In a market economy such as ours, there is no meaningful way of measuring standards of living that does not have money at its core.
Clearly income is key to this, and it is central to our analysis, but it is not the only aspect that matters. Thinking about income alone, rather than in combination with debts, savings and other assets, limits our understanding. This chapter aims to take a broader view.
The measure of poverty used here is not perfect. The criticisms are valid – falling average living standards shouldn’t in themselves lead to a fall in poverty. The experience of being in poverty for several years is objectively worse than being in poverty for a short period of time. This chapter looks at different ways of measuring income, and discusses the effects this has on our understanding of contemporary poverty.
We do, though, need a starting point. The table below sets out the poverty threshold for different family types. It shows the contemporary threshold for 2013/14 against which ‘relative’ poverty is calculated. It shows the threshold for 2010/11, uprated for inflation. This is the threshold against which ‘absolute’ poverty is measured. It also shows, for reference, the minimum income standard levels for each family type, for 2013/14.
That the contemporary threshold is lower than the fixed 2010/11 threshold tells us that incomes are lower now than in 2011. That both are lower than MIS tells us that on either measure, low-income families do not have an income adequate for a minimum standard of living.
|Single adult||Lone parent with one child||Couple with no children||Couple with two children|
|Uprated 2010/11 threshold||£136||£183||£235||£381|
|UK MIS threshold for 2013||£180||£259||£289||£439|
Choice of indicators
The chapter starts by looking at how household incomes have changed over time. This sets the context for the rest of the chapter, showing the difference between income groups and family types.
The indicator on poverty measurement compares different types of poverty measure, to illustrate their similarities and differences. We focus in on the material deprivation measure to show how similar levels of income can lead to different experiences of poverty between different groups.
The next indicator looks at poverty in a more dynamic way – the proportion of people who remain in poverty over the medium term as well as the various events that lead to people moving in or out of poverty. This gives us a better understanding both of the severity of poverty and the areas on which policy should focus.
The next three indicators look at how other aspects of material wellbeing intersect with income. The first looks at rising costs of goods, and how expenditure patterns differ across the population. We focus specifically on housing, a significant and, in almost all cases, unavoidable regular cost.
The next indicator looks at savings and debt. Having savings can allow a family to smooth over periods of low income. Conversely, a family having to make debt repayments will need a higher income to meet that cost alongside their basic needs.
We then look at how the proportion of people living in low-income households has changed over the last decade and how these changes vary between different groups. We look at poverty by age group, comparing the outcomes of children, working age adults and pensioners, who have been the focus of very different policy approaches.
We look at in-work poverty, and how the share of people in poverty has shifted from workless to working families in recent years. The amount of work carried out in a family is an important determinant of poverty, as the supporting graph explains.
The final graph in this chapter looks at the links between disability and poverty. Disabled people are at higher risk of low income than other people, and also face much higher costs. The first graph seeks to show how these risks have changed over time, and the second looks at the intersection of housing and disability.
At first glance, what is striking about the graphs in this chapter is the lack of change. Incomes are barely higher than a decade ago, in real terms a mere 2 per cent higher. Poverty rates for the whole population rose a little, fell a little and ended up pretty much back where they were in 2004. Changing the measure of poverty makes less of a difference to these findings than changing the measure of inflation.
But this conceals big differences under the surface. First, the composition of those in low-income households has changed a lot. The fall in pensioner poverty, the rise in poverty among the under 25s, the fall in workless poverty and rise in working poverty, and the growth of the private rented sector, all make for a very different picture of poverty compared with a decade ago. The ‘average’ person in poverty is now younger, more likely to be in work and more likely to be in privately rented accommodation.
Changes in incomes tell us one thing. Changes in costs and expenditure help us flesh out the picture. The big changes, particularly but not exclusively for those on low incomes, relate to housing costs. The proportion of low-income households who spend more than 35 per cent of their income on housing costs rose steadily from the end of the last decade onwards, a rise obviously linked to the increasing prevalence of private rented accommodation among lower-income households.
Housing rents rose more quickly than the average price index over recent years, but so did other essentials such as food and domestic utilities. Since these items make up a proportionately larger share of expenditure, low-income families have in effect experienced a higher rate of inflation than other families. Year by year the difference is small, but over a decade it has effectively cut their incomes by an additional 3 per cent.
These cost of living issues are, on the whole, well covered and understood. Inflation rates are pored over on their release every month, as are statistics on wage levels and, on their annual release, household income levels. But one statistic in this chapter stands out as being something new and, should it continue, something concerning.
In the decade to 2013/14, the proportion of families who had no savings rose right across the income spectrum. Among middle-income families, 40 per cent now have no savings. Among those in the bottom fifth, the figure is 70 per cent. For middle-income families, there may be other assets to sell or mortgage. For low-income families, though, the lack of savings means that a drop in income can quickly turn into a crisis.
This report has always focused on income as its main measure of living standards and will continue to do so. But this trend of falling household savings among low-income families is one that deserves greater attention.
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