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Chapter Three: Current Income and Financial Inclusion
Current Income and Financial Inclusion
This chapter includes two sections, the first on current income and the second on financial inclusion.
Income
Low income is one of the main causes of deprivation. There are currently no reliable figures for local area income distributions and therefore low income is measured using the proportion of adults and children receiving low income benefits or being dependent on someone receiving low income benefits. The income domain of the SIMD is made up of eight such indicators (see Appendix 1).
Since the creation of the 2004 SIMD there have been various changes to the benefits and tax credits system making time series analysis of some indicators difficult (see Appendix 1). Some of the indicators used to create the income domain of the SIMD are not available to the Scottish Executive at data zone level because of confidentiality constraints on small numbers. Consequently this chapter concentrates on analysis of the overall SIMD 2004 income domain, rather than its constituent indicators, and analysis of more recent data on recipients of income support and their dependants and recipients of the pension credit.
Key points
- Over 37 per cent of income deprived people in Scotland live in the 15% most deprived areas.
- In the 20% most deprived areas there were 31 per cent of households with a net income of over £15,000 in 2003, however this had increased from 20 per cent in 1999, with the relative increase being much higher than that in the least deprived 20% (from 61 per cent to 71 per cent)
- People of working age living in the 15% most deprived areas are four times more likely to be receiving income support than those living in the rest of Scotland.
- In the 15% most deprived areas over 40 per cent of children are dependent on a recipient of income support compared with 10 per cent of children in the rest of Scotland.
- 45 per cent of people aged 16 to 24 receiving income support are from the 15% most deprived areas.
- People aged 60 and over living in the 15% most deprived areas are twice as likely to receive the guaranteed pension credit to those living in the rest of Scotland.
- Over half of people aged 75 and over living in the 15% most deprived areas are receiving a pension credit.
The SIMD 2004 shows that 15 per cent (757,117 people) of the population of Scotland is income deprived. Chart 3.1 shows that in the 10% most deprived areas in excess of 40 per cent of the total decile population are income deprived. Not all income deprived people live in deprived areas, in fact, 20 per cent of income deprived people live in the 50% least deprived areas.
Chart 3.1: Percentage of total population defined as Income Deprived
Percentages
Source: Scottish Index of Multiple Deprivation 2004
The Scottish Household Survey ( SHS) collects information on net annual household income. This refers to income from employment, benefits and other sources (after taxation and other deductions) which is brought into the household by the highest income householder and their spouse or partner. The SHS does not collect income information about other household members. It is important to note that this income data is self-reported, and is not checked against payslips or other documentary evidence. For these reasons, the income data presented below is not a true measure of household income, and these estimates may be less reliable than other data collected in the SHS. For this reason, income data are presented in bands rather than as mean or median estimates.
Across Scotland, the percentage of households with a net income of more than £15,000 has risen from 40 to 51 per cent between 1999 and 2003. In the 20% most deprived areas there were 31 per cent of households with a net income of over £15,000 in 2003, however this had increased from 20 per cent in 1999, with the relative increase being much higher than that in the least deprived 20% (from 61 per cent to 71 per cent).
Table 3.2: Annual net household income £15,000+Cell percentages, households | 1999 | 2000 | 2001 | 2002 | 2003 |
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Quintile 1 - Most deprived | 20 | 23 | 27 | 29 | 31 |
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Quintile 2 | 29 | 34 | 36 | 43 | 44 |
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Quintile 3 | 41 | 44 | 48 | 49 | 51 |
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Quintile 4 | 54 | 53 | 56 | 59 | 60 |
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Quintile 5 - Least deprived | 61 | 64 | 66 | 72 | 71 |
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Scotland | 40 | 42 | 46 | 50 | 51 |
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Source: Scottish Household Survey
Note: Incomes have not been adjusted to take account of inflation.
The UK Government and the Scottish Executive have adopted the Statistical Program Committee ( SPC) of the European Union's 1998 recommendation that for international comparisons of low income the 60% median threshold should be used as a headline indicator. The official measure of income used in Department for Work and Pensions DWP's Households Below Average Income ( HBAI) analysis is weekly net (disposable) household income, and includes the income of all members of the household, including dependants. Two measures of household income are used, before housing costs ( BHC) and after housing costs ( AHC). Within the HBAI data, to allow a fair comparison between households, incomes are adjusted to take account of household size and composition.
