Scottish Government

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SCOTTISH HOUSEHOLDS BELOW AVERAGE INCOME 2004/05

This publication note presents estimates released by the Scottish Executive, of the proportions and numbers of children, working age adults and pensioners living in low income households in Scotland. These estimates are derived from the Department for Work and Pensions' ( DWP) Households Below Average Income ( HBAI) analysis, which is based on the Family Resources Survey ( FRS). The DWP have today published equivalent GB figures (please see http://www.dwp.gov.uk/asd/hbai.asp).

Key results for all individuals living in households below 60 per cent of both the absolute GB median (median at 1996/97 fixed in real terms) and relative GB median (current median income) (see notes and definitions) are:

Individuals in absolute low income

Absolute low income is a measure of whether those in the lowest income households are seeing their incomes rise in real terms.

The current low income estimates for 2004/05 show that the number of individuals in absolute low income households before housing costs fell from 1,010,000 in 1996/97 to 470,000 in 2004/05. This is a decrease of 53%.

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%.

Individuals in relative low income

Relative low income 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 number of individuals in relative low income households before housing costs fell by 21%, from 1,010,000 in 1996/97 to 800,000 in 2004/05.

After housing costs numbers fell by 26%, from 1,230,000 in 1996/97 to 910,000 in 2004/05.

2004/05 LOW INCOME RESULTS

The current low income estimates use 1996/97 as the baseline year for absolute measures and McClements equivalisation methodology (please see notes and definitions). The figures can be found in tables 1 to 8.

From next year (2005/06 data), all incomes will be equivalised using the modified OECD scale. Current figures calculated using this new scale can be found in tables 10 and 11. Also from next year, the figures for children living in low income will be measured using new child poverty tiers. Figures for tiers 1 and 2 appear in table 9. Please see 'The new child poverty measure' for more information.

Absolute low income

Children

In 1996/97 the number of children in low income households before housing costs was 320,000 (29% of all children). This had fallen by 69% to 100,000 children in 2004/05 (10% of all children).

After housing costs the number of children in low income households fell by 65%, from 370,000 in 1996/97 (33% of all children) to 130,000 in 2004/05 (13% of all children).

Working age adults ( WAAs)

In 1996/97 the number of working age adults in low income households before housing costs was 470,000 (16% of all WAAs). This had fallen by 40% to 280,000 in 2004/05 (9% of all WAAs).

After housing costs the number of working aged adults in low income households also fell by 40%, from 600,000 in 1996/97 (20% of all WAAs) to 360,000 in 2004/05 (12% of all WAAs).

Pensioners

In 1996/97 the number of pensioners in low income households before housing costs was 220,000 (26% of all pensioners). This had fallen by 64% to 80,000 in 2004/05 (9% of all pensioners).

After housing costs the number of pensioners in low income households fell by 77%, from 260,000 in 1996/97 (30% of all pensioners) to 60,000 in 2004/05 (6% of all pensioners).

Relative low income

Children

The number of children in relative low income households before housing costs has fallen by 41%, from 320,000 in 1996/97 to 190,000 in 2004/05 (19% 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% decrease.

After housing costs the number has fallen by 35% from 370,000 in 1996/97 to 240,000 in 2004/05 (23% of all children).

Working age adults ( WAAs)

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% 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% of all WAAs).

Pensioners

The number of pensioners in relative low income households before housing costs has fallen by 23%, from 220,000 in 1996/97 to 170,000 in 2004/05 (18% of all pensioners).

After housing costs the number has fallen by 46% from 260,000 in 1996/97 to 140,000 in 2004/05 (16% of all pensioners).

2004/05 LOW INCOME TABLES

Table 1: ABSOLUTE low income (below 60% of GB median) in Scottish households
Current methodology (McClements equivalisation and 1996/97 base year)

Note: From 2005/06 the equivalisation scale used to calculate low income statistics will switch from the McClements to the modified OECD equivalisation scales.
The measure used this table is defined as the number and proportion of individuals, children, working aged adults and pensioners whose (McClements) equivalised income is below 60% of inflation adjusted GB median income in 1996/97.
Modified OECD equivalised figures are shown in table 10.
Due to rounding, the estimates for children, working age adults and pensioners may not sum to the total for all individuals.

