living standards, poverty and inequality in the uk: 2018

20 June 2018

http://www.ifs.org.uk

@TheIFS #livingstandards

Institute for Fiscal Studies

Wifi details:

Network name: The Building Centre (Open network)

Living standards, poverty and inequality in the UK: 2018

Living standards and income inequality Jonathan Cribb

© Institute for Fiscal Studies Living Standards, Poverty and Inequality in the UK: 2018

What do we mean by “income”?

Income is measured:

‒ Net of direct taxes and benefits

‒ At the household level

‒ Before and after housing costs have been deducted (“BHC” and “AHC”)

Income is adjusted to account for:

‒ Differences in household size and structure (“equivalisation”)

‒ Inflation over time (using variants of the CPI)

Latest official income data – based on a survey of 20,000 households – are available for 2016‒17


© Institute for Fiscal Studies

The UK income distribution in 2016–17

0

25,000

50,000

75,000

100,000

125,000

150,000

10 20 30 40 50 60 70 80 90

Net

hou

seho

ld in

com

e (£

per

yea

r, 20

16–1

7 pr

ices

)

Percentile point

Living Standards, Poverty and Inequality in the UK: 2018

Source: Figure 3.1 of Living Standards, Poverty and Inequality in the UK: 2018



0

25,000

50,000

75,000

100,000

125,000

150,000

10 20 30 40 50 60 70 80 90

Net

hou

seho

ld in

com

e (£

per

yea

r, 20

16–1

7 pr

ices

)

Percentile point

Childless couple: £25,700 p.a.





0

25,000

50,000

75,000

100,000

125,000

150,000

10 20 30 40 50 60 70 80 90

Net

hou

seho

ld in

com

e (£

per

yea

r, 20

16–1

7 pr

ices

)

Percentile point

Childless couple: £25,700 p.a.

Single adult: £17,200 p.a.

Couple with 2 young children: £35,900 p.a.





0

25,000

50,000

75,000

100,000

125,000

150,000

10 20 30 40 50 60 70 80 90

Net

hou

seho

ld in

com

e (£

per

yea

r, 20

16–1

7 pr

ices

)

Percentile point

Median: £25,700 p.a.

Expressed as equivalent living standards for a childless couple





0

25,000

50,000

75,000

100,000

125,000

150,000

10 20 30 40 50 60 70 80 90

Net

hou

seho

ld in

com

e (£

per

yea

r, 20

16–1

7 pr

ices

)

Percentile point


10th percentile: £12,900 p.a.






0

25,000

50,000

75,000

100,000

125,000

150,000

10 20 30 40 50 60 70 80 90

Net

hou

seho

ld in

com

e (£

per

yea

r, 20

16–1

7 pr

ices

)

Percentile point









0

25,000

50,000

75,000

100,000

125,000

150,000

10 20 30 40 50 60 70 80 90

Net

hou

seho

ld in

com

e (£

per

yea

r, 20

16–1

7 pr

ices

)

Percentile point




Expressed as equivalent living standards for a childless couple 99th percentile: £120,500 p.a.




This presentation

What has happened to average incomes in recent years?

‒ What has driven recent income growth?

‒ How has average income growth compared to previous periods?

‒ How has it differed for working age people and pensioners?

How has income growth differed for high and low income people?

‒ What implications has that had for income inequality?

‒ What has driven recent changes in income inequality?


Median income in Britain since the 1960s


Note: Great Britain only Source: Authors calculations using the Family Expenditure Survey and Family Resources Survey, various years.

