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Scottish Economic Statistics 2004

A3 Guide to Income Statistics for Scotland

Julie Bright, Scottish Executive

Introduction

The area of income statistics is extremely broad ranging; there are many different sources of information and a variety of different measures are used for different purposes. Following the Income Statistics Seminar held by the Scottish Executive in September 2003, the Office of the Chief Economic Adviser undertook to produce a guide to income statistics in Scotland, to assist analysts and researchers both within and outwith Government. This article provides a summary guide, covering the main sources and definitions of income statistics in Scotland.

In the context of this paper, 'income' is defined to be total private household income from all sources, for example from earnings, benefits, tax credits, pensions, investments, maintenance payments etc. (NB Some types of receipts are not generally included as income, for example inheritance and lump sum severance payments).

Income is often used as a proxy for standard of living however it should be remembered that levels of income do not take into account the wealth and assets of individuals/households and these factors can have an important impact upon standard of living.

Income Concepts

Recipient unit

Household income is the most commonly used measure of income. The income of the household is generally considered to be more indicative of a person's standard of living than the income attributed solely to that individual.

Family level income can also be considered. In the context of income analysis, a 'family' is usually defined to be a benefit unit, i.e. a single adult or couple plus any dependents. One or more family may share the same household (for example, an adult living with his or her parents is a separate benefit unit from the parents). Considering income at family/benefit unit level might be most appropriate when comparing with benefit or tax credits, which are paid on a benefit unit basis.

The different elements of income can be assigned to each individual, where possible (housing benefit, council tax benefit and income from sub-letting, for example, are not generally assigned to individuals). However, it should be remembered that a person with no individual income living in a wealthy household may have a high standard of living.

Some surveys which collect data on income, but where this is not the main focus of the survey (for example the Scottish Household Survey and the Scottish House Condition Survey), only collect the income of the householder and spouse/partner, and as such the total income of the household is often under represented. However, these data can still be useful for classificatory purposes.

Types of income

There are various different types of income which are used for different purposes. The main types are listed below. It should be noted that different surveys may have slightly different definitions of these measures; it is important to check the exact definitions of the source being used.

Total income: (Mainly a Family Resource Survey definition): Total income from all sources including from Tax Credits, before deductions of income tax and National Insurance.

Gross income: Total income from all sources (excluding Tax Credits), before deductions of income tax and National Insurance.

Net income: Total income after deductions for income tax and National Insurance Contributions.

Net disposable income: Total income after deductions for income tax, National Insurance Contributions, council tax, pension contributions and maintenance payments.

Equivalised net disposable income: (mainly a Households Below Average Income (HBAI) definition): 'Equivalised' Income is used to allow comparisons of living standards between different household types. Income is adjusted to take into account variations in the size and composition of the household. 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 distinct equivalence scales used for income before housing costs (BHC) and income after housing costs (AHC).

Before housing costs (mainly a HBAI definition): Net disposable income, equivalised (in HBAI) using the before housing costs equivalisation scale. Certain incomes in kind are included such as free school meals and TV licenses for over 75s.

After housing costs (mainly a HBAI definition): Net disposable income with income as for BHC but with rent/mortgage payments, water charges, structural insurance premiums, ground rent and service charges deducted. In HBAI this is equivalised using the after housing costs equivalisation scale.

Measures of income

Average income:

• The median is the income value which divides a population, when ranked by income, into two equal-sized groups. This measure is most commonly used to represent average income due to the highly skewed nature of the income distribution, which leads to the very high incomes of a few having a disproportionate impact on the mean.
• The mean is the average of the income of all individuals or households in a population, divided by the number of individuals/
  households. In some situations it can be more appropriate to consider the mean rather than the median, for example for comparing with average GDP measures.

Distribution:

• The income distribution as a whole is often represented by quintiles. These are the income values which divide the population, when ranked by income, into five equal-sized groups. Deciles or percentiles are also sometimes used, where sample size of the data is sufficient to allow a breakdown at this level.
• Income bandings are used in the published analyses of a number of surveys. Recommended income bandings are included in the cross-governmental harmonisation programme, looking into standardising inputs and outputs for use in National Statistics. Weblink: http://www.statistics.gov.uk/about/data/harmonisation/default.asp

Low-income thresholds

Low-income is defined using thresholds derived from fractions of median and mean income. The official headline 'low-income measure' is based on individuals living in households with equivalised net income below 60% of median income.

