Poverty and Income Inequality in Scotland 2013/14

Chapter 2: Income Inequality and the distribution of income

2.1 Income Inequality – the Gini coefficient

Key points:

• The Gini coefficient, which measures the degree of inequality in household income, was 30 in 2013/14. This is a decrease from 31 in 2012/13, mainly due to increases in incomes at the bottom of the distribution and decreases at the top.
• Income inequality, as measured by the Gini coefficient, has remained largely unchanged over the last four years.

The Gini coefficient is a measure of how equally income is distributed across the population. It takes a value between 0 and 100 with 0 representing perfect equality where every person has the same income. The larger the Gini coefficient, the more people towards the top of the income distribution have a greater share of overall income with a value of 100 representing the case where one individual has all the income. In practice, the proportion of overall income going to each individual increases gradually across the income distribution.

For Scotland, the Gini coefficient has been between 30 and 34 over the last decade. In 2013/14, the Gini coefficient for Scotland was 30, a 1 percentage point decrease compared with 2012/13.

Chart 6 – Inequality of household income as measured by the Gini coefficient

Source: HBAI dataset, DWP. These figures are also presented in Annex 1 (Table A14).

Income inequality in Scotland increased gradually until the onset of the recession. In 2010/11, income for the top 10 per cent fell, resulting in a reduction in income inequality. It has remained largely flat since then, with a small decrease in 2013/14 due to increases in incomes at the bottom of the distribution and decreases at the top.

2.2 Income distribution

Key points:

• The percentage of income received by the lowest 3 income deciles in 2013/14 was 14 per cent, unchanged from 2012/13. There has been very little change in this measure of income inequality since 1998/99.

This section provides information that relates 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” . More information can be found at the following link:

http://www.gov.scot/About/Performance/scotPerforms/purpose/solidarity

Chart 7 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 2013/14. It also shows the percentage of total income received by the three highest income deciles. This is another measure of how equally income is distributed across the population.

Chart 7 – Percentage of income going to the bottom and top three deciles

Source: HBAI dataset, DWP.

Commentary:

In 2013/14, the percentage of income received by households in the bottom 3 deciles was 14 per cent, unchanged from the previous 2 years.

Having dropped from 53 per cent to 51 per cent between 2009/10 and 2010/11, the percentage of income received by households in the top three income deciles has remained unchanged since then.

There has been no significant change in income inequality between 2012/13 and 2013/14 using this measure. Over the longer term it can be seen that there has been very little change in this indicator since 1998/99, with the percentage of income received by the bottom 3 deciles remaining between 13 and 15 per cent.

Deciles / decile points:
Deciles (or decile points) are the income values which divide the Scottish 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.

2.3 Income thresholds

Key points:

• Median income in Scotland in 2013/14 was £24,000, equivalent to £460 per week. Median income in Scotland has increased in 2013/14, following three years of decreases.
• The poverty threshold BHC in 2013/14 was £14,200, equivalent to £272 per week. This was the same as the previous two years, meaning any changes in relative poverty reflect genuine changes in income and are not due to changes in UK median income.
• A couple with no children with a combined income of over £36,300 (after tax and benefits) would be in the highest income 20 per cent of the population. With an income over £44,300 they would be in the top 10 per cent.

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, Table 1 below presents some commonly used income thresholds, before equivalisation, for households of different sizes. The incomes presented elsewhere in this report use the value for “Couple with no children” as the standard, and all other household types are adjusted to reflect their different household composition. Table 2 shows the same information after housing costs have been taken into account.

Table 1 - Income thresholds (£) for different household types before housing costs (income after tax and transfers) – 2013/14

	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)	304	15,800	453	23,600	544	28,400	693	36,100
Scottish median income (before housing costs)	308	16,100	460	24,000	551	28,800	703	36,700
60% of UK median income (before housing costs) - relative poverty threshold	182	9,500	272	14,200	326	17,000	416	21,700
60% of inflation adjusted 2010/11 UK median income (before housing costs) - absolute poverty threshold	188	9,800	280	14,600	336	17,500	428	22,300
Scottish 1st income decile	163	8,500	243	12,700	292	15,200	372	19,400
Scottish 2nd income decile	202	10,500	301	15,700	361	18,800	460	24,000
Scottish 3rd income decile	234	12,200	350	18,200	420	21,900	535	27,900
Scottish 4th income decile	267	13,900	399	20,800	479	25,000	611	31,800
Scottish 5th income decile	308	16,100	460	24,000	551	28,800	703	36,700
Scottish 6th income decile	350	18,300	523	27,300	628	32,700	800	41,700
Scottish 7th income decile	401	20,900	599	31,200	719	37,500	917	47,800
Scottish 8th income decile	466	24,300	695	36,300	834	43,500	1064	55,500
Scottish 9th income decile	569	29,700	849	44,300	1019	53,100	1299	67,700

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

Table 2 - Income thresholds (£) for different household types after housing costs (income after tax and transfers) – 2013/14