0

5,000

10,000

15,000

20,000

25,000

30,000

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

Med

ian

equi

valis

ed n

et h

ouse

hold

inco

me

(£ p

er y

ear,

2016

-17

pric

es)

2.0% per year in 40 years prior to 2007-08

0.6% per year since 2007-08

Median income in the UK since 2002-03


21,000

22,000

23,000

24,000

25,000

26,000

27,000

Med

ian

equi

valis

ed n

et h

ouse

hold

in

com

e (£

per

yea

r, 20

16-1

7 pr

ices

)


1.1% per year 2002-03 to

2007-08

-0.6% per year 2007-08 to

2011-12

1.6% per year 2011-12 to

2016-17

Explaining average (mean) income growth

-4 -3 -2 -1 0 1 2 3 4

Direct taxes

Other

Private pensions and savings

Pensioner benefits

Working age benefits

Gross self employment income

Gross employee earnings

Contribution to average income growth (ppt)

Contribution since 2007-08 Contribution since 2011-12


Note: Excludes individuals subject to the top income (SPI) adjustment due to responses to dividend taxation in 2016-17 Source: Table 2.1 of Living Standards, Poverty and Inequality in the UK: 2018

Still lower income from employee earnings

Higher income from pensioner benefits,

private pensions and savings

Modest recovery in

employment incomes

Fall in working age benefit

incomes

Average pensioner vs non-pensioner incomes


70%

75%

80%

85%

90%

95%

100%

105%

110%

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17 M

edia

n pe

nsio

ner i

ncom

e as

a p

erce

ntag

e of

non

-pen

sion

er in

com

e

Before Housing Costs are deducted

After Housing Costs are deducted



This presentation

What has happened to average incomes in recent years?

‒ How has average income growth compared to previous periods?

‒ What has driven recent income growth?

‒ How has it differed for working age people and pensioners?

How has income growth differed for high and low income people?

‒ What implications has that had for income inequality?

‒ What has driven recent changes in income inequality?



0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0.20

0.22

0.24

0.26

0.28

0.30

0.32

0.34

0.36

0.38

0.40

1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

Gin

i coe

ffici

ent

Long-run inequality: 1961 to 2016–17 (GB)


Source: Figures 3.7 and 3.8 of Living Standards, Poverty and Inequality in the UK: 2018

Gini coefficient


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0.20

0.22

0.24

0.26

0.28

0.30

0.32

0.34

0.36

0.38

0.40

1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

Top

1% s

hare

of i

ncom

e

Gin

i coe

ffici

ent

Long-run inequality: 1961 to 2016–17 (GB)



Gini coefficient

Top 1% share of income (RH axis)


Changes in income inequality in the recovery


-2%

-1%

0%

1%

2%

3%

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Ave

rag

e a

nn

ua

l in

com

e g

row

th

Percentile point

2007-08 to 2011-12

2011-12 to 2016-17


Increases in inequality

between bottom and middle

Decreases in inequality

between middle and top

2007-08 to 2016-17


Why did middle incomes grow faster than low or high incomes during the recovery?

1. Employment growth much larger in low (and middle) income households



Growth in employment favoured bottom and middle


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Lowest income 20% Middle income 20% Highest income 20%

16-6

4 em

ploy

men

t rat

e

2011-12 2016-17




2. Earnings growth has been strongest for low earners, which particularly benefits middle income households (!)

3. Earnings growth has been weak for high earners, which suppresses incomes of high income households



Real weekly earnings growth

0

10

20

30

40

50

60

70

80

90

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

10 20 30 40 50 60 70 80 90 Percentile of weekly earnings distribution

Real weekly earnings growth 2011-12 to 2016-17 (LH axis)


Average position (percentile) in household income distribution in 2016-17 (RH axis)






4. Benefit incomes have fallen for lowest income households



Changes in working age benefit incomes since 2011-12


-30%

-20%

-10%

0%

10%

20%

30%

0 1-100 101-200 201-300 301-400 401-500 501+

Chan

ge in

mea

n be

nefi

t in

com

e

Total family earnings (£ per week, 2016-17 prices)

-23% = £420 per year

-6% = £620 per year






4. Benefit incomes have fallen for lowest income households



Summary

Income growth during the recovery has been slow by long run historical standards, but faster than in the run up to the recession