Analysis of the official HBAI analysis is not available below the Scotland level (although the Scottish Executive are currently exploring whether analysis is possible) and there is little evidence available on household income to confirm these results from the SHS. In 1996/7 a quarter of individuals in Scotland lived in low income poverty ( AHC), in absolute terms this has more than halved. By 2003/4 there were 630,000 fewer people in absolute low income poverty. In relative terms, by 2003/4 there were more than a quarter of a million fewer individuals in low income poverty, however, one in five Scots still live in low income poverty.
Income Support
Income Support ( IS) was introduced in April 1988 and since 2003 has been paid to any person aged 16 or over who is not working 16 hours or more a week. In 2004, 232,400 people were receiving IS across Scotland (eight per cent of the population aged 16 to 59). The benefit is means tested and is only available to people who are not required to be available for work such as carers, sick and disabled people and lone parents. More information about income support and dependent children is included in Appendix 1.
Chart 3.3: Percentage of population aged 19 and under who are dependent on a Recipient of Income Support, 2002
Percentages
Source: Department for Work and Pensions, Information Directorate
Note: Dependant children are defined as children under 16, or under 19 if they are in full-time education or enrolled or an approved training course.
In the 15% most deprived areas over 40 per cent of children (people aged 19 and under) are dependent on a recipient of income support compared to 15 per cent of children in the whole of Scotland (Chart 3.3). This difference is due to more households in the most deprived areas receiving income support rather than those households having a greater number of children.
Chart 3.4: Percentage of population aged 16 to 24 receiving Income Support, 2002 and 2004
Percentages
Source: Department for Work and Pensions, Information Directorate
A smaller proportion of young people (aged 16 to 24) receive income support than all working age adults (male aged 16 to 65 and female aged 16 to 59), however, a young income support recipient is more likely to be from a deprived area than a working age claimant. Almost 45 per cent of young people who receive income support are from the 15% most deprived areas. In the 15% most deprived areas more than one in seven young people are receiving income support compared to less than one in 27 in the rest of Scotland (Chart 3.4). This difference may be due to a higher prevalence of young lone parent households receiving income support for lone parents in the most deprived areas.
Chart 3.5: Percentage of working age population receiving Income Support, 2004
Percentages
Source: Department for Work and Pensions, Information Directorate
Note: The working age population comprises of Males aged 16 to 64 (inclusive) and Females aged 16-59 (inclusive).
More women receive income support than men. The difference between sexes is mainly due to more women qualifying for income support for lone parents. In the 15% most deprived areas, one in four women (25 per cent) and just under one in six men (16 per cent) are receiving income support. The number of people receiving income support fell between 2003 and 2004. This decrease is partially due to changes in the benefit system, with certain groups of income support recipients now receiving tax credits instead. For example the child tax credit replaced the dependent element of income support in 2004 (for more information about changes to the benefits system see Appendix 1).
Pension credits ( PC) were introduced on 6 October 2003 to replace the minimum income guarantee component of Income Support ( MIG). There are two parts to the pension credit, the guarantee credit ( GPC) and the saving credit ( SPC). The GPC provides financial help for people aged 60 or over whose income is below the minimum amount of money the Government calculates is needed for normal day to day living, including households costs such as water and fuel charges. The awarded amount will depend on other sources of income and extra amounts are added to the standard minimum for those who have relevant housing costs, severe disabilities or caring responsibilities. The SPC is an extra amount for people aged 65 or over who have made some provision for their retirement (such as savings or a second pension) which brings their income above a level set by parliament, called the savings credit threshold.
Chart 3.6: Percentage of population aged 60 and over receiving Guaranteed Pension Credit, 2004
Percentages
Source: Department for Work and Pensions, Information Directorate
In the 15% most deprived areas more than one in three people aged 60 or over are receiving the GPC compared to one in six in the rest of Scotland.
In Scotland, 20 per cent of people aged 60 and over (215,325 people) receive the GPC. People aged 75 and above are twice as likely to receive the GPC compared to people aged between 60 and 74 (Chart 3.6).
In the 15% most deprived areas nearly half of people aged 75 and over and a third of people aged 60 to 74 receive GPC. This compares to receipt rates in the rest of Scotland of just over a quarter of people aged 75 and over and a twelfth (one in eight) of people aged 60 to 74. In the 15% most deprived areas 55 per cent of people aged 75 or over are receiving either the GPC or the SPC. The proportions of people aged 75 and over who are receiving only the SPC is similar in the 15% most deprived areas (one in 11) and the rest of Scotland (one in 12). It is possible that many of the older recipients of the pension credit are widowed women who may not have built up a sufficient pension in their own right and are therefore reliant on a widow's pension.