Income Data Sources

This section describes the main sources of data on household incomes. Table A3.1 summarises the publications from these and provides contact information.

Family Resources Survey (National Statistics)

The Family Resources Survey (FRS) collects information on the incomes and circumstances of private households in the United Kingdom (Great Britain before 2002-03). The survey was launched in October 2002, with a consistent series available since 1994/95, and is sponsored by the Department of Work and Pensions (DWP). This survey is the main source of income statistics for Scotland. Income data at sub-Scotland level is not currently available from this source.

Data for 2002/03 were published in December 2003. From this year, the sample size for Scotland has been doubled (to around 4,700 households). This boost was paid for by the Scottish Executive in order to allow more detailed analysis of the Scottish sample and more robust low-income estimates. The 2002/03 survey is also the first to include data from Northern Ireland. The total sample size for the UK as a whole was around 29,000 households in 2002/03. Households north of the Caledonian Canal have only been included in the survey since 2001/02.

The primary function of the FRS is to collect information on the resources of households, that is income received from all sources, including wages and salaries, state benefits and tax credits, private (occupational and personal) pension schemes, and investments.

Published analysis of the FRS shows bands of total household income as a classificatory variable; the analysis does not show comparisons of the income distribution across the population. These types of living standard comparisons can only be made following further work, for example, adjusting income for household size and composition, creating a measure of "disposable" income and assessing the impact of housing costs. The DWP statistical series Households Below Average Income (HBAI) provides the most accurate picture of the disposable income distribution in Scotland and Great Britain as a whole.

Households Below Average Income (National Statistics)

The Households Below Average Income (HBAI) dataset is derived from the FRS. It is the main source of low-income estimates for Scotland. Data for 2002/03 were published in March 2004. Sub-Scotland analysis is not currently available from this source.

In order to make comparisons of the living standards of different households, the HBAI uses household disposable income, equivalised to take into account variations in the size and composition of the households (see definition of equivalisation above).

Individual Incomes (National Statistics)

The Individual Incomes dataset is also derived from the FRS and analysis is published by the Women and Equality Unit (WEU) of the Department of Trade and Industry. Data for 2002/03 were published in June 2004.

The report examines the individual incomes of women and men, analysed by source of income (earnings, benefits, investments, pensions etc.), family type, and characteristics (such as age and marital status). It focuses mainly on GB, but a chapter is devoted to regional/country analysis and several tables present figures at Scotland level (sub-Scotland level analysis is not currently available from this source).

Individual income encompasses all sources of income, not just earnings, and is not directly related to standard of living - as a person with no individual income but living in a wealthy household may have a high standard of living.

Expenditure and Food Survey (National Statistics)

The Expenditure and Food Survey (EFS) is the result of the amalgamation of the Family Expenditure and National Food Surveys (FES and NFS) in 2001/02. These surveys had been charting changes and patterns in Britain's spending and food consumption since the 1950s. The Office for National Statistics (ONS) has overall project management and financial responsibility for the EFS.

The sample size is around 7,000 households/14,000 individuals for the UK as a whole, with the Scottish sample being around 600 households. The survey is primarily used to provide information for the Retail Prices Index; National Accounts estimates of household expenditure; the analysis of the effect of taxes and benefits, and trends in nutrition. However, information on household income is also collected on the survey.

The income data collected on the EFS are not as detailed as on the FRS, for example in terms of information on individual benefits, and the sample size for Scotland means that only limited analysis can be done at this level. However, the source does enable some limited analysis of expenditure by income for Scotland (sub-Scotland analysis is not possible).

General Household Survey (National Statistics)

The General Household Survey (GHS) is a multi-purpose continuous survey carried out by the Office for National Statistics (ONS) which collects information on a range of topics, including income, from people living in private households in Great Britain. The survey started in 1971 and has an achieved sample size of around 9,000 households (20,000 people); including around 750 households in Scotland (sub-Scotland figures are not available from this source).