‒ Driven by (relatively weak) growth in employment incomes

‒ If OBR forecasts are correct, expect relatively slow income growth in coming years

Income inequality much higher than it was late 1970s, little change overall since 1990

During the recovery from the recession, inequality rising between middle and bottom, falling between top and middle

‒ Due to trends in employment and earnings, and falls in benefit incomes

‒ Modest earnings growth + working age benefit cuts suggest increasing inequality in coming years


Poverty Agnes Norris Keiller


Measuring poverty

Measure of low material living standards

• Proxy living standards with net household income

• Focus on income measured after housing costs are deducted (AHC)

Absolute income poverty (poverty line fixed in real terms)

• Income less than 60% of 2010‒11 median income (CPI adjusted)

• £7.2k p.a. for childless single adult; £17.5k p.a. for couple with 2 kids

Relative income poverty (moving poverty line)

• Income less than 60% of the contemporary median income

© Institute for Fiscal Studies Living standards, poverty and inequality: 2018

This presentation

How has poverty changed in recent years?

• How does this compare to previous periods?

• How has it differed for children and pensioners?

How have housing costs among low-income children changed?

• What does this mean for measuring poverty?

How have the living standards of low-wage employees changed following the introduction of the National Living Wage?

• How have these changes impacted poverty?


Absolute AHC poverty in the UK since 2002‒03


10%

15%

20%

25%

30%

35%

Abso

lute

(AH

C) p

over

ty ra

te

All

Children

Working-age non-parents


Pensioners

Recent falls in poverty vs earlier trends


-12

-10

-8

-6

-4

-2

0

2

4 All Pensioners Children


Chan

ge in

abs

olut

e AH

C po

vert

y ra

te

(per

cent

age

poin

ts)


2011‒12 to 2016‒17

2007‒08 to 2011‒12 2002‒03 to 2007‒08

Why has pensioner poverty reduction slowed?


Many pensioners in 2002–03 had incomes slightly below poverty line

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10% £0

£2

0 £4

0 £6

0 £8

0 £1

00

£120

£1

40

£160

£1

80

£200

£2

20

£240

£2

60

£280

£3

00

£320

£3

40

£360

£3

80

Perc

enta

ge o

f pen

sion

er p

opul

atio

n

Real household income (AHC)




2002‒03

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10% £0

£2

0 £4

0 £6

0 £8

0 £1

00

£120

£1

40

£160

£1

80

£200

£2

20

£240

£2

60

£280

£3

00

£320

£3

40

£360

£3

80

Perc

enta

ge o

f pen

sion

er p

opul

atio

n





2002‒03

9% Absolute poverty line (AHC)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10% £0

£2

0 £4

0 £6

0 £8

0 £1

00

£120

£1

40

£160

£1

80

£200

£2

20

£240

£2

60

£280

£3

00

£320

£3

40

£360

£3

80

Perc

enta

ge o

f pen

sion

er p

opul

atio

n





2002‒03

2011‒12

9% Absolute poverty line (AHC)



Many pensioners in 2002–03 had incomes slightly below poverty line

• Only small income growth needed to pull many out of poverty

Income growth among lowest-income fifth of pensioners has slowed

• 8% between 2002–03 and 2007–08; 1% between 2011–12 and 2016–17

• Largely due to slower growth in private pension and saving income

Why has child poverty reduction accelerated?


Between 2011‒12 and 2016–17:

• Falls in child poverty among both working and workless households

• Rises in parental employment

Between 2002–03 and 2007–08:

• Child poverty fell among workless households only

• Little change in parental employment

AHC poverty in the UK since 2002‒03


10%

15%

20%

25%

30%

35%

po

vert

y ra

te (A

HC)

All: absolute

poverty


All: relative

poverty

Relative AHC poverty in the UK since 2002‒03


10%

15%

20%

25%

30%

35%

Rela

tive

pove

rty

rate

(AH

C)


