Today saw a new set of data released on income and poverty across the UK. The full set of data and analysis for Scotland have been published by the Scottish Government here. For Scotland, this is the first set of figures we’ve had for a couple of years due to the impact that the pandemic had on the size of the survey sample.
This means that this is the first update since the pandemic that paints a picture for Scotland.
These statistics also give us an insight into progress towards the legislative targets relating to child poverty. More on that later.
The Scottish Government uses three-year averages to look a trends in income and poverty in Scotland. A key issue to be aware of in using this data is that, due to the missing data for 2020-21, the only three-year period that includes the impact of the pandemic is 2019-2022, which includes data only for 2019-20 and 2021-22.
Household income refers to the money available for families after tax and transfers (i.e. benefit income). Housing costs are also deducted. Together, these figures provide us with the best picture we have of the money people in Scotland have to live on.
This data doesn’t look at the impact of inflation on spending power. However, the data we have predates the large inflationary increases we have seen recently and hence we don’t need to worry about inflation too much in interpreting what these statistics mean for living standards over the period in question.
So what do today’s statistics tell us about average household incomes?
Chart 1 shows median income trends since 2000. In the period 2019-2022 (which is actually 2019-20 and 2020-21, so all pre-pandemic), median household income before housing costs were £511. The most recent figure is £505 a week. The government statisticians are keen to point out (and we agree) that we can’t say too much about trends based on one data point. However, as Chart 1 shows, it is rare to see a fall in a household income, with the last time this was the case being the years during and following the financial crisis. However, it would not be surprising if the pandemic has had this impact given the disruption it caused.
Chart 1: Household incomes
The other key issue of interest is what is happening to income inequality.
The Scottish Government’s preferred measure of income inequality, the Palma ratio, is falling. The Palma ratio looks at total income of the top ten percent of the population and divides this by the total income of the bottom forty percent of the population. The Gini coefficient, another measure of income inequality, is also falling.
However, other statistics produced by the Scottish Government within their poverty statistics publication tell us that, for the latest period, the bottom 60% of the population saw their incomes fall whilst household incomes rose for the top 30%.
As is often the case, different ‘cuts’ of the statistics can provide different insights. Poverty rates are another way that we can look at income inequality.
Poverty is related to income inequality, but like income inequality, can be measured in a number of different ways. The most common poverty statistic that is used is relative poverty after housing costs. It measures how many people are living in households where income is below 60% of the average (median) income.
Chart 2 shows the most recent data series. There has been a slight increase in poverty when measured at the population level (currently at 21%) and a slight decrease when measured for children (currently at 24%).
As Chart 2 shows, the population and child data series do tend to move in parallel so that fact that there is a slight divergence in trends for children vs the population trend in most recent data is notable. It may be a statistical blip, or it may be an indication that some of the Scottish Government’s targeted policy to tackle child poverty (namely the Scottish Child Payment) is having an impact. It is too soon to know this for sure, and it will be data for 2022-23 and 2023-24 that will show the impact of the Scottish Child Payment policy as it was rolled out more fully.
Chart 2: Relative Poverty
There are a set of poverty targets that the Scottish Government needs to meet by 2023-24. These statistics released today take us up to 2021-22, so it will be two years before we know whether the targets have been met. We’ll be looking into the detail of the data to see if it can tell us anything more on progress, or otherwise towards these targets. Relative poverty needs to move down to 18% by 2023-24 to meet this target (and then down to 10% by 2030-31). It goes without saying that there is a long way to go!
Emma is Deputy Director and Senior Knowledge Exchange Fellow at the Fraser of Allander Institute