Poverty and Income Inequality in Scotland 2015/16

Chapter 1: Poverty

Relative Poverty in Scotland 2015/16

 

Presentation of key points and definitions

Each section in this report starts with a pink box providing the key facts for that section. Where relevant, additional information is provided in a blue box at the end of each section. This includes important definitions and links to National Indicators relating to poverty and income inequality on Scotland Performs.

1.1 People in poverty

Key points:

Relative Poverty before housing costs:

• 17 per cent of people in Scotland were living in relative poverty BHC in 2015/16. This compares to 15 per cent in 2014/15.
• In 2015/16, there were 880 thousand people in Scotland living in relative poverty BHC.

Relative Poverty after housing costs are taken into account:

• 20 per cent of people in Scotland were living in relative poverty AHC in 2015/16. This compares to 18 per cent in 2014/15.
• In 2015/16, there were 1.05 million people living in relative poverty AHC.

Caution should be used when comparing poverty rates between years.

Chart 1A - Relative Poverty - All Individuals

Source: HBAI dataset, DWP. See Annex 1 (Tables A1 and A2) for the figures behind these charts.
Confidence intervals for relative poverty can be found in Confidence Intervals Surrounding Key Poverty Estimates.

Relative poverty is a measure of whether the incomes of the poorest households are keeping pace with middle income households across the UK.

The changes in the number and percentage of people in relative poverty between 2014/15 and