All

Relative AHC poverty in the UK since 2002‒03


10%

15%

20%

25%

30%

35%

Rela

tive

pove

rty

rate

(AH

C)

All

Children



Pensioners

This presentation









Fast growth in housing costs among low-income hhs. with children



-20%

-10%

0%

10%

20%

30%

40%

50%

1 (lowest)

2 3 4 5 (highest)

Chan

ge in

mea

n re

al h

ousi

ng c

osts

am

ong

child

ren

Household income quintile (AHC)

2002‒03 to 2016‒17



Source: Author’s calculations using the Family Resources Survey 2002‒03 and 2016‒17

£0

£20

£40

£60

£80

£100

£120

1 (lowest)

2 3 4 5 (highest)

Mea

n re

al h

ousi

ng c

osts

am

ong

child

ren


2002‒03

2016‒17

£31



Source: Author’s calculations using the Family Resources Survey 2002‒03 and 2016‒17

£0

£20

£40

£60

£80

£100

£120

1 (lowest)

2 3 4 5 (highest)

Mea

n re

al h

ousi

ng c

osts

net

of

hous

ing

bene

fit a

mon

g ch

ildre

n


2002‒03

2016‒17

£29

Housing tenure of low-income children

More live in social rented housing than higher-income children

• 38% of children in bottom income quintile

Less live in owner-occupied housing than higher-income children

• 25% of children in bottom income quintile

Low-income children have seen biggest shift towards private renting

• Children in bottom income quintile: 15% in 2002‒03; 36% in 2016‒17


Large differences in costs between tenures


£0

£20

£40

£60

£80

£100

£120

£140

£160

Mea

n re

al h

ousi

ng c

osts

am

ong

child

ren Social rented

Owner occupied

Private rented


Has relative child poverty fallen or risen?


10%

15%

20%

25%

30%

35%

Rela

tive

child

pov

erty

rat

e


Fallen

by 3 ppt.

BHC

Has relative child poverty fallen or risen?


10%

15%

20%

25%

30%

35%

Rela

tive

child

pov

erty

rat

e

BHC


Fallen

by 3 ppt.

Risen by

1 ppt. AHC

AHC better at tracking changes in poverty than BHC

Fast growth in housing costs among low-income households

• Likely to have reduced living standards

• Overlooked in BHC measures of income poverty

Changes in BHC poverty do not always reflect changes in living standards of low-income households


This presentation









Fast pay growth among low-wage employees


-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

1 (lowest-paid)

2 3 4 5 (highest-paid)

Real

gro

wth

from

201

5‒16

to 2

016‒

17

Pre-tax weekly earnings


Hourly wage quintile

but little change in av. living standards

½%

6%

Household net income (BHC)

Where are low-wage employees in the income distribution?


0%

2%

4%

6%

8%

10%

12%

14%

1 2 3 4 5 6 7 8 9 10

Household income decile (BHC) (lowest- income)

(highest- income)

Source: Figure 6.10b of Living Standards, Poverty and Inequality in the UK: 2018

62% have

below-av.

household

income

38% have

above-av.

household

income

Av. household

income grew by

2% in 2016‒17

Av. household

income fell by

2% in 2016‒17

Poverty among low-wage employees has fallen



0%

5%

10%

15%

20%

25%

30%

2010‒11 2011‒12 2012‒13 2013‒14 2014‒15 2015‒16 2016‒17

Abso

lute

(AH

C) p

over

ty ra

te a

mon

g em

ploy

ees

Wage quintile 1

Wage quintile 2

Wage quintile 3

Wage quintile 4

Wage quintile 5

Summary

Absolute (AHC) poverty down from 22% in 2011‒12 to 19% in 2016‒17

Relative (AHC) poverty up slightly from 21% in 2011‒12 to 22% in 2016‒17

Fast growth in housing costs for low-income children have caused AHC and BHC poverty rates to diverge

NLW followed by strong pay growth for low-wage employees, little change in their av. living standards but falls in absolute poverty


Poverty among working-age adults in poor health Tom Waters


Working age adults in poor health

Increasingly important policy issue:

1. More 25-54 year olds out of work because of sickness & disability than because they cannot find a job.

© Institute for Fiscal Studies Poverty among working-age adults in poor health




2. Working-age health-related benefit (incapacity and disability) spending on the rise; spending on other working-age benefits falling.


