Numbers in low income
Graphs on this page:
- The most commonly used threshold of low income is a household income that is 60% or less of the average (median) British household income in that year. For a discussion of why this is the most commonly used threshold, see the page on choices of low-income thresholds. Key features of this measure are:
- It uses household income rather than individual income, otherwise (for example) all children would be considered to be in low income,
- It uses disposable income rather than pre-tax income, as this is the money that the household has to live on.
- Incomes are adjusted for household size and composition to put them on a comparable basis. Clearly, a lone adult does not require the same income as a family of four in order to have the same standard of living. However, importantly but less obviously, economies of scale mean that the family of four does not require four times the level of income: many costs can be shared. This means that achieving comparability is not simply a case of dividing household income by the number of people in the household. Rather, an agreed set of scales are used to adjust the incomes to reflect the household composition and size and thus put them on a like-for-like basis. This process is known as ‘equivalisation’.
- The threshold is defined in terms of median, rather than mean, income. As such, it is comparing low-income households with those in the middle, not with the richest, and is therefore a comparison with what can be considered ‘normal’ in contemporary UK society. Note that there is no mathematical reason why any household should have an income below 60% of the median.
- The threshold rises or falls as median incomes rise or fall. As such, it is clearly a measure of relative low income. This reflects the view that the level of income that should be considered ‘low’ depends on overall levels of income in the society in which the people live.
- In this indicator and most (but not all) of the other indicators on this website, incomes are measured after, rather than before, deducting housing costs. Whilst the government has recently given preference to using measures before deducting housing costs, most commentators continue to use the after deducting housing costs measure. This is partly because housing costs can vary considerably for people in otherwise identical circumstances without the people having any realistic ability to change these costs and partly because it is not affected by such matters as whether Housing Benefit – which provides for the housing costs of many of the poorest – is considered to be income or not.
- The latest year for which household income data is available is 2008/09. In that year, the 60% threshold was worth: £119 per week for single adult with no dependent children; £206 per week for a couple with no dependent children; £202 per week for a single adult with two dependent children under 14; and £288 per week for a couple with two dependent children under 14. These sums of money are measured after income tax, council tax and housing costs have been deducted, where housing costs include rents, mortgage interest (but not the repayment of principal), buildings insurance and water charges. They therefore represent what the household has available to spend on everything else it needs, from food and heating to travel and entertainment.
- In 2008/09, 13½ million people in the UK were living in households below the 60% low-income threshold after deducting housing costs. This is around a fifth (22%) of the population.
- This 13½ million figure for 2008/09 is unchanged from 2007/08, and is 1½ million more than the low point in 2004/05. The increases over the last four years follow six uninterrupted years of decreases from 1998/1999 to 2004/05 and are the first increases since 1996/97.
- The number of people living in low-income households is still lower (just) than it was during the early 1990s but is much greater than in the early 1980s.
- Using a lower threshold of 50% of median income (rather than 60%), the pattern is similar: increases in the four most recent years following decreases throughout the previous eight years. This similarity of pattern suggests that the progress prior to 2004/05 was not limited to simply “some people being moved from just below the 60% of median income threshold to just above it”; neither has the deterioration since 2004/05 been limited to simply “some people being moved from just above the 60% of median income threshold to just below it”. Rather, lower down the income distribution there was also progress followed by deterioration.
- Using a still lower threshold of 40% of median income, however, the pattern is rather different: increases in the four most recent years following unchanged numbers throughout the previous eight years. As a result, the number of people below this threshold is now the highest since records began in 1979. 1
- As real incomes for the whole population rose, the number of people below a fixed 1996/97 low-income threshold halved, from 14 million in 1996/97 to 7 million in 2004/05. Again, though, the numbers then started rising, to 8 million in 2008/09. These recent rises are particularly striking since the number of people with incomes below this fixed threshold had been coming down at the rate of around one million a year up to 2004/05. They show that the deterioration since 2004/05 has not been due to “the low-income threshold rising as average incomes rise” (it has actually remained broadly unchanged throughout the period) but has also occurred when measuring using a fixed income threshold.
- To summarise: on all four low-income thresholds used (covering both relative and fixed income thresholds), the situation has deteriorated since 2004/05.
- The United Kingdom has a slightly higher proportion of its population in relative low income than the European Union average. Of the 26 other EU countries, 9 have a higher rate than the United Kingdom and 17 have a lower rate.
- The proportion of people living in relative low income in the UK is one-and-half times that of the Netherlands, and a third higher than that of France.
Why this indicator was originally chosen
It is generally accepted that poverty is concerned with a lack of possessions, or ability to do things, which are in some sense considered ‘normal’ or ‘essential’ in society.
What is considered ‘normal’ depends on the society in which the person lives. So, for example, a widely accepted indicator of third world poverty is the numbers of people living on less than $1 per day, on the grounds that people on such incomes are literally in danger of starving to death. This threshold is often termed ‘absolute income poverty’. But the use of such a threshold in the United Kingdom would obviously be completely inappropriate – no one in the United Kingdom lives on incomes anywhere near this low and its use would imply that all people with incomes above $1 per day did not suffer from serious deprivation.
What is considered ‘normal’ also changes over time. Levels of income that would have been considered adequate in the United Kingdom 100 years’ ago would certainly not be considered to be adequate nowadays. Rather, as society becomes richer, so norms change and the levels of income and resources that are considered to be adequate rises. Unless the poorest can keep up with growth in average incomes, they will progressively become more excluded from the opportunities that the rest of society enjoys.
