Poverty and Income Inequality in Edinburgh September 2015

Summary findings Scotland – 940,000 individuals living in poverty in 2013/14 – Poverty rates remain relatively unchanged in the last year – Some evidence of improvement in incomes, but not felt across all household types Edinburgh – Poverty rates remain close to the Scottish average – Poverty rates generally follow the Scottish trend over time – Continued evidence of severe local income inequality within the city Outlook – Low inflation, continued slow employment and earnings growth – Tax and benefit changes reduce income for poor working households – Overall poverty rates likely to remain steady

Defining and measuring poverty Low income households “Individuals are said to be in relative low income if they live in a household with an equivalised income below 60% of average (median) income of the year in question.” Department for Work and Pensions Scottish Government

940,000 people in Scotland live in poverty 24% 19%18% Scottish Government

Changing poverty rates in Scotland Scottish Government

Slow income growth Median household income rose by 2.2% in 2013/14... Improved employment rates Increase in no. hours worked Slow wage growth Increase in personal tax allowances Slow income growth in all deciles... incomes remain well below pre-recession levels... Median incomes remain 6% below 2009/10 level in real terms Scottish Government

Slow income growth Median household income rose by 2.2% in 2013/14... Improved employment rates Increase in no. hours worked Slow wage growth, particularly for lower deciles Increase in personal tax allowances Slow income growth in all deciles.....but not all Household types... incomes remain well below pre-recession levels... Median incomes remain 6% below 2009/10 level in real terms Scottish Government

Poverty and material deprivation in Scotland Scottish Government

In work poverty in Scotland 430,000 individuals experience ‘in work poverty’ Rates falling for working age adults Rates remain static for households with children Drivers: Slow increase in hourly pay Increase in hours worked Small shift from self-employed to employment Scottish Government

Poverty in Edinburgh – Previous findings Previous Findings Edinburgh is an affluent city, but still records poverty levels similar to the Scottish average – One in five Edinburgh households live on incomes below the poverty threshold – In some communities over a third of households live on low incomes – These pockets of poverty in Edinburgh are as severe as any other Scottish city Low income communities co-exist with very affluent communities – Both low and high income communities can be found in every ward and in every locality Questions? A more up to date picture of Edinburgh’s poverty rate? How do trends in Edinburgh compare to the Scotland trend? More up to date evidence of income inequality?

Poverty rates in Edinburgh close to Scottish average Poverty estimates Sources: Improvement Service, Child Poverty Action Group, DWP Housing Benefit Caseloads, Experian

Poverty rates in Edinburgh follow Scottish trends Benefits data understate total population living on low incomes...but do provide a useful tracker for trends in large sub-groups of that population Edinburgh data generally tracks closely to the Scottish trend Sources: DWP Benefits claimants, Housing Benefit Caseload Statistics

Poverty rates in Edinburgh follow Scottish trends? Some evidence that recent labour market drivers have been weaker in Edinburgh than in Scotland... Edinburgh earnings growing more slowly than Scotland... Earnings for lowest decile workers falling in Edinburgh, rising in Scotland. Annual Survey of Hours and Earnings

Significant income inequality across the city North WestNorth EastSouth East South West Child Poverty Action Group

Communities ranked amongst the poorest in Scotland Child Poverty Action Group

High levels of income inequality across the city Median household income (Mosaic 2014) North WestNorth EastSouth East South West Max/Min Datazone Ward Mean Experian – Mosaic Scotland

High levels of income inequality across the city Financial Stress (Mosaic 2014) Max/Min Datazone Ward Mean North WestNorth EastSouth East South West Experian – Mosaic Scotland

High levels of income inequality across the city Benefits Dependency (Out of work claimants, Feb 2015) Max/Min Datazone Ward Mean North WestNorth EastSouth East South West DWP –Benefits Claimants

Costs of Income Inequality FOCUS on Inequality and Growth, OECD, December 2014 Income inequality has a negative and statistically significant impact on medium-term growth – Suppresses human capital accumulation – Undermines educational opportunities for disadvantaged groups – Slows skills development and productivity growth UK income inequality rose significantly during Cost of inequality equal to 9% of GDP over that period No evidence that redistribution polices (tax and benefits) harm economic growth “Policies that help to limit or reverse inequality may not only make societies less unfair, but also wealthier”

Looking forward Impact of tax and benefits changes announced in July 2015 Budget Benefits cuts = removal of £12bn from welfare bill over next 6 years Equivalent to circa £270m in Edinburgh Partially offset by NLW and other announcements Institute of Fiscal Studies analysis Significant reduction in income for poorest households Average loss from cuts to benefits = £750 pa Average gain from NLW = £200pw “There may be strong arguments for introducing the new NLW, but it should not be considered a direct substitute for benefits and tax credits aimed at lower income households.” Future trends Continued low inflation Slow employment and earnings growth But... Tax and benefits changes likely to reduce income for poorest households......particularly low income, working families IFS & JRF conclusions Relative poverty rates likely to remain steady at best Upward pressure on in-work poverty More stable position for Pensioner groups

Data sources Scottish GovernmentPoverty in Scotland 2013/14Poverty in Scotland 2013/14 Dept. Work & PensionsHouseholds Below Average Income 2013/14Households Below Average Income 2013/14 Improvement ServiceLocal Incomes Modelling Project, March 2013Local Incomes Modelling Project, March 2013 Child Poverty Action GroupChild Poverty map of the UK, October 2014Child Poverty map of the UK, October 2014 Dept. Work & PensionsHousing Benefit Caseload Statistics, February 2015Housing Benefit Caseload Statistics, February 2015 ExperianMosaic Scotland 2014Mosaic Scotland 2014 Dept. Work & PensionsOut of work benefits claimants, February 2015Out of work benefits claimants Office for National StatisticsAnnual Survey of Hours and Earnings, 2014Annual Survey of Hours and Earnings, 2014 OECDFocus on Income Inequality and Growth, December 2014Focus on Income Inequality and Growth, December 2014 Institute for Fiscal StudiesAssessment of Living wage and tax/benefit changes, September 2015Assessment of Living wage and tax/benefit changes Institute for Fiscal Studies &Living Standards, Poverty and Inequality in the UK:2015, Joseph Rowntree Foundation July 2015Living Standards, Poverty and Inequality in the UK:2015

For more information For more information contact us at