present regional statistics as three year averages, as the results for individual years tend to be volatile. There have been reductions in low income across most regions since the period ending 1999/00.

Percentage of children in low-income by region/country, three-year average The East of England and the South East have the lowest risk of children being in low income households (below 60 per cent of median income, BHC). The West Midlands has the highest risk. Note, we do not have data for Northern Ireland for earlier years.

Percentage of pensioners in low-income by region/country, three-year average For pensioners, it is Scotland, the South East and the East of England with the lowest proportion of pensioners in low income households (being in households with incomes below 60 per cent of median income, AHC), with London and Northern Ireland having the highest rates.

The income distribution in 2008/09 (BHC) This chart shows the income distribution in 2008/09. These incomes are equivalised, i.e. adjusted for family size and composition. The income distribution is bunched up between £200 and £450 per week levels, which means there are a number of households with low incomes, who are close to thresholds of low income. There is also a long tail with a lot of households with high incomes. The median income in 2008/09 was £407 per week, with a mean income of £507 per week. These are in 2008/09 prices and correspond to a couple with no children.

Average annual real income growth 1998/99-2008/09 This chart shows the average annual real terms growth by quintile. The lowest quintile contains the 20 per cent of individuals with the lowest equivalised household incomes, the next quintile has the next 20 per cent lowest incomes and so on, until the top quintile has the highest 20 per cent of incomes. The chart shows there has been growth across the whole of the income distribution over the period. The highest growth has been in the second quintile, which, of the five groups, is the group with the second lowest incomes. Note that all these changes are after the effect of inflation has been taken into account. Looking at the period 2007/08 to 2008/09, there is no clear consistent pattern in changes across Before and After Housing Costs incomes.

Persistent poverty Looks at the same individuals over time An individual is in persistent low income if they have been in low income for three or more of the last four years Uses a relative 60 per cent of median income definition of low income Uses the British Household Panel Survey, funded by the Economic and Social Research Council. Latest data relates to autumn / winter 2007 I should emphasise this uses a different data source, and that the data is older than the other information presented. This is included here, as new statistics are being released today on persistent poverty which are in HBAI and in more detail in our Low Income Dynamics publication.

Persistent poverty levels This chart shows the trends in the number of different groups in persistent low income Child BHC The proportion of children in persistent low income over the period 2004-07 is 10 per cent, the same level as in 2003-06. Since 1991/94, the proportion of children in low income households has fallen by 9 per cent. The biggest reduction has been since 1998-01. Working age BHC The proportion of working age adult in persistent low income households in 2004-07 is 5 per cent, the same level as 2003-06. Since 1991/94, the proportion of working age adults in low income households has fallen by 2 per cent. Pensioners AHC The proportion of pensioners in persistent low income in 2004-07 is 9 per cent, a reduction of 2 per cent since 2003-06. Since 1991/94, the proportion of pensioners in low income households has fallen by 12 per cent. This reduction has been since 1997-00.

Summary Low-income indicators 1998/99-2008/09 Numbers of children and pensioners in low income have fallen but working-age has increased Low-income indicators 2007/08-2008/09 Numbers of children in low income has fallen slightly Numbers of working age adults in low income increased Numbers of pensioners in low income decreased Numbers of children in low income and material deprivation stayed at same level Income growth 1998/99-2008/09 Growth across all groups 2nd quintile has shown biggest average annual rise Income growth 2007/08-2008/09 No consistent pattern BHC and AHC Persistent poverty 2003-06 to 2006-07 Reduction in persistent poverty for pensioners, flat for children and working-age adults Large reductions since 1998-01

Rounding – an example To ensure that the figures produced from the survey can provide reliable estimates, we round the figures to the nearest 100,000 This can mean that figures may not sum due to this rounding. If poverty levels amongst a certain group changed from 1.64 to 1.57 million, the rounded levels of poverty would be 1.6 million in both years as both levels round to this, but the unrounded difference would be 0.07 million which would be rounded to 0.1 million If the statistics changed from 1.66 to 1.64, the rounded levels of poverty would be 1.7 million in the first year and 1.6 in the second year because of rounding, but the unrounded difference would be 0.02 million which would be rounded to no change Only rounding figures at the final point of calculation of a statistic produces the best estimate

Percentage of working-age adults in low-income by region/country, three-year average The East of England and the South East have the lowest risk of working-age adults being in low income households (below 60 per cent of median income, BHC). The North East has the highest risk. Note, we do not have data for Northern Ireland for earlier years.