Financial Inclusion
The Scottish Executive is working to promote financial inclusion, access for individuals to appropriate financial products and services, including money advice and financial capability, through its Financial Inclusion Action Plan. Financial exclusion is often a symptom of poverty as well as a cause.
Key points
- People living in the 15% most deprived areas are more likely to say they are 'having financial difficulties' (nine per cent) or are 'in deep financial trouble' (two per cent) than those in the rest of Scotland (four per cent say they have financial difficulties; one per cent say they are in deep financial trouble).
- In 2003, 21 per cent of people or their partners in the 20% most deprived areas did not have a bank account (compared with one per cent in the 20% least deprived areas), however this percentage has fallen from 29 per cent in 1999.
- Twenty-seven per cent of people in the 15% most deprived areas had savings or investments compared with 58 per cent in the rest of Scotland.
- Sixty per cent of people in the 15% most deprived areas have household contents insurance compared with 87 per cent in the rest of Scotland.
The Scottish Household Survey ( SHS) currently asks some questions about finances such as savings, contents insurance, bank accounts and how households manage financially.
When asked how their household was managing financially, 46 per cent of SHS respondents across Scotland in 2001/2 said that they were managing quite well or very well. In the 15% most deprived areas, however, 28 per cent of respondents said that they were managing well, and were most likely to say that they 'get by alright' (52 per cent). At the other extreme, those in the 15% most deprived areas were more likely to say that they were having some financial difficulties (nine per cent) or were in deep financial trouble (two per cent) than the rest of Scotland (four per cent with financial difficulties and one per cent in deep financial trouble). It is important to note that perceptions and expectations of how people are managing financially are likely to be related to how deprived an individual is, however, older people are known to be less likely to say they are in financial difficulty even if they are poor.
Table 3.7: How the household is managing financially these days, 2001/2
Column percentages, adult population | 15% Most Deprived | Rest of Scotland | Scotland |
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Manage very well | 6 | 16 | 14 |
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Manage quite well | 22 | 34 | 32 |
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Get by alright | 52 | 40 | 42 |
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Don't manage very well | 10 | 5 | 5 |
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Have some financial difficulties | 9 | 4 | 5 |
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Are in deep financial trouble | 2 | 1 | 1 |
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Base | 4,365 | 26,040 | 30,405 |
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Source: Scottish Household Survey
Note: This question was not asked in the 2003 SHS survey, percentages may not sum to 100 due to rounding.
In 2003, seven per cent of all respondents said that they or their partner did not have a bank or building society account (Table 3.8). The number of people without a bank or building society account has decreased considerably in the 20% most deprived areas from 29 per cent in 1999 to 21 per cent in 2003. In the 20% least deprived areas, one per cent were without a bank account.
Table 3.8: Percentage of households where neither Highest Income Householder nor partner has a bank or building society account
Cell percentages, households | 1999 | 2000 | 2001 | 2002 | 2003 |
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Quintile 1 - Most deprived | 29 | 29 | 29 | 23 | 21 |
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Quintile 2 | 14 | 15 | 14 | 10 | 8 |
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Quintile 3 | 8 | 8 | 7 | 6 | 4 |
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Quintile 4 | 4 | 4 | 3 | 3 | 2 |
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Quintile 5 - Least deprived | 1 | 2 | 2 | 1 | 1 |
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All households in Scotland | 12 | 12 | 11 | 9 | 7 |
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Source: Scottish Household Survey
Note: Respondents may have Credit Union or Post Office Accounts.
SHS respondents from the 15% most deprived areas were much less likely than those in the rest of Scotland to say that they or their partner had any savings or investments (27 per cent in the 15% most deprived areas had savings or investments compared with 58 per cent in the rest of Scotland).
Table 3.9: Possession of savings or investments, 2003
Column percentages, adult populationWhether respondent or partner has any savings or investments | | 15% Most deprived | Rest of Scotland | Scotland |
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Yes | 27 | 58 | 53 |
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No | 64 | 34 | 38 |
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Refused | 8 | 7 | 7 |
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Don't know | 1 | 1 | 1 |
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Base | 4,394 | 26,132 | 30,526 |
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Source: Scottish Household Survey
Possession of home contents insurance also varied by level of deprivation. In 2003, 40 per cent of respondents living in the 15% most deprived areas said that they did not have home contents insurance, compared with 13 per cent in the rest of Scotland (Table 3.10).
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