Income is used as a classificatory variable in the main publication, in grouped bands of gross income. GHS is not currently a lead source of income data.

Scottish Household Survey (National Statistics)

The Scottish Household Survey (SHS) is a continuous survey based on a sample of the general population in private residences in Scotland. The survey started in 1999 and is financed by the Scottish Executive. The aim is to provide representative information about the composition, characteristics and behaviour of Scottish households, both nationally (annually) and at local authority level (every two years). Annual and technical reports for 2002 were published in August 2004. Quarterly summary reports are generally published 3-4 months after the date to which they refer.

The income data published are net income brought into the household by the highest income householder and/or their spouse or partner. Therefore income from any other members of the household are not included. Income from this source should only be used for classificatory purposes, in income bandings rather than average measures.

Scottish House Condition Survey

SHCSs have been carried out by Communities Scotland in 1991, 1996 and 2002, with an achieved sample size of around 15,000 dwellings a year (both social and physical data). The aim of the survey is to monitor the physical condition of the housing stock in Scotland and so the information collected from householders is primarily intended to link to the findings of the physical survey of their homes. Data for 2002 have been available since April 2004. From October 2003 onwards the survey moved to a continuous format, surveying 3,000 dwellings per year. The frequency of reporting is to be confirmed, as is the survey's status as a National Statistic.

Information on income is collected on the survey. As for the Scottish Household Survey (see above) the income data published is net income of the highest income householder and/or their spouse or partner. Income from this source should only be used for classificatory purposes, in income bandings rather than average measures. Data are available at Scotland and local authority level.

New Earnings Survey (National Statistics)

The New Earnings Survey (NES) is carried out by the Office for National Statistics, covers Great Britain and is based on a one per cent sample of employees who are member of pay-as-you-earn (PAYE) income tax scheme. The employer is asked to complete the questionnaire for pay period of April each year. Information collected includes total gross earnings for pay period, components of the make-up of pay including bonuses but excluding non-monetary perks such as benefits in kind, total gross annual earnings and hours worked. Statistics can be split by gender, age, industry, occupation, full-time/part-time and area of employment. Earnings statistics are available for some but not all local authority and parliamentary constituency areas.

The NES is the preferred source for earnings for full-time employees but not for part-time employees. The survey does not cover individuals earning below the income tax threshold which excludes mainly women in part-time jobs and a small proportion of young people. The survey does not measure income (i.e. the amount of money received from all sources), but earnings only.

From 2004, the NES will be replaced by a new survey called the Annual Survey of Hours and Earnings (ASHE) which will produce similar information to the NES, but with improved coverage and methodology. Results will be published in October 2004.

Labour Force Survey (National Statistics)

The Labour Force Survey (LFS) is the largest household survey in the UK and is carried out by the Office for National Statistics. Each household is interviewed five times, once every three months. The initial interview is generally done face-to-face by an interviewer visiting the address (with exception of North of the Caledonian Canal where it is done by telephone interview). Further interviews are done by telephone where possible. Only the first and fifth interviews ask about earnings of employees. Within a one year period about 8,000 households are surveyed in Scotland and everyone resident in the household is included. The LFS is the preferred source about earnings of part-time employees. Sub-Scotland analysis is not currently available from this source.

Survey of Personal Incomes (National Statistics)

The Survey of Personal Incomes is an Inland Revenue Survey covering a sample of around 300,000 tax payers. Data are available on an annual basis since 1978/79.

Data are available for income distributions before and after tax, numbers of taxpayers with income and deductions of various types and the amounts concerned. Some information on tax liabilities and self-employment income is also available. Survey data on self-employment income, income from property, and investment income are used in the preparation of National and Regional Accounts.

Data cover the United Kingdom and figures are available for Scotland.

British Household Panel Survey (Not National Statistics)

The British Household Panel Survey (BHPS) is a general-purpose longitudinal survey aimed at furthering understanding of social and economic change at the individual and household level in Britain. The survey is run by ESRC Research Centre, University of Essex, and started in 1991. The sample size is 5,500 households over GB, including an achieved sample of around 1,500 in Scotland. This includes a boost to the Scottish sample from 1999, since which households north of the Caledonian canal (not included in previous sweeps) have also been interviewed.

