Income and Poverty

Measuring poverty in London

  • Published: Jul 13, 2012
  • Author: Anushree Parekh
  • Category: Income and Poverty

The most recent poverty statistics for London, updated here , once again confirm the patterns we have been highlighting since 2009 in the London’s Poverty Profile reports. Firstly, that the high housing costs in the capital contribute to its higher poverty levels and secondly that that poverty is very high but falling in Inner London and average but rising in Outer London. 

Poverty rates can be calculated in two ways – based on net income before housing costs and benefits have been deducted (BHC) or on income after both have been deducted (AHC). We believe that the second measure is preferable, as housing benefit is not income that a family is free to spend on anything other than housing. 

As can be seen from the graph, for the three years to 2010-11, the overall BHC poverty rate in London was 16%, similar to the 17% BHC rate in the rest of the country. However, on the AHC measure, London’s poverty rate was 29%, about eight percentage points higher than the average for the rest of the country. This gap can be explained by the differences underpinning the two measures. 

The BHC measure is based on income that includes housing benefit, which for poor families in London is substantial. But it would be nonsensical to claim that a family in London is materially better off by receiving more housing benefit than a household elsewhere as in both cases the benefit pays for the rent and goes to the landlord. AHC is clearly the better measure, and the one we prefer to use. 

Using this measure, we now look at the poverty rates for different age groups over time. London, Inner and Outer, had a higher poverty rate for all age groups compared to the average in the rest of the country. In terms of changes over time, pensioner poverty fell in London, both in Inner and Outer London, as it did in the rest of the country over the last decade. By contrast, working-age poverty rose across the country, with Outer London seeing a greater than average increase over the period. Child poverty fell in London and rest of the country compared to ten years ago. In London, the fall was mainly driven by big reductions in Inner London, the rate remained flat in Outer London. 

While the long term gains in child poverty reduction are well documented, what is surprising is that despite the deep recession and the spending cuts, child poverty continued its downward trajectory even in the most recent period. The average child poverty rate in London in the three years to 2010-11 was, at 37%, the lowest in the last fifteen years and slightly lower than the average in three years to 2009-10. 

This fall mirrors the national trend and can be explained at least in part by the unprecedented fall in the median income, as explained here

That relative poverty has fallen even while the actual living standards of the poor are being squeezed cannot be treated as an improvement. It calls for a slightly different approach to the one we have used in previous years. And it is not to altogether abandon income as a measure of poverty, as suggested by the Centre for Social Justice. Clearly, income matters in any discussion of poverty, as the Breadline Britain series  in the Guardian has shown. Instead, this relative measure should be seen in conjunction with what Government calls the ‘absolute’ child poverty rate. 

The “absolute” rate is really not absolute at all, but a fixed measure which looks at the proportion of children in families falling below 60% of the median income in 1998/99. In normal times, the fixed rate is expected to fall as average earnings and incomes rise faster than inflation. This has been the case for London since the start of the income data series in 1994-95. Any sense of improvement is meaningful when both the fixed and the relative child poverty rates are falling, or at least the fixed rate is falling. However, for the most recent period, the fixed child poverty rate for London rose slightly, reflecting high inflation and stagnating incomes. 

When qualified by this finding, the fall in the relative child poverty rate does not appear to be as positive. Instead, it would be wise to interpret the data to suggest that child poverty in London remained broadly unchanged over the short run. 

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