Numbers in low income
- 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.
- Over the period 2006/07 to 2008/09, 20% of the population of Northern Ireland were living in low-income households using the 60% threshold after deducting housing costs. This is equivalent to around 350,000 people.
- Northern Ireland's 20% rate is somewhat lower than the 22% Great Britain average.
- The proportions above are 'after deducting housing costs'. Using an alternative 'before deducting housing costs' measure, 20% of the population of Northern Ireland were also living in low-income households. This rate is, however, somewhat higher than the 18% Great Britain average
- Unlike most Great Britain regions, therefore, Northern Ireland's relative ranking when low income is measured before deducting housing costs is rather different from its ranking when it is measured after deducting housing costs.
- The reason for this difference in ranking is that housing costs are much lower in Northern Ireland than in any of the Great Britain regions. Over the period 2006/07 to 2008/09, average housing costs in Northern Ireland for households with below-average incomes were £35 a week gross and £25 a week net (of Housing Benefit). Both figures are lower than in any Great Britain region, by about £10 a week compared with Wales (the lowest Great Britain region) and about £20 a week compared with the average for Great Britain as a whole.
- This website take the view that the 'after deducting housing costs' measure is the better measure. One reason is that housing costs are effectively a ‘given’ and must be met; it is the money left over after that that is therefore the measure of its standard of living. A second reason is that the 'before deducting housing costs' measure treats a rise in Housing Benefit consequent upon a rise in rent as an increase in income (rather than no change) and the policy implications of this are very perverse. For a further discussion of alternative thresholds, see the page on choices of low-income thresholds.
- The proportion of people who are in low-income households has remained unchanged since 2002/03 (the first year for which data is available).
- The proportion of people who are in low-income households is much higher for Catholics than for Protestants: 26% compared with 16%.
By convention, the low-income threshold is defined as 60% of the income of the average United Kingdom household ('median income'). The justification for defining low income relative to the average is that anyone whose income is so far below that average is unlikely to be able to live normally by the standards of that society.
The first two graphs compares the proportion of people in low-income households in Northern Ireland with that for each of the regions in Great Britain. In the first graph, the calculations are done using incomes after deducting housing costs whilst, in the second, they are done using incomes before deducting housing costs.
The third graph shows how housing costs for those on below-average incomes in Northern Ireland compare to the regions of Great Britain, with the data shown separately depending on whether rents paid for by Housing Benefit are considered to be a housing cost or not. Housing costs are calculated as 'income before deducting housing costs' less 'income after deducting housing costs' and are scaled to be for couples with no children.
The fourth graph shows the number of people living in low-income households (after deducting housing costs) for each year since 2002/03 (the first year for which the data is available for Northern Ireland). In addition to the numbers below the 60% threshold, it also shows the numbers below the lower thresholds of 50% and 40%.
The fifth graph compares the proportion of people in low-income households (after deducting housing costs) by religious denomination. Note that the religious denomination of the household is defined in terms of the religious denomination of the Household Reference Person. Also note that the data is for the latest year only (i.e. 2008/09) as there is no data for 2006/07 and 2007/08.
The data source for all the graphs is Households Below Average Income, based on the Family Resources Survey (FRS). 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. The averaging over three-year periods has been done to improve statistical reliability.
Overall adequacy of the indicator: medium. The FRS is a well-established annual government survey designed to be representative of the population as a whole and the Northern Ireland sample has been boosted to improve sample sizes. However, the Northern Irish sample is a recent addition to the survey and is yet to be fully quality assured by the Department of Work and Pensions.