Scotland

# Income inequalities

## Key points

- As it is measured in relation to median income, income poverty can be viewed as being about inequality in the lower half of the income distribution only. In looking at what has happened to the whole of the income distribution, this indicator is therefore moving beyond poverty to look at income inequality more widely.
- Over the last decade, the poorest tenth of the population have, on average, seen their real incomes after deducting housing costs remained broadly unchanged. In other words, after adjusting for inflation, their incomes are, on average, similar to a decade ago. This is in sharp contrast with the rest of the income distribution, which, on average, has seen substantial rises in their real incomes.
- The richest tenth of the population have seen much bigger proportional rises in their incomes than any other group.
- Except for those in the top and bottom tenths of the income distribution, households with below-average incomes have, on average, enjoyed bigger proportional increases over the last decade than households with above-average incomes.
- In absolute (as opposed to proportional) terms, the vast majority (three-quarters) of the extra money has gone to those with above- average incomes and half of this (i.e. three-eighths of the total) has gone to those in the richest tenth.
- The poorest tenth of the population now have, between them, 2% of Scotland's total income and the second poorest tenth have 4%. In contrast, the richest tenth have around 29% and the second richest tenth have 15%. The income of the richest tenth is the same as the income of all those on below-average incomes (i.e. the bottom five tenths) combined.
- The proportion of total Scottish income going to the richest tenth is noticeably higher than a decade ago: 29% in 2008/09 compared with 25% in 1998/99. The rest of the income distribution changed little over the last decade.

- Most of the proportions above are similar in Scotland as for Great Britain as a whole, as is their lack of change over time. The main exceptions are the richest tenth which has a somewhat smaller share of the total income in Scotland than in Great Britain as a whole (29% compared to 31%) and the poorest tenth (2% compared to 1.2%). See the UK indicator on income inequality. Because of these differences, income inequality in Scotland is somewhat lower than in Great Britain as a whole.
- One of the Scottish Government's targets is "
*to increase the proportion of income earned by the three lowest income deciles as a group by 2017*". This implies a shift of focus, to include the third decile alongside the lowest two (in effect, the 'poverty' focus). This shift of focus alters the weights of the different population groups because the third decile is very different from the first two. In particular, in this third decile, around one third are pensioners, about twice the proportion in the lowest two deciles. Furthermore, only around one sixth (children and adults together) belong to workless, working-age families, compared with nearly a half in the bottom two deciles. In summary, therefore, any widening of focus to cover all the bottom three deciles implies a greater weight (a) for pensioners and (b) for working families than would be the case if the focus remains exclusively on 'poverty'.

## Graph 1: Changes in real income (percentages)

View Graph as PDF (resizeable) Right click to save large version of Graph as PNG## Graph 2: Changes in real income (shares)

View Graph as PDF (resizeable) Right click to save large version of Graph as PNG## Graph 3: Total income (over time)

View Graph as PDF (resizeable) Right click to save large version of Graph as PNG## Graph 4: Total income (shares)

View Graph as PDF (resizeable) Right click to save large version of Graph as PNG## Graph 5: Compared to Great Britain

View Graph as PDF (resizeable) Right click to save large version of Graph as PNG## Graph 6: Composition by income level

View Graph as PDF (resizeable) Right click to save large version of Graph as PNG## Definitions and data sources

The first two graphs focus on the * change* in real net incomes by
income decile whilst the third and fourth graphs focus on the share of

*incomes by income decile.*

**total**The first graph shows the average percentage change in real (i.e. after adjusting for inflation) net incomes for each income decile over the period 1997/98 to 2007/08.

The second graph shows the shares of the total change in real net incomes since 1997/98 by income decile.

The third graph shows the share of the total net income of the population for selected income deciles (tenths), namely the two poorest deciles and the two richest deciles. Clearly, the shares added up for all ten deciles would total 100% of the total income.

The fourth graph shows, for the latest year, the distribution of total net income across the ten income deciles.

The fifth graph shows the income of households at the 10th and 90th percentiles of the net income distribution as proportions of average (median) Scottish income. For comparison purposes, the equivalent figures for Great Britain as a whole are also presented.

The sixth graph shows how composition of the population varies by household net income decile. For each of the ten deciles, the shares of the population are shown separately for children, working-age adults and adults of pensionable age, with the data for children and working-age adults further divided into those where no one in the family works and those where at least one of the adults in the family works. To improve its statistical reliability, the data is the average for the latest three years.

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, equivalised (adjusted) for household size and composition. The self-employed are included in the statistics.

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, but the sample sizes in the first graph are relatively small and the coverage of the surveys prior to 2001/2 did not extend beyond the Caledonian Canal.

## External links

- See the 2008 IFS report entitled
*Racing away? Income inequality and the evolution of high incomes*. - See the IFS report entitled
*Income inequality under a labour government*.