Poverty Figures

Published Bottomline, Summer 2004

Government policies have so far focussed on reducing the number of children living in poverty. However, these policies impact on the population as a whole so it is possible to assess to what extent the government is tackling overall levels of poverty and inequality.

The recent publication of the latest edition of Households Below Average Income(1), the annual report providing statistics on poverty levels and inequality, allows us to look beyond child poverty. This article presents the latest statistics on poverty levels across the country and by region and also looks at the groups most likely to be living in poverty.

Households Below Average Income is an annual government publication which draws on data from the Family Resources Survey. It is the main source of statistics on poverty and has been used by the government to monitor its progress on tackling child poverty. From these statistics it is possible to draw two measures of poverty.

Relative poverty is defined as the proportion of the population who live in households with an income below a percentage of the current average, usually 60%.

Absolute poverty is defined as the proportion of the population living below 60% of average income fixed at the base years level (1996/97) in real terms, i.e. 60% of average income in 1996/97 uprated by inflation.

The report also divides households into deciles according to their income with those on the lowest income in the bottom decile and those with the highest income in the top decile. This allows inequality to be monitored and looking at composition of the different deciles shows what groups of people are more likely to be at risk of living in poverty.

Data for income both before and after housing costs are presented in this article.

Poverty levels

The latest statistics in table 1a (page opens in a new window) show the number of individuals living in both relative and absolute poverty.

Relative poverty

• In 2002/03 17% of the population (9.7 million people) were living in households with below 60% of median income before housing costs. This has fallen by 600,000 from 1996/97 when 18% of the population (10.3 million) were living below the poverty line.
• Looking at income after housing costs shows that 22% of the population (12.4 million people) were living below the poverty line in 2002/03, 1.5 million fewer than in 1996/97 when 25% of the population (13.9 million) were living below the poverty line.

It is notable that the progress has slowed down in recent years. For example from 1997/98 until 2000/01 there were year on year falls in the numbers living below the poverty line. However, since 2000/01 looking at income levels before housing costs there have been no improvements in the number living below the poverty line. For example, in 2000/01 there were 9.7 million people living in households with an income below 60% of median income before housing costs, the same number as in 2002/03.

Absolute poverty

Looking at measures of absolute poverty figures shows that progress is continuing to be made.

• In 1996/97 18% of the population (10.3 million people) were living in absolute poverty measured on a before housing costs basis and this had fallen to 10% (5.9 million) by 2002/03.
• On a before housing costs basis since 1996/97 the numbers living in absolute poverty have fallen by 4.4 million (43%).
• In 1996/97 25% of the population (13.9 million people) were living in absolute poverty measured on an after housing costs basis and this had fallen to 14% (7.7 million) by 2002/03.
• On an after housing costs basis since 1996/97 the numbers living in absolute poverty have fallen by 6.2 million (45%).

Inequality

It has been well documented that the period between 1979 and 1996/97 saw record rises in poverty which was in part fuelled by the widening of the gap between the incomes of the richest and the poorest over this period of time. The recent statistics show that there has been significant income growth at the bottom end of the income distribution between 1996/97 and 2002/03.

• Between 1996/97 and 2002/03 the median income of the poorest 20% of the population grew by 18% in real terms (before housing costs) and by 25% (after housing costs).
• Between 1996/97 and 2002/03 the median income of the richest 20% of the population grew by 16% in real terms (before housing costs) and by 20% (after housing costs).

It is this narrowing of the gap between the incomes of the richest and poorest that has resulted in the significant reduction in the number and proportion of the population living in absolute poverty. However, looking at the share of total income received by the poorest and richest individuals shows that inequality still very much exists.

• In 1996/97 the income of the poorest 10% of the population accounted for 3% of total income in the country whilst the income of the richest 10% of the population accounted for 26% of total income.
• In 2002/03 the share of income taken by the poorest 10% has remained the same at 3% whilst the richest 10% have increased their share of total income to 28%.

Who is living in poverty?

As the statistics above show, in 2002/03 17% of the population lived in households with below 60% of median income before housing costs and 22% if looking at income after housing costs. It has been a consistent finding of previous surveys that pensioners and lone parents are two of the groups most at risk of living in poverty.

• In 2002/03 31% of lone parents were living below the poverty line (60% of median income before housing costs) compared with 17% of single people without children and 15% of couples with children.
• In 2002/03 51% of lone parents were living below the poverty line (60% of median income after housing costs) compared with 24% of single people without children and 19% of couples with children.
• In 2002/03 21% of pensioner couples were living below the poverty line (60% of median income before housing costs) compared with 17% of the population as a whole.