Spending on working-age income replacement and disability benefits


0

5

10

15

20

1978

–79

1980

–81

1982

–83

1984

–85

1986

–87

1988

–89

1990

–91

1992

–93

1994

–95

1996

–97

1998

–99

2000

–01

2002

–03

2004

–05

2006

–07

2008

–09

2010

–11

2012

–13

2014

–15

2016

–17

2018

–19

2020

–21

2022

–23

Annu

al e

xpen

ditu

re, £

bn (2

018–

19 p

rices

)

Income support (lone parents) Forecast Income support (lone parents and carers) Incapacity benefits Unemployment benefits Disability benefits

Source: Figure 5.3 of Living Standards, Inequality and Poverty in the UK: 2018





3. Government committed to halving ‘disability employment gap’.


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Non-disabled Disabled

Employment rates, disabled and non-disabled


Source: Office for National Statistics, UK labour market: May 2018

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Non-disabled Disabled

Employment rates, disabled and non-disabled


1 in 3 disabled out of work into work

Source: Office for National Statistics, UK labour market: May 2018

‘Target’





3. Government committed to halving ‘disability employment gap’.


This presentation

Measure health according to self-reported mental/physical condition lasting 12+ months – “longstanding illness”.

• e.g. Diabetes, respiratory problems, mental health problem.

Focus on the 25-54 year old population.

Questions to answer in this presentation:

• Who has a longstanding illness?

• How do they do in the labour market?

• How do their living standards compare to healthy people?


Who has a longstanding illness?


What kind of conditions do they have? Share of 25-54 year olds with a longstanding illness


0%

5%

10%

15%

20%

25%

30%

2013–14 2014–15 2015–16 2016–17 2017–18

Diabetes

Stomach, liver, kidney, digestion Cardiovascular

Respiratory




0%

5%

10%

15%

20%

25%

30%

2013–14 2014–15 2015–16 2016–17 2017–18

Diabetes


Respiratory

Other

Back, neck, limbs




0%

5%

10%

15%

20%

25%

30%

2013–14 2014–15 2015–16 2016–17 2017–18

Diabetes


Respiratory

Mental health

Other

Back, neck, limbs


Demographics and illness Share of 25-54 year olds with a long-standing illness


0% 5% 10% 15% 20% 25% 30% 35% 40%

Low education

High education

All

Long-standing mental health problem Other long-standing illness




0% 5% 10% 15% 20% 25% 30% 35% 40%

In a couple

Single

Low education

High education

All





0% 5% 10% 15% 20% 25% 30% 35% 40%

Aged 45–54

Aged 35–44

Aged 25–34

In a couple

Single

Low education

High education

All



Geographical variation in health-related out of work benefits


Source: Figure 6.7 of Emmerson et al. (2017) Working-age incapacity and disability benefits

Employment and support allowance (support group)

Who are the unwell population?

Back, neck, and limbs problems are the most common conditions.

Mental health problems on the rise.

Those with a longstanding illness are generally less educated, more likely to be single, and older.

Incapacity benefit claimants concentrated in West of Scotland, South Wales, North of England


How do they do in the labour market?