Table 2: RELATIVE low income (below 60% of GB median) in Scottish households
Current methodology (McClements equivalisation)

Note: from 2005/06 the equivalisation scale used to calculate low income statistics will switch from the mcclements to the modified OECD equivalisation scales.
The measure used this table is defined as the number and proportion of individuals, children, working aged adults and pensioners whose (mcclements) equivalised income is below 60% of GB median income in the same year.
Modified OECD equivalised figures are shown in table 11.
Due to rounding, the estimates for children, working age adults and pensioners may not sum to the total for all individuals.
The figures shown here for children in low income households before housing costs form the basis of the PSA target to reduce the number of children in low income households by a quarter between 1998/99 and 2004/05.

Children in low income Scottish households (below 50%, 60% and 70% of GB median income)

Table 3: CHILDREN in ABSOLUTE low income Scottish households
Current methodology (McClements equivalisation and 1996/97 base year)

Note: This measure is very similar to the new child poverty tier 1 measure but uses the McClements equivalisation scale (instead of the modified OECD scale) and 1996/97 inflation adjusted GB median income (rather then 1998/99). It is defined as the number and proportion of children in households whose (McClements) equivalised income is below 50%, 60% or 70% of inflation adjusted GB median income in 1996/97.
Additional 50% and 70% of median figures are shown in support of Opportunity for all and give an idea of the depth of low income.

Table 4: CHILDREN in RELATIVE low income Scottish households
Current methodology (McClements equivalisation)

Note: This measure is very similar to the new child poverty tier 2 measure but use the McClements equivalisation scale (instead of the modified OECD scale). It is defined as the number and proportion of children in households whose (McClements) equivalised income is below 50%, 60% or 70% of GB median income in the same year.
Additional 50% and 70% of median figures are shown in support of Opportunity for all and give an idea of the depth of low income.
The figures shown here for children in households below 60% of median (before housing costs) form the basis of the PSA target to reduce the number of children in low income households by a quarter between 1998/99 and 2004/05.

Working Aged Adults in low income Scottish households (below 50%, 60% and 70% of GB median income)

Table 5: WORKING AGED ADULTS in ABSOLUTE low income Scottish households
Current methodology (McClements equivalisation and 1996/97 base year)

Note: This measure is defined as the number and proportion of working aged adults in households whose (McClements) equivalised income is below 50%, 60% or 70% of inflation adjusted GB median income in 1996/97.
Additional 50% and 70% of median figures are shown in support of Opportunity for all and give an idea of the depth of low income.

Table 6: WORKING AGED ADULTS in RELATIVE low income Scottish households
Current methodology (McClements equivalisation)

Note: This measure is defined as the number and proportion of working aged adults in households whose (McClements) equivalised income is below 50%, 60% or 70% of GB median income in the same year.
Additional 50% and 70% of median figures are shown in support of Opportunity for all and give an idea of the depth of low income.

Pensioners in low income Scottish households (below 50%, 60% and 70% of GB median income)

Table 7: PENSIONERS in ABSOLUTE low income Scottish households
Current methodology (McClements equivalisation and 1996/97 base year)

Note: This measure is defined as the number and proportion of pensioners in households whose (McClements) equivalised income is below 50%, 60% or 70% of inflation adjusted GB median income in 1996/97.
Additional 50% and 70% of median figures are shown in support of Opportunity for all and give an idea of the depth of low income.

Table 8: PENSIONERS in RELATIVE low income Scottish households
Current methodology (McClements equivalisation)

Note: This measure is defined as the number and proportion of pensioners in households whose (McClements) equivalised income is below 50%, 60% or 70% of GB median income in the same year.
Additional 50% and 70% of median figures are shown in support of Opportunity for all and give an idea of the depth of low income.

NOTES AND DEFINITIONS

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' which has been published today on the DWP website: http://www.dwp.gov.uk/asd/hbai.asp.

