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.
- Around 650,000 people in Wales live in households below the 60% low-income threshold after deducting housing costs. Note that, because of small sample sizes, the estimated numbers jump around a bit from year to year. This is around 23% of the population.
- This compares with around 750,000 (26% of the population) a decade ago. Numbers were falling slowly from the late 1990s to the mid 2000s, but then started to rise. It is too early to say whether the substantial increase in 2007/08, or the even large decrease in 2008/09, represent changes in trend or are just an artefact of estimates based on small sample sizes. As per the previous footnote, the estimated numbers jump around a bit from year to year because small sample sizes.
- The proportion of people in low-income households in Wales has followed broadly similar trends over time as that for Great Britain as a whole.
- As real incomes for the whole of the population rose, the proportion of people in households below a fixed 1994/95 low-income threshold halved between the mid 1990s and 2002/03. Since then, however, there have been no further reductions.
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 1994/95.
The 60% median threshold is the most widely accepted threshold of low income and is, for example, that used in the UK Government's child poverty targets.
When interpreting changes over time, it is also relevant to monitor the numbers below fixed income thresholds. As well as the numbers below 60% of the contemporary median, the second graph also shows the proportion of the population living in households with incomes below the fixed threshold of 60% of the 1994/95 British median household income (adjusted for price inflation).
The third graph compares the proportion of people in low-income households in Wales over time with that for Great Britain as a whole.
The fourth graph shows how the proportion of the population in low-income households in Wales compares with the rest of Great Britain. For each region, the first column shows the average proportion on low income for the years 1994/95 to 1996/97 and the second column shows the average proportion on low income between 2004/05 and 2006/07. This averaging over three-year bands has been done to improve the statistical reliability of the results.
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.
Overall adequacy of the indicator: high. The FRS is a well-established annual government survey, designed to be representative of the population as a whole.
- See the DWP site with their annual Households Below Average Income reports.
- 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.