Out-of-work rates and longstanding illness Share of 25-54 year olds out of work


All 0%

5%

10%

15%

20%

25%

30%

35%

No longstanding illness With a longstanding illness Source: Figure 5.8 of Living Standards, Inequality and Poverty in the UK: 2018

18ppts

Long-term out-of-work rates and illness Share of 25-54 year olds out of work for 3+ years


All 0%

5%

10%

15%

20%

25%

30%

35%


15ppts



Women Men All 0%

5%

10%

15%

20%

25%

30%

35%


70% of men who are long term out of work are ill



Low education High education Women Men All 0%

5%

10%

15%

20%

25%

30%

35%


Labour market outcomes by condition


Source: Table 5.1 of Living Standards, Inequality and Poverty in the UK: 2018

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Respiratory Cardiovascular Diabetes Stomach, liver, kidney,

digestion

All healthy

Employment rate (LHS)




0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


digestion

All healthy


32% of those with an illness




0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


digestion

Back, neck, limbs

Other All healthy





0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


digestion

Back, neck, limbs

Other Mental health All healthy


36ppt gap




0

50

100

150

200

250

300

350

400

450

500

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


digestion

Back, neck, limbs


Employment rate (LHS) Median earnings of employees (£ per week) (RHS)




0

50

100

150

200

250

300

350

400

450

500

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


digestion

Back, neck, limbs


Employment rate (LHS) Median earnings of employees (£ per week) (RHS)

23% gap

How do those with an illness do in the labour market?

People with a longstanding illness are more likely to be out of work, and much more likely to be long-term out of work than those without.

Men & low educated especially likely to be long-term out of work if they have a longstanding illness.

Those with mental health conditions experience considerably worse labour market outcomes than people with other conditions.


How do their living standards compare to healthy people?


Living standards and poor health

Given poorer labour market outcomes of those with longstanding illness, likely to lead to lower incomes & living standards.




1.00

1.25

1.50

1.75

2.00

0%

5%

10%

15%

20%

25%

30%

35%

40%

'Snapshot' relative poverty (BHC)

Ratio

of u

nwel

l to

heal

thy

Prop

ortio

n of

hea

lthy/

unw

ell 2

5-54

yea

r old

s

No longstanding illness With a longstanding illness Ratio (RHS) Source: Figure 5.11 of Living Standards, Inequality and Poverty in the UK: 2018


Given poorer labour market outcomes of those with longstanding illness, likely to lead to lower incomes & living standards.

But other ways illness related to living standards, including:

• Low income for longer periods

• Expenditure on health-related goods & services

Therefore, ‘snapshot’ (income) poverty doesn’t tell the whole story.




1.00

1.25

1.50

1.75

2.00

0%

5%

10%

15%

20%

25%

30%

35%

40%


Persistent relative poverty (BHC)

Ratio

of u

nwel

l to

heal

thy

Prop

ortio

n of

hea

lthy/

unw

ell 2

5-54

yea

r old

s




1.00

1.25

1.50

1.75

2.00

0%

5%

10%

15%

20%

25%

30%

35%

40%


Persistent relative poverty (BHC)

Material deprivation

Ratio

of u

nwel

l to

heal

thy

Prop

ortio

n of

hea

lthy/

unw

ell 2

5-54

yea

r old

s


0% 10% 20% 30% 40% 50% 60%

With any longstanding illness

No longstanding illness

Poverty, mental health, and multiple illnesses Share of 25-54 year olds in relative poverty and material deprivation


Relative poverty (AHC)



0% 10% 20% 30% 40% 50% 60%

With mental health problem

With any longstanding illness

No longstanding illness

Poverty, mental health, and multiple illnesses Share of 25-54 year olds in relative poverty and material deprivation


Relative poverty (AHC)



Summary

Poor health is associated with significantly lower living standards

Those with mental health problems see markedly worse outcomes

• Employment, earnings, living standards

• Particularly concerning as mental health problems on the rise

Snapshot measures understate poor outcomes among those with a longstanding illness

• Much more likely to be long term out of work

• Large differences in persistent poverty & material deprivation


20 June 2018

http://www.ifs.org.uk

@theifs #livingstandards

Institute for Fiscal Studies

Wifi details:

Network name: The Building Centre (Open network)

Living standards, poverty and inequality in the UK: 2018

living standards, poverty and inequality in the uk: 2018

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