The BHPS follows the same representative sample of individuals over a period of years and therefore enables comparisons to be made between a person's or household's income position at different points in time. The income data collected are equivalised in the same way as the FRS. The BHPS is the official source of data on persistent poverty in Scotland. Analysis is not possible at sub-Scotland level. The sample size involved prevents detailed breakdown of this analysis.

Other sources

There are many more government and commercial sources which collect some information on income; too many to cover in this summary guide. A few are noted below with contacts for obtaining further information:

• Scottish Social Attitudes Survey. Run by the National Centre for Social Research. Weblink: www.natcen.ac.uk
• Families and Children Survey (FACS). A GB panel survey of families with dependent children, run since 1999 by DWP. The focus of data collection is on lone parents and families with children who are eligible for benefits and/or tax credits because of their incomes. For further information see: Weblink: http://www.dwp.gov.uk/asd/asd5/facs/facs-sample.asp
• Local Authorities sometimes collect income data for their own area through local population surveys etc. Contact individual local authorities for further information.
• CACI use their model, Paycheck, to model mean, median and mode gross household income using information from their lifetime database, in conjunction with statistics from the Census and market research data. This information is available by region, county, local authority and postcode area.

Publication: Wealth of the Nation.Weblink: http://www.caci.co.uk/pd-caci-brochures.aspx
Contact: email: info@caci.co.uk

International Comparisons

The main sources collecting information on income on a comparable basis across different countries, to allow international comparisons, are as follows. Sample sizes for Scotland are insufficient to provide separate figures for Scotland, instead UK as a whole is used as a proxy.

The Luxembourg Income Study (LIS) is a collection of household income surveys, which provide demographic, income and expenditure information. Data from the FRS feed into LIS. Datasets are available around every 5 years with the most recent information being available for "around 2000".

Publication

Delivering Lisbon: http://europa.eu.int/comm/lisbon-strategy/pdf/COM2004-029-en.pdf
Weblink: http://www.lisproject.org

The EU Survey of Income and Living Conditions (EU SILC) is a new survey to which the UK is committed to start data collection in 2005 (most other member countries will start collecting in 2004). It is likely that the income data collected as part of the GHS will be enhanced and will form the UK component of SILC. The survey will replace the European Community Household Panel Survey (ECHP) which ran for 8 years, from 1994 to 2001. SILC will have a longitudinal component (which LIS does not). The purpose of EU-SILC is to inform the European Commission about the income distribution and the level and composition of poverty and social exclusion in member states. The UK targets for sample size are 7,500 households for the cross-sectional component and 5,750 households for the longitudinal component.

Proxy Income Data Sources

There are a number of data sources other than income itself, that can be used as a proxy for low income levels. In particular these sources can be useful for comparing areas within Scotland, where data on actual income are very limited. These include the data sources outlined below, for which a summary of available publications is provided in Table A3.2.

Benefits data

Data on benefits are available at Scotland, local authority, parliamentary constituency and ward level.

Scottish Neighbourhood Statistics presents benefits data down to ward level up to 2003. Annual data for 2004 onwards will be provided at the new statistical intermediate geography.

Work and Pensions Longitudinal Study

The Work and Pensions Longitudinal Study (WPLS) draws together 100 per cent datasets relating to the different benefits and combines these with other information relating to New Deals and employment data from the Inland Revenue. The data structure and the frequent extracts enable analysis of flows. A project is underway to steer future access to these data. Data will be available for Scotland.

Tax Credit data

Data on the Working Tax Credit and Child Tax Credit are available at Scotland, local authority, parliamentary constituency and ward level.

Scottish Index of Multiple Deprivation, (SIMD)

The SIMD provides a measure of deprivation presented at data zone level (based on Census output areas) enabling small pockets of deprivation to be identified within Scotland. The index is based on indicators relating to income, employment, health, education, access and housing and provides a ranking by level of relative deprivation.

Table A3.1: Income data sources - publications

Table A3.2: Proxy income data sources - publications

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