Poverty and inequality

Absolute and relative poverty

Poverty is defined in three main ways:

Relative poverty, or having ‘relative low income’, is measured by taking all the households in the UK, finding their income adjusted for their family size, and lining them up. The middle, or ‘median’, household becomes the benchmark. All households that fall below 60% of the median are poor.

Absolute poverty, or being in ‘absolute low income’, applies to people who live in a household with an income less than 60% of the ‘middle’ household in 2010/11, taking into account inflation in prices since then. So when incomes rise faster than prices, absolute poverty figures fall.

Material deprivation, which applies to measures of child and pensioner poverty, involves asking families whether they can afford ‘essential’ items or services, or can participate in social and leisure activities.

Figures for poverty and material deprivation are published by the Department for Work and Pensions (DWP) as part of their ‘households below average income’ series. These can give national as well as regional figures, and can give breakdowns by age, gender, ethnicity, disability and the structure of the family.

The DWP also produces a pensioners’ incomes series with information on the average incomes of pensioners, the distribution of pensioner income between rich and poor, the type of income they receive (as well as how each of these differs depending on factors such as age, gender and region).

The Department for Communities and Local Government publishes the English indices of deprivation every three years. Over 32,000 geographical areas in England are ranked across a range of poverty indicators. The data allows you to identify the most deprived areas in England and calculate how many people are income or employment deprived.

Data on how our poverty rates compare to the rest of the EU was published in a one-off analysis by the Office for National Statistics.

Income distribution

Figures on how much people’s incomes differ (as well as what effect taxes, benefits and pensions have on people’s incomes) are published by the Office for National Statistics (ONS) every year. The data is primarily organised by brackets of income, with the population split into fifths (quintiles), tenths (deciles) and hundredths (percentiles). Further breakdowns are available for pensioners, working-age families, and those with children, dating back to the 1970s.

There are also one-off analyses. This analysis looks at the overall effect of taxes and benefits historically, while this one examines how VAT hits people’s spare income.

The most widely used measure of income inequality is called the ‘Gini coefficient’ – also provided in the ONS release – which puts a number on how diverse incomes are. The lower the number, the more equally household income is distributed. So a value of 0 means everyone in the country has the same income; a value of 100 means one person has all the income.