How have household incomes evolved since the onset of the financial crisis? How has the gap between rich and poor changed? How have living standards changed over time for different parts of the population? How many people are in poverty and which groups are most likely to face poverty?
Each year, the government produces statistics about the distribution of income in the UK (‘Households Below Average Incomes’ or HBAI), which help answer these questions and many more. This report, funded by the Joseph Rowntree Foundation, is the fourteenth in an annual series published by the Institute for Fiscal Studies (IFS). It analyses the HBAI statistics and digs deeper to explore the driving forces behind key trends in living standards, inequality and poverty.
Our first such report, in 2002, highlighted robust year-on-year growth in living standards and falling levels of poverty, while inequality was rising gradually. This latest report covers data up to and including 2013–14. The picture is strikingly different. Average incomes are edging up slowly again after falling sharply after the Great Recession. Income inequality has fallen back to levels last seen one or two decades ago, depending on the measure. Relative poverty is lower than before the recession, but that is because the poverty line fell in line with average incomes: in absolute terms, the poor did not tend to see falls in income of the magnitude experienced by those on middle and higher incomes, but their disposable incomes have at best been stable once their housing costs are properly accounted for. Important new themes have emerged, including increasing numbers in work alongside a deterioration of the financial position of working families, especially relative to pensioners.
The main measure of income used in our analysis is net household income, which is ‘equivalised’ to take account of differences in household size and composition. We measure each household’s total income from all sources (including earnings, self-employment income, pensions, benefits and tax credits) minus income tax, National Insurance contributions and council tax. We then apply ‘equivalence scales’ to each household’s income, accounting for the fact that (for example) a net income of £200 per week will mean a higher standard of living for a single individual than it will for a couple with four children, all else equal.
Click here to access data on living standards, poverty and inequality since 1961 and to view our other annual reports on the topic.