	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 (after housing costs)	259	13,500	386	20,100	464	24,200	591	30,800
Scottish median income (after housing costs)	275	14,300	411	21,400	493	25,700	628	32,800
60% of UK median income (after housing costs) - relative poverty threshold	155	8,100	232	12,100	278	14,500	355	18,500
60% of inflation adjusted 2010/11 UK median income (after housing costs) - absolute poverty threshold	162	8,500	242	12,600	291	15,100	370	19,300
Scottish 1st income decile	119	6,200	178	9,300	213	11,100	272	14,200
Scottish 2nd income decile	163	8,500	244	12,700	292	15,200	373	19,400
Scottish 3rd income decile	198	10,300	296	15,400	355	18,500	453	23,600
Scottish 4th income decile	234	12,200	349	18,200	419	21,800	534	27,800
Scottish 5th income decile	275	14,300	411	21,400	493	25,700	628	32,800
Scottish 6th income decile	313	16,300	468	24,400	561	29,300	715	37,300
Scottish 7th income decile	361	18,800	539	28,100	646	33,700	824	43,000
Scottish 8th income decile	423	22,100	631	32,900	757	39,500	966	50,400
Scottish 9th income decile	532	27,700	794	41,400	953	49,700	1215	63,300

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

2.4 Trends in income distributions

Key points:

• Median household income increased in 2013/14, following three years of decreases.
• Median household income for working age adults increased in 2013/14, following three years of decreases. However median income for households with children decreased in 2013/14, the fourth consecutive annual decrease. Pensioner median household income decreased in 2013/14, following an increase in the previous year.
• In 2013/14, the bottom two deciles saw the largest increase in income compared to the previous year. However, they were still lower than in 2011/12 due to the large decreases in 2012/13.
• Incomes increased or stayed the same at all deciles apart from the top decile, which decreased in 2013/14. The top decile returned to the same level as in 2011/12 having seen the largest increase in 2012/13.

Chart 8A – Median weekly household income in Scotland (in 2013/14 prices)

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

Chart 8B – Median weekly household income BHC in Scotland for children, working age adults and pensioners (in 2013/14 prices)

Chart 8C – Median weekly household income AHC in Scotland for children, working age adults and pensioners (in 2013/14 prices)

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

In 2013/14, median household income was £460 per week, an increase of £6 compared with 2012/13. This is the first increase in median income in Scotland since 2009/10. Median income had been increasing for the 10 years to 2009/10, then decreased for three years to 2012/13. The increase in median income in 2013/14 brings it back to the level seen in 2003/04 but still below the peak in 2009/10. All incomes are quoted in 2013/14 prices.

Commentary:

There was a gradual increase in median equivalised weekly household income BHC in Scotland to £489 in 2009/10. This was followed by 3 years of decreasing median incomes to £454 in 2012/13. Median income then increased to £460 in 2013/14 but this was smaller than the decrease in 2012/13 so the median income remained below the level of 2011/12.

The pattern is similar for median equivalised weekly household income AHC in Scotland, which was £343 in 1998/99, increasing to £442 in 2009/10, followed by annual decreases to 2012/13. Median income increased in 2013/14 to £411, above the level in 2011/12 but below the level in 2010/11.

Chart 9 shows how the weekly equivalised incomes have changed from 2009/10 to 2013/14 across the different income decile points. Decile points are the incomes that separate out the 10 deciles, so 10 per cent of the population have household income below the 1^st decile point and 90 per cent of the population have income below the 9^th decile point.

Chart 9 – Weekly household incomes for each decile point from 2009/10 to 20013/14

Source: HBAI dataset, DWP. These figures are also presented in Annex 1 (Table A10).

Incomes increased or saw no change at all deciles apart from the top decile in 2013/14. The top decile decreased to the same level as in 2011/12 having seen the largest increase in 2012/13. The bottom two deciles saw the largest increases, with little or no change for households across the middle of the income distribution.

Chart 10 – Percentage change in each decile point between 2012/13 and 2013/14 (in real prices)

Source: HBAI dataset, DWP.

In 2013/14, the bottom two deciles saw the largest percentage increases. However they were still below the level of 2011/12 due to the decreases in 2012/13 being larger than the increases in the most recent year.

The only deciles that were at or above the level of 2011/12 were the top 4 deciles. The decrease in income at the top decile offset the increase in 2012/13, and so this has returned to the level seen in 2011/12, £849 per week (£44,300 per year).

Chart 11 below shows the distribution of weekly income across Scotland in 2013/14. The shaded area shows the shape of the 2013/14 income distribution and the black lines show the Scottish median income (£460) and the relative poverty threshold The dark blue line superimposed shows the 2012/13 income distribution for comparison.

Chart 11 – Distribution of weekly household income with Scottish median and relative poverty threshold BHC - 2013/14

for children, working age adults and pensioners

Source: HBAI dataset, DWP.

Chart 12 shows the same distribution with income deciles for Scotland marked with black lines.

Chart 12 – Distribution of weekly household income with income decile points

Source: HBAI dataset, DWP.

The relative poverty threshold BHC is based on the UK median equivalised household income. As the UK median income fell in 2011/12, the poverty threshold also fell in 2011/12. In 2012/13 and 2013/14, the UK median remained unchanged, as did the poverty threshold. In 2013/14 the poverty threshold BHC therefore remained at £272 per week (for a couple with no children). Median income in Scotland was higher than the UK median in 2011/12 but in 2012/13, it had dropped to almost the same level (£454 compared to £453 for the UK). In 2013/14 median income in Scotland increased to £460 while median income for the UK remained at £453.