Poverty and Income Inequality in Scotland 2011/12

Chapter 3: Income Inequality and the distribution of income

The tables and charts in this section provide information about income inequality, the distribution of income and the types of families which are most common at the top and bottom of the income distribution.

Deciles / decile points:

Deciles (or decile points) are the income values which divide the Scotland population, when ranked by income, into ten equal-sized groups. Therefore nine decile points are needed in order to form the ten groups. Decile is also often used as a shorthand term for decile group; for example 'the bottom decile' is used to describe the bottom ten per cent of the income distribution.

Decile groups:

These are groups of the population defined by the decile points. The lowest decile group is the ten per cent of the population with the lowest incomes. The second decile group contains individuals with incomes above the lowest decile point but below the second decile point.

The following chart and table present figures that relate to the Scottish Government's Solidarity Purpose Target which is "to increase overall income and the proportion of income earned by the three lowest income deciles as a group by 2017": http://www.scotland.gov.uk/About/Performance/scotPerforms/purpose/solidarity

Chart 6 shows the percentage of total income received by the three lowest income deciles (the thirty per cent of the population with the lowest incomes), from 1998/99 to 2011/12. It also shows the percentage of total income received by the three highest income deciles. This is a measure of how equally income is distributed across the population.

Chart 6: Percentage of total equivalised income going to the bottom and top three income deciles, 1998-99 - 2011-12

Source: HBAI dataset, DWP.

Main points:

• In 2011/12, the percentage of income received by those in the bottom 3 deciles was 14%, the same as 2010/11.
• Having dropped from 54 per cent to 51 per cent between 2009/10 and 2010/11, the percentage of income received by those in the top three income deciles increased slightly in 2011/12 to 52 per cent.
• There has been no significant change in income inequality between 2010/11 and 2011/12.
• Over the longer term it can be seen that there has been very little change in income inequality since 1998/99, with the percentage of income received by the bottom 3 deciles remaining at between 13 and 14 per cent.

3.1 Income thresholds

Most of the income figures in this publication are based on equivalised income. One consequence of the equivalisation process is that there are different poverty thresholds for households of different sizes and compositions. To help readers understand the figures in this publication, the following table presents some commonly used income thresholds, before equivalisation, for families of different sizes.

Table 1 - Income thresholds for different family types (income after tax and BHC)

	Single person with no children		Couple with no children		Single person with children aged 5 and 14		Couple with children aged 5 and 14
	weekly	annual	weekly	annual	weekly	annual	weekly	annual
UK median income (before housing costs)	286	14,900	427	22,300	513	26,700	654	34,100
Scottish median income (before housing costs)	292	15,200	436	22,700	523	27,300	667	34,800
60% of UK median income (before housing costs) - relative poverty threshold	172	9,000	256	13,400	308	16,000	392	20,500
60% of inflation adjusted 2010/11 UK median income (before housing costs) - absolute poverty threshold	177	9,200	264	13,800	317	16,500	404	21,000
Scottish 1st income decile	156	8,100	233	12,100	279	14,600	356	18,600
Scottish 2nd income decile	194	10,100	290	15,100	347	18,100	443	23,100
Scottish 3rd income decile	223	11,700	333	17,400	400	20,900	510	26,600
Scottish 4th income decile	255	13,300	381	19,900	457	23,800	582	30,400
Scottish 5th income decile	292	15,200	436	22,700	523	27,300	667	34,800
Scottish 6th income decile	330	17,200	493	25,700	591	30,800	754	39,300
Scottish 7th income decile	379	19,800	566	29,500	679	35,400	865	45,100
Scottish 8th income decile	438	22,900	654	34,100	785	40,900	1001	52,200
Scottish 9th income decile	545	28,400	813	42,400	975	50,900	1244	64,800

Source: HBAI dataset, DWP. Note: To create ten decile groups only nine decile points are needed to split the population.

Main points:

• The relative poverty (BHC) threshold in 2011/12 is equivalent to £172 per week for a single person with no children; £256 for a couple with no children; or £392 per week for a couple with one young and one older child.
• A couple with no children with a combined income of over £34,100 (after tax) would be in the highest income 20 per cent of the population.

3.2 Trends in income distributions

Chart 7 shows how the median equivalised household income in Scotland has changed from 1998/99 to 2011/12.

