Poverty in the UK: a guide to the facts and figures

Last updated: 18 Aug 2016

Intuitively, defining poverty doesn't seem necessary: we know it when we see it. While we can probably agree that the inhabitants of Dickensian slums were in poverty, in many cases today things aren't so clear cut.

It's partly because of this difficulty that there are several measures available. The main government figures are for absolute and relative poverty, measured before and after housing costs.

Although the figures produced by the Department for Work and Pensions (DWP) are referred to as measuring relative and absolute low income, it's common to refer to them as measures of poverty (for example, in the Child Poverty Act or at Prime Minister's Questions).

Relative poverty

Relative poverty generally means that a person can't afford an "ordinary living pattern"—they're excluded from the activities and opportunities that the average person enjoys.

A household is in relative poverty (also called relative low income) if its income is below 60% of the median household income. Because the government is measuring quality of living rather than earning power, incomes are measured after taxes and benefits.

The median is the number 'in the middle' of a set—so half of all households earn more than the median income household, and half earn less.

A household with one person in it needs less money to live comfortably than a household consisting of a couple and two children. To take these differences into account, incomes are adjusted for household composition. So what we're actually comparing is equivalised incomes.

Absolute poverty

Absolute poverty is slightly trickier. The definition used by a number of international organisations (such as the UN and the World Bank) is that you cannot afford the basic needs of life—food, clothing, shelter and so on.

This is absolute in the sense that it is measured relative to a fixed (real) standard of living, rather than relative to the population you are a member of.

This is not the definition used by the UK government. The measure of absolute poverty produced by the DWP is more accurately described as a minimum acceptable standard of living, held constant over time. This standard is set relative to what people earned in 2010/11: the threshold is a household earning less than 60% of the 2010/11 median after taxes and transfers, adjusted for household size and composition.

Which measure to look at?

There's been a long political debate between relative and absolute measures of poverty. David Cameron has been at the forefront: in 2006, he felt that we needed to think about poverty in relative terms. By 2011, he felt that relative measures could lead to 'illogical' conclusions—although he was happy to answer a question about absolute poverty with relative measures in 2015.

Then it appeared that his doubts about relative poverty surfaced again. It's reasonable to feel conflicted about this issue; neither measure is perfect, and they can tell quite different stories.

Relative poverty measures can lead to some odd outcomes. It's somewhat perverse that you can be 'lifted' out of poverty simply because people around you are poorer.

Absolute measures have their own disadvantages. They won't tell you if those at the bottom are falling even further behind those in the middle, and they won't take into account changes in what we see as the minimum acceptable standard of living.

A more general problem with these figures is that a low income doesn't necessarily imply a low standard of living. The ONS use the "60% of the median" benchmark to indicate whether someone is 'at risk of poverty'.

As the Institute for Fiscal Studies put it, absolute and relative measures tell us different things, and "there is nothing to be gained from ignoring some of this information". Considering both together paints a fuller picture.

 Housing costs

The DWP produces figures for poverty using income before and after housing costs.

Measuring income before housing costs means that we treat spending on things such as rent and mortgage interest like we do spending on food or heating. Increased income means that you're better off, and if you choose to spend the increase on housing then that is reflected in your living standards.

Measuring income after housing costs is a bit different. This measures well-being by the amount that you have left to spend after paying for housing. As the DWP puts it, this treats spending on housing as reflecting increased prices for the same type of accommodation.

There are advantages to using this figure. The price for accommodation of a given quality is highly variable across the country (the £2 million for a 'mansion' buys you rather less in London than it does in Wiltshire). The amount that people spend on housing also varies across groups (with pensioners spending less and younger people spending more).

Additionally, measuring income after housing costs removes the influence of housing benefits from the figures. When rents increase and housing benefits rise to offset them, this is counted as an income rise. If housing costs aren't taken into account then this can be somewhat misleading.

It should be pointed out that applying this approach to only one part of spending is a little inconsistent. Although housing takes up a large part of most people's budgets, other important costs are not afforded the same treatment. Increased spending on food could reflect purchasing more (or better quality) food, or it could just represent increasing prices. Similarly, pensioners and young people might differ in their spending on fuel for commuting and heating, and prices for goods and services other than housing also vary across the country.

What's happening to poverty?

Looking at the number of individuals in poverty can be misleading. As the number of households in the economy grows, all else being equal it's likely that the number of individuals below the poverty line will also tend to grow. Looking at the proportion of the population below the poverty line gives a more accurate idea of how poverty is changing over time.

In all of these cases, it's worth noting that poverty has fallen substantially over the longer term.

Absolute poverty has fallen slightly over the last ten years.

The proportion of individuals in relative poverty has been broadly stable over the last decade.

Pensioners

Pensioners are less likely to be in relative or absolute low income after housing costs than the general population.

The proportion of pensioners in various forms of poverty has fallen significantly over the long run, but the trend flattened out towards the middle of the last decade.

Children

Children are more likely to be living in both absolute and relative poverty than the general population, whether before or after housing costs.

The proportion of children in relative poverty (before and after housing costs) has changed little since 2010 but is lower than a decade ag. The apparent increase in 2014/15 is not significant.

Who do the figures miss? 

A less pleasing aspect of these figures is their exclusion of the very poorest. The households income survey used to create these figures is, as the name suggests, a survey of private households.

Homeless people sleeping rough or living in bed and breakfast accommodation are excluded from the figures. Other people are missed out too: people living in institutions like nursing homes or halls of residence are excluded.

How badly off are these people?

It's difficult to tell. As we've said, although it's common to refer to these figures as measuring poverty they measure income. And a low current income does not necessarily mean a low standard of living.

People can sustain higher living standards than income alone would indicate by running down their savings. Data on household income and spending shows that the bottom 10% of the income distribution spend in a way that suggests that they might not be in the bottom 10% of living standards.

This makes sense; people who spend time unemployed while they move between jobs (or for other reasons are not currently working) might smooth their consumption by spending their savings.

Peoples incomes also change over time. Someone with a relatively low income today might reasonably expect to have a higher income in the future and borrow accordingly. Looking at the number of people in poverty without examining how long people spend in poverty can be misleading.

 

Image courtesy of Fabio Venni

 


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