The Scottish Government

This item was published during the term of a previous administration that ended in April 2007

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Households Below Average Income

09/03/2006

Estimates of the proportions and numbers of children, working age adults and pensioners living in low income households in Scotland are published today.

The estimates are derived from the Department for Work and Pensions' Households Below Average Income (HBAI) analysis, which is based on the Family Resources Survey (FRS).

Key Scottish results for those living in households below 60 per cent of both the relative GB median (current median income) and absolute GB median (median at the 1996/97 baseline, fixed in real terms) before and after housing costs are:

Children - Absolute low income

• In 1996/97 the number of children in low income households before housing costs was 320,000 (29 per cent of all children). This had fallen by 69 per cent to 100,000 children in 2004/05 (10 per cent of all children)
• After housing costs the number of children in low income households fell by 65 per cent, from 370,000 in 1996/97 (33 per cent of all children) to 130,000 in 2004/05 (13 per cent of all children)

Children - Relative low income

• The number of children in relative low income households before housing costs has fallen by 41 per cent, from 320,000 in 1996/97 to 190,000 in 2004/05 (19 per cent of all children)
• The HM Treasury (HMT)/Department for Work and Pensions' (DWP) target to reduce the number of children in low income households in GB by at least a quarter between 1998/99 and 2004/05 is measured using relative low income households before housing costs. In Scotland, since 1998/99, there has been a 34 per cent decrease
• After housing costs the number has fallen by 35 per cent from 370,000 in 1996/97 to 240,000 in 2004/05 (23 per cent of all children)

Working Age Adults - Absolute low income

• In 1996/97 the number of working age adults (WAAs) in low income households before housing costs was 470,000 (16 per cent of all WAAs). This had fallen by 40 per cent to 280,000 in 2004/05 (9 per cent of all WAAs)
• After housing costs the number of working aged adults in low income households also fell by 40 per cent, from 600,000 in 1996/97 (20 per cent of all WAAs) to 360,000 in 2004/05 (12 per cent of all WAAs)

Working Age Adults - Relative low income

• The number of working age adults in relative low income households before housing costs has remained steady, from 470,000 in 1996/97 to 440,000 in 2004/05 (15 per cent of all WAAs)
• After housing costs the number again has remained fairly steady, from 600,000 in 1996/97 to 540,000 in 2004/05 (18 per cent of all WAAs)

Pensioners - Absolute low income

• In 1996/97 the number of pensioners in low income households before housing costs was 220,000 (26 per cent of all pensioners). This had fallen by 64 per cent to 80,000 in 2004/05 (9 per cent of all pensioners)
• After housing costs the number of pensioners in low income households fell by 77 per cent, from 260,000 in 1996/97 (30 per cent of all pensioners) to 60,000 in 2004/05 (six per cent of all pensioners)

Pensioners - Relative low income

• The number of pensioners in relative low income households before housing costs has fallen by 23 per cent, from 220,000 in 1996/97 to 170,000 in 2004/05 (18 per cent of all pensioners)
• After housing costs the number has fallen by 46 per cent from 260,000 in 1996/97 to 140,000 in 2004/05 (16 per cent of all pensioners)

All individuals - Absolute low income

• The current low income estimates for 2004/05 show that the number of individuals in absolute low income households before housing costs has fallen from 1,010,000 in 1996/97 to 470,000 in 2004/05. This is a decrease of 53 per cent.
• The number of individuals in low income households after housing costs was 1,230,000 in 1996/97, falling to 550,000 in 2004/05. This is a decrease of 55 per cent

All individuals - Relative low income

• The number of individuals in relative low income households before housing costs has fallen by 21 per cent, from 1,010,000 in 1996/97 to 800,000 in 2004/05
• After housing costs numbers have fallen by 26 per cent, from 1,230,000 in 1996/97 to 910,000 in 2004/05

New child poverty measure (see No 7 in the notes section for further explanations on how this measure differs to the above)

• In Scotland, the number of children in tier 1 is down from 28 per cent (300,000) in 1998/99 to 13 per cent (140,000) in 2004/05. This is a decrease of 53 per cent. Tier 1 represents children in absolute low income and is a measure of whether the poorest families are seeing their incomes rise in real terms
• In Scotland the number of children in tier 2 is down from 28 per cent (300,000) in 1998/99 to 21 per cent (210,000) in 2004/05. This is a decrease of 30 per cent. Tier 2 represents children in relative low income and is a measure of whether the poorest families are keeping pace with the growth of incomes in the economy as a whole

Change in Median Income

• For a couple with no children the GB median income before housing costs in 2004/05 was pound349 per week, this is a real terms increase of £55 (19 per cent) since 1996/97 (the inflation adjusted GB median income in 1996/97 was £294). After housing costs the increase is from £242 per week in 1996/97 (inflation adjusted) to £304 in 2004/05. This is an increase of 26 per cent or £62
• Consequently, the 60 per cent low income threshold, which is used to derive the low income household figures, has increased by £33 per week (before housing costs) in real terms, from £177 in 1996/97 (inflation adjusted) to £210 in 2004/05. After housing costs the 60 per cent of GB median has increased by £38 per week in real terms, from £145 to £183

The Department for Work and Pensions' (DWP) Households Below Average Income data are published annually and are used to provide the official snapshot low income estimates for individuals, children, working age adults and pensioners for GB and Scotland. This publication notice provides the headline estimates for Scotland only.

For GB estimates (and some regional analysis) please see the DWP publication Households Below Average Income: An analysis of the income distribution 1994/95-2004/05.

