Income and Poverty

What to look for in the poverty statistics

  • Published: Jun 06, 2013
  • Author: Tom MacInnes
  • Category: Income and Poverty

Next Thursday, the DWP releases its annual Households Below Average Income publication. It is the most reliable source of data on household incomes, income inequality and poverty. This release will cover the year 2011/12, the first year to show the effects of the coalition’s policies. What are the key things to look out for? 

What has happened to median income?

Going back a few years, the estimates of median income, while central to the rest of the publication, were not in themselves particularly important. We got quite used to seeing small to medium rises in average incomes until around 2004, after which median incomes were quite static. In 2010/11, however, median incomes fell by 4%, taking us back to the level of 2004.

Will this happen again? It’s certainly possible - average wages fell in 2011/12, and benefits rose only modestly. A second successive annual fall on the same scale as last year’s would be unprecedented at any point in the last 50 years. 

What has happened to “relative” and “absolute” poverty?

The DWP publish poverty figures using a few different measures including “relative” and “absolute” poverty. A household is in “relative” poverty if its income, after taxes and adjusting for family size, is below 60% of the national median that year. A household is in “absolute” poverty if its income, with the same adjustments, is below 60% of the national median at some set time in the past (really just a relative measure fixed in time, rather than an absolute). 

When average incomes rise, absolute poverty should fall, and this was the case for the last few years. Attention then focused on relative poverty. But as median incomes fall, the number in relative poverty can fall with them. That was why last year saw a sizeable fall in child poverty, as everyone’s incomes fell together. At the same time, absolute child poverty remained static, meaning that overall little had changed at the bottom of the income distribution. If median incomes do fall, it is absolute poverty we will want to focus on. Are people at the bottom better or worse off than last year? 

Has in-work poverty risen again?

The defining trend in the poverty figures over much of the last decade has been the rise in the number of people in poverty living in working families. Last year, over half of children and working age adults in (relative) poverty live in a family with at least one adult in work, some 6.1m people in total. 

In-work poverty can result from either low numbers of hours worked, low pay or some combination of the two. As above, we know that average pay was falling in 2011/12. We also know that in 2011/12 the number of people working part time but wanting a full time job was higher than at any time in the previous 15 years. In combination, this may well result in a rise in in-work poverty. But will in work poverty continue to make up an ever bigger share of all poverty? 

What difference does housing make?

Another striking trend in recent years has been the growth in poverty in the private rented sector, accompanied by a fall in the social rented sector. Some of this is due to the underlying shift from the social to the rented sector in the population as a whole, but the proportion of people in social rented housing who live in poverty has fallen over the last 15 years. The proportion in the private rented sector has not fallen, and has actually risen slightly since the middle of the last decade. We know that private rented sector rents have risen in recent years, so this trend may well continue. Will a greater proportion of those in poverty now be in the private rented sector? 

Are the statistics good measures? 

All of the above is, of course, speculation, but there is one thing we can predict with certainty. When the figures are released, someone will say that what is being measured is not real poverty, or mistakes the causes of poverty, or some variant of the two. Last year it was the Secretary of State, who launched a consultation into better measures of child poverty the day the figures were released. A year on, it’s not clear what the results of the consultation were. Maybe we will find out on Thursday.

But the real problem with the figures is that they are out of date. 2011/12 is over a year ago now, and given that the survey field work is carried out throughout that year, some of the data will be pushing two and a half years old by the time it is released. At a time of such huge change in the social security system, such out-of-date numbers are not very useful. Employment statistics, benefit statistics and even pay statistics are available with a couple of months’ delay. Income figures are every bit as important, and efforts should be made to significantly speed up their release. 

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