Chart 7: Median equivalised weekly household income in Scotland: 1998/99 to 2011/12 (in placed 2011/12 prices)

Source: HBAI dataset, DWP. These figures are also presented in Annex 1 (Table A6).

Main points:

• There was a gradual increase in median equivalised weekly household income (BHC) in Scotland from £378 in 1998/99 to £461 in 2009/10 followed by a fall to £437 in 2010/11. Median income in 2011/12 fell slightly to £436 per week. All incomes are quoted in 2011/12 prices.
• The pattern is similar for median equivalised weekly household income (AHC) in Scotland, which was £322 in 1998/99 increasing to £416 in 2009/10, followed by a fall to £391 in 2010/11. However, median income AHC continued to drop in 2011/12 to £383.

Chart 8 shows how the weekly equivalised incomes have changed from 2007/08 to 2011/12 across the different income decile points.

Chart 8: Equivalised weekly household incomes (Before Housing Costs) for each decile point from 2007/08 to 2011/12 (in 2011/12 prices) - Scotland

Source: HBAI dataset, DWP. These figures are also presented in Annex 1 (Table A7).

Main points:

• Between 2007/08 and 2009/10, equivalised weekly household income in Scotland increased in real terms across all the income decile points except the 8th.
• In 2010/11, there was a drop in equivalised weekly household incomes in all but the bottom two income decile points. This is linked to the drop in average earnings.
• All deciles saw a slight decrease in 2011/12, in particular the top 4 deciles and deciles 3 and 4. The median (decile 5) recorded the smallest change between 2010/11 and 2011/12.
• Households in the bottom two deciles receive a greater proportion of their income from benefits and a smaller proportion from earnings. From April 2011, benefits were uprated by CPI instead of RPI, with the exception of the Basic State Pension which was uprated by RPI. This means incomes in the bottom deciles (where households are more likely to be benefit dependent) also recorded small decreases in real income between 2010/11 and 2011/12 as benefit increases were less than RPI measured inflation.

Chart 9 below shows how the distribution of income across Scotland changed between 1998/99 and 2011/12. The shaded area shows the shape of the 2011/12 income distribution, the continuous orange line for 2010/11 and the black line for 1998/99. The peak in median income in 2009/10 is also shown (£461) as median income had been increasing until then before decreasing in 2010/11. Previous year's figures are adjusted for inflation and are in 2011/12 prices.

Chart 9: Equivalised weekly household income distribution (before housing costs): Scotland - 1998/99, 2010/11 and 2011/12

Source: HBAI dataset, DWP.

Main points:

• The median equivalised weekly household income has decreased slightly from £437 per week in 2010/11 to £436 per week in 2011/12 (in 2011/12 prices).
• This follows a period of increasing median income up to 2009/10 (£461) and a subsequent decrease to present levels.
• The relative poverty threshold is based on the UK median equivalised household income. As the median income has fallen in the last two years, the poverty threshold also fell in 2010/11 and 2011/12. The UK median (£427) is used to calculate the poverty threshold in 2011/12, which is £256 per week for a couple with no children).

Chart 10 below shows the composition of family types by equivalised income decile.

Chart 10: Family type by equivalised income decile, 2011/12

Source: HBAI dataset, DWP. These figures are also presented in Annex 1 (Table A8).

Main points:

• There is a higher percentage of single people with dependent children towards the lower end of the income distribution.
• Single people without dependent children make up over 30 per cent of those in the lowest decile, and around 20 per cent in the other deciles.
• There are also more pensioners towards the lower end of the income distribution - the second, third and fourth income deciles contain the highest proportions.
• There are more couples without children towards the top end of the income distribution.

Chart 11 below shows the composition of the economic status of families by equivalised income decile.

Chart 11: Economic status of family by equivalised income decile: 2011/12

Source: HBAI dataset, DWP. These figures are also presented in Annex 1 (Table A9).

Note: The 'workless, other inactive category' would include, for example, non-working single parents, or those who cannot work due to long-term sickness or disability.

Main points:

• Families where no-one is working either through unemployment, retirement or economic inactivity (those who are neither in work, nor looking for work) are more common towards the bottom of the income distribution. 53 per cent of people in the bottom three income deciles are in families of these types compared to 13 per cent in the top three deciles. Two thirds of households in the lowest decile are households where no-one is working.
• People in families where at least one adult is working full-time (including those who are self-employed) make up 83 per cent of those in the top three deciles. Such families make up 36 per cent of those in the bottom three deciles.