Income definitions and measures

The income used in the 'low income' estimates is called 'net disposable household income'. It is simply income from all sources, for all members of the household but after deductions for income tax, National Insurance contributions, council tax, pension contributions, maintenance payments and insurance premia. Due to changes in the questions on the FRS, from 2005/06, disposable income to estimate official low income figures will include insurance premia, this change will have very little effect.

Equivalisation

In order for the net disposable household income to be used as a proxy for living standards it has to be adjusted. This adjustment is called 'equivalisation'. This equivalised income allows the comparison of living standards between households that vary in size and composition. This adjustment reflects the fact that a family of several people requires a higher income than a single person in order for both households to enjoy a comparable standard of living.

The key assumption is that all individuals in the household benefit equally from the combined (equivalised) income of the household. There are several different equivalence scales. The current low income figures use the McClements equivalence scale. The new child poverty measure, uses the modified OECD scale. Next year, all low income figures will be based on the modified OECD scale. The DWP have published a paper with further details about the changes to equivalisation scales.

How is low income measured?

Individuals are defined as being in low income if their equivalised net disposable household income is below 60 per cent of the GB median. The median is the income value which divides a population, when ranked by income, into two equal sized groups. Since the mean is influenced significantly by the highest incomes, median income thresholds are widely accepted as a better benchmark when considering a derived measure for low income. 60 per cent of median is the most commonly used low income measure, however additional 50 per cent and 70 per cent of median figures are also published in support of Opportunity for all and to give an idea of the depth of low income.

Before housing costs (BHC) and after housing costs (AHC) This publication provides low income estimates on a before housing costs basis and on an after housing costs basis. Since some people choose to spend more of their income on housing costs, an after housing costs measure would understate the relative standard of living of those individuals who were actually benefiting from a better quality of life by paying more for better accommodation. Conversely, any income measure which does not deduct housing costs (i.e. the before housing costs measure) will overstate the living standards of individuals whose housing costs are high relative to the quality of their accommodation.

Absolute and relative measures

There are two further measures that are used to describe trends over time: absolute low income and relative low income. In essence, the absolute measures whether individuals in the lowest income households are seeing their incomes rise in real terms. The relative measures whether those in the lowest incomes are keeping up with the growth of the economy as a whole.

Absolute low income: individuals living in households whose equivalised income is below 60 per cent of inflation adjusted GB median income in 1996/97. This is a measure of whether those in the lowest income households are seeing their incomes rise in real terms.

Relative low income: individuals living in households whose equivalised income is below 60 per cent of GB median income in the same year. This is a measure of whether those in the lowest income households are keeping pace with the growth of incomes in the economy as a whole.

The New Child Poverty Measure

This year sees the launch of a new child poverty measure. These long term measures were developed by the DWP in response to the Prime Minister's 1999 announcement that the UK Government is committed to eradicating child poverty within in a generation. The Executive shares this vision. In April 2002, the DWP launched the Measuring Child Poverty Consultation in order to develop a long term measure of child poverty.

The new measure forms the basis of a joint DWP/HM Treasury child poverty target of halving child poverty by 2010 and eradicating child poverty by 2020. The measure will consist of three tiers:

1. Tier 1, Absolute low income: number and proportion of children in households whose equivalised income before housing costs is below 60 per cent of inflation adjusted GB median income in 1998/99. This is a measure of whether the poorest families are seeing their incomes rise in real terms.
2. Tier 2, Relative low income: number and proportion of children in households whose equivalised income before housing costs is below 60 per cent of GB median income in the same year. This is a measure of whether the poorest families are keeping pace with the growth of incomes in the economy as a whole
3. Tier 3, Material deprivation and low income combined: Number and proportion of children that are both materially deprived and are in households whose equivalised income before housing costs is less than 70 per cent of the GB median in the current year. This is to provide a wider measure of children's living standards.

The third tier (material deprivation and low income combined) will be published later in the year. In next year's HBAI Statistical Publication Notice, all three tiers will be published at the same time. To allow better international comparisons, the new child poverty measure uses the modified OECD equivalisation scale and, to reflect the year in which the commitment to eradicate child poverty was made, the base line year for the absolute measure (tier 1) is 1998/99. The modified OECD equivalisation scale gives more weight to 0-4 year olds and to 14-15 year olds than the McClements equivalisation scale and less weight to children of other ages. This results in slightly more children being in low income under tiers 1 and 2 than under the current methodology (McClements equivalisation scale, absolute and relative, before housing costs). The trends will remain the same which ever scale is used.

Other points to note

The percentages show the proportion of the population that fall below the threshold in the year in question. Therefore, due to changing demographics, the same number of persons one year may represent a different proportion to the same number in a previous year.

The figures are estimates based on a sample survey - The Family Resources Survey - and are therefore subject to sampling variation. Extreme caution should be exercised in the interpretation of small year-on-year fluctuations. Identification of trends must be based on data for several years. As the Scottish Executive has funded a doubling of the Scottish sample since 2002/03, the Scottish figures from 2002/03 onwards should be less prone to fluctuation within key trends than those for earlier years.

The Household Below Average Income data are grossed up to produce estimates for the overall population. Following a review, the Department for Work and Pensions announced a new grossing regime in February 2005. This new grossing regime, which came into effect last year, improves the accuracy of regional-level counts drawn from the Family Resources Survey (from which the HBAI is based). The full HBAI series from 1994/95 was revised last year in line with the new grossing regime. Further information about the new grossing regime is available at the DWP website: www.dwp.gov.uk/asd/frs.