The conclusion is that the main indicators of low income in the United Kingdom – and thus of income poverty – should be defined in terms of thresholds which rise or fall as average incomes rise or fall. Such thresholds are often termed ‘moving thresholds’ or indicators of ‘relative poverty’. This conclusion is generally accepted by most researchers, by the EU and by the UK government.
In normal times, when average incomes are improving slowly but steadily, the use of such thresholds is probably a good indicator of changes in the extent of relative income poverty. But if incomes should fall, they become insufficient: a fall in average incomes, even if the lowest incomes remained unchanged, would clearly not represent an improvement in the capacity of the poorest to attain what society had become accustomed to as the norm.
Furthermore, sole reliance on moving thresholds can become misleading if average incomes rise dramatically. For example, incomes in Ireland have risen sharply over the last ten years or so – including incomes at the bottom end – whilst income inequalities have remained roughly constant. Many researchers and politicians in Ireland believe that sole reliance on moving thresholds gives a misleading impression by suggesting that no progress has been made in reducing the extent of poverty.
In this context, this indicator looks at the actual numbers of people who are living on low incomes using both relative threshold and a fixed threshold that rises with inflation.
The particular threshold used is 60% of median income after deducting housing costs. For a discussion on why this threshold has been used, and possible alternative thresholds, see the page on choices of thresholds.
Definitions and data sources
The first graph shows the number of people living in households below 40%, 50% and 60% of the contemporary British median household income after deducting housing costs for each year since 1979.
The second graph show the same information but in terms of the proportion of the total population.
The third graph provides three measures of low income. The bars shows the number of people in households below 60% of contemporary median income for each year since 1979 (i.e. they are the same in each year as the bars in the first graph). This can be termed the number of people in ‘relative low income’. The line from 1996/97 onwards shows the number of people below a fixed threshold of 60% of 1996/97 median income (adjusted for price inflation) – the 1996/97 threshold has been chosen as it is the year before the Labour Government came into power. The line from 1979 to 1994/95 shows the number of people below a fixed threshold of 50% of 1979 mean income (adjusted for price inflation) – 50% of mean rather than 60% of median being used because this was the threshold of low income commonly used at the time.
The data source for the first three graphs is Households Below Average Income, based on the Family Resources Survey (FRS) since 1994/95 and the Family Expenditure Survey (FES) for earlier years. The analysis of the FES dataset was undertaken by the IFS, with ONS population estimates being applied to the IFS proportions. The data relates to the United Kingdom, although this has required Great Britain figures for the years 1994/95 to 2001/02 to be scaled up as Northern Ireland was not included in the survey for these years. Income is disposable household income after deducting housing costs. All the data is equivalised (adjusted) to account for differences in household size and composition. The self-employed are included in the statistics. Note that in 2007 DWP made some technical changes to how it adjusted household income for household composition (including retrospective changes) and, as a result, the data is slightly different than previously published figures. Also note that it is not possible to adjust the data for the numbers below 50% of the 1979 mean for this technical change but that this does not affect the essentially flat trend of these numbers.
The fourth graph shows the proportions of people in EU countries with an equivalised household income that was less than 60% of the contemporary median for their country. The EU average shown is the average weighted by population.
The data for the fourth graph is from the Eurostat indicators website. Note that this data is not directly comparable with the low income statistics in the other graphs: it comes from a different source (i.e. not Households Below Average Income) and is before, rather than after, deducting housing costs.
Overall adequacy of the indicator: high. The FRS is a large, well-established annual government surveys, designed to be representative of the population as a whole. The FES survey used in the first graph for the years prior to 1994/95 was, however, much smaller and therefore there is some uncertainty about the precise proportions in each of the years.
- See the DWP site with their annual Households Below Average Income reports.
- See the Institute for Fiscal Studies site with their publications on inequality, including a spreadsheet with a variety of statistics on low income going back to the early 1960s and their 2010 report entitled What has happened to ‘severe’ poverty under Labour?
- See the DWP site on benefit statistics.
- See the HM Revenue & Customs site on tax credit statistics.
- See the HM Revenue & Customs site on tax credits.
- See the DWP site on Pension Credit.
Relevant 2007 Public Service Agreements
Overall aim: Halve the number of children in poverty by 2010-11, on the way to eradicating child poverty by 2020.
Official national targets
Reduce by a half the number of children living in relative low-income by 2010/11.
Other indicators of progress
Number of children in absolute low-income households.
Number of children in relative low-income households and in material deprivation.
Previous 2004 targets
Halve the number of children in relative low-income households between 1998/99 and 2010/11, on the way to eradicating child poverty by 2020, including:
- reducing the proportion of children in workless households by 5% between spring 2005 and spring 2008; and
- increasing the proportion of parents with care on Income Support and income-based Jobseeker’s Allowance who receive maintenance for their children by 65% by March 2008.
By 2008, be paying Pension Credit to at least 3.2 million pensioner households. While maintaining a focus on the most disadvantaged by ensuring that at least 2.2 million of these households are in receipt of the Guarantee Credit.
Graphs 1, 2 and 3
|Year||Numbers (millions)||Proportion of the population|
|Below 60% of median||Below 50% of median||Below 40% of median||Below 60% of median||Below 50% of median||Below 40% of median|
Figures are as shown in the graph.
1. The number of people living below 40% of median is not published as a national statistic as it is viewed as less reliable than the higher thresholds. In particular, some households report zero after-tax incomes and such households have, on average, higher living standards than households with slightly higher incomes. However, research from the Institute for Fiscal Studies suggests that the recent growth in the numbers of households with incomes below 40% of the median came not from a rising number of households with zero incomes, but a rising number with incomes between 20% and 40% of the median. They suggest that the increase represents a rise in the number of households with very low living standards. ↩