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 in tables 1 to 8 use the McClements equivalence scale. The new child poverty measure, table 9, uses the modified OECD scale. Next year, all low income figures will be based on the modified OECD scale. Tables 10 and 11 show what the current estimates would be if the modified OECD scale were used. The DWP have published a paper with further details about the changes to equivalisation scales. This can be found at the following website: www.dwp.gov.uk/asd/hbai/nsfr_newequiv.pdf.

How is low income measured?

Individuals are defined as being in low income if their equivalised net disposable household income is below 60% 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% of median is the most commonly used low income measure, however additional 50% and 70% of median figures are shown in tables 3 to 8 in support of Opportunity for all and to give an idea of the depth of low income.

For a couple with no children the GB median income before housing costs in 2004/05 was £349 per week, this is a real terms increase of £55 (19%) 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% or £62.

Consequently, the 60% 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% of GB median has increased by £38 per week in real terms, from £145 to £183.

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% 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% 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.

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.

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 Scottish Executive share's 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 details of this consultation were published in December 2003 (please see www.dwp.gov.uk/consultations/consult/2003/childpov/final.pdf).

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 3 tiers:

Tier 1, Absolute low income: number and proportion of children in households whose equivalised income before housing costs is below 60% 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.

Tier 2, Relative low income: number and proportion of children in households whose equivalised income before housing costs is below 60% 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

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% of the GB median in the current year. This is to provide a wider measure of children's living standards.

Figures relating to the first two tiers (absolute and relative low income) are provided in table 9. 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.

Results for tiers 1 and 2 (see table 9)

In Scotland, the number of children in tier 1 is down from 28% (300,000) in 1998/99 to 13% (140,000) in 2004/05. This is a decrease of 53%. 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% (300,000) in 1998/99 to 21% (210,000) in 2004/05. This is a decrease of 30%. 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.

Table 9: New child poverty measures tiers 1 and 2 (Scotland)

Tier 1: ABSOLUTE low income: number and proportion of children in households whose (modified OECD) equivalised income BEFORE HOUSING COSTS is below 60% of inflation adjusted GB median income in 1998/99
Tier 2: RELATIVE low income: number and proportion of children in households whose (modified OECD) equivalised income BEFORE HOUSING COSTS is below 60% of GB median income in the same year
For both tiers income includes insurance premia.

2004/05 LOW INCOME TABLES USING UPDATED EQUIVALISATION METHODOLOGY

Table 10: ABSOLUTE low income (below 60% of GB median) in Scottish households
Updated methodology ( OECD equivalisation and 1996/97 base year)

Note: From 2005/06 the equivalisation scale used to calculate official low income statistics will switch from the McClements to the modified OECD equivalisation scales.
The measure used this table is defined as the number and proportion of individuals, children, working aged adults and pensioners whose (modified OECD) equivalised income is below 60% of inflation adjusted GB median income in 1996/97.
Due to rounding, the estimates for children, working age adults and pensioners may not sum to the total for all individuals.
McClements equivalised figures are shown in table 1.
Income includes insurance premia.

Table 11: RELATIVE low income (below 60% of GB median) in Scottish households
Updated methodology ( OECD equivalisation)

Note: From 2005/06 the equivalisation scale used to calculate official low income statistics will switch from the McClements to the modified OECD equivalisation scales.
The measure used this table is defined as the number and proportion of individuals, children, working aged adults and pensioners whose (modified OECD) equivalised income is below 60% of GB median income in the same year.
Due to rounding, the estimates for children, working age adults and pensioners may not sum to the total for all individuals.
McClements equivalised figures are shown in table 2.
Income includes insurance premia.

This publication was put together by Stevan Croasdale and Ellen Lynch.

Public enquiries (non-media) about the information contained in this Statistical Publication Notice should be addressed to:

Income and Poverty Statistics
Office of the Chief Economic Adviser
Analytical Services Group
Office of the Permanent Secretary
Scottish Executive
St Andrew's House
Regent Road
Edinburgh
EH1 3DG
Tel: +44 (0)131 244 3004
e-mail: income.statistics@scotland.gsi.gov.uk
www.scotland.gov.uk/stats/incomepoverty