The latest report also shows that there are other groups who are more at risk of living in poverty.

Workless households

People living in families where all adults were in work were least at risk of living in poverty. In contrast, people living in workless families (defined as households with one or more adults who were unemployed) were most at risk of living in poverty.

• In 2002/03 64% of individuals in a workless household (household where the head or spouse was unemployed) were living on below 60% of median income before housing costs compared with 12% of individuals in a household with at least one adult in full-time work.
• In 2002/03 75% of individuals in a workless household were living on below 60% of median income after housing costs compared with 18% of individuals in a household with at least one adult in full-time work.

Ethnic origin

Individuals living in households headed by a member of an ethnic minority group were more likely to be living in poverty, this was particularly the case for households headed by someone of Pakistani or Bangladeshi ethnic origin.

• In 2002/03 59% of individuals in a household headed by someone of Pakistani/Bangladeshi origin were living below the poverty line (60% of median income before housing costs) whereas only 16% of individuals in a household headed by someone of white origin were living below the poverty line.
• In 2002/03 69% of individuals in a household headed by someone of Pakistani/Bangladeshi origin were living below the poverty line (60% of median income after housing costs) compared with 20% of individuals in a household headed by someone of white origin.

An alternative way of looking at who is most likely to be living in poverty is to compare the proportions of different family types in the bottom end of the income distribution compared with their representation in the whole population. The table below shows the make up of the bottom quintile (poorest 20% in terms of income after housing costs) of the income distribution in 2002/03 and 1996/97 figures are provided for comparison purposes.

Table 1 (page opens in a new window) shows that lone parents are over represented at the bottom end of the income distribution. In 2002/03 lone parents made up more than a fifth of the bottom 20% of the income distribution although they made up less than 10% of the whole population.

Couples without children are under represented at the bottom end of the income distribution. The bottom 20% of the income distribution consists of less than one in ten couples without children although almost a fifth of the whole population is made up of couples without children.

The following statistics also show the concentration of low income amongst lone parents:

• In 2002/03 48% of lone parents had an income which placed them in the bottom 20% of the income distribution.
• In comparison couple families were more evenly spread across the income distribution. In 2002/03 18% of couples with children had an income which placed them in the bottom 20% of the income distribution.

As stated earlier in this article being without work increases the risk of living in poverty and government policies focus on work as the route out of poverty. It is interesting to examine the composition of the bottom 20% of the income distribution by economic status, this is shown in table 2.

Table 2 (page opens in a new window) shows the close link between poverty and worklessness. More than 40% of the bottom quintile in 2002/03 is made up of those who were either unemployed or economically inactive yet these two groups made up only 14% of the population as a whole.

In comparison households with at least one full-time worker were under represented in the bottom 20% of the income distribution. Only 17% of the bottom quintile of the income distribution was made up of households with at least one full-time worker whereas these household types made up more than half (52%) of the population.

The table also shows that it is not always the case that work will guarantee a route out of poverty as this clearly depends on the type of work. For example, households with one or more part-time workers were over represented amongst those at the bottom end of the income distribution.

Regional trends

The statistics also show how poverty levels vary by region. Table 3 (page opens in a new window) shows the proportion of the population living below the poverty line (60% of median income after housing costs) across the different regions of the UK in 2002/03. The table also shows the proportion of population in each region in the bottom 20% of the income distribution in 2003.

Excluding London, the North East was the region where individuals were most at risk of living below the poverty line with over one in four people in the North East living in a household with an income below 60% of the average. In comparison only 17% of people in the South East and 18% of people in the East of England were living below the poverty line.

Previous articles in Bottomline have shown that earnings are highest in London, however, these figures show that poverty levels are also the highest in London. This was particularly the case in inner London where over a third of individuals were living in poverty.

Looking at income distribution figures shows that individuals in Wales and North West were less affluent with incomes in these regions being skewed towards the bottom of the income distribution. For example, 24% of people in the North East had an income which placed them in the bottom of the income distribution. It is also the case that income in Inner London was polarised with the income of 34% of individuals falling into the poorest 20% of the income distribution.

Conclusions

The government is making some progress towards reducing poverty if poverty is measured in absolute terms. Measuring poverty in relative terms show that initial progress that was made from 1996/97 up until 2001/02 has slowed down. This is in spite of the fact that the government continues with its policies of generous tax credits to top up those on low wages and employment is at a historically low level.

This article shows that tackling inequality remains a significant challenge for the government and that in some regions poverty levels remain high.

(1) Households Below Average Income 1994/95 - 2002/03 is available from www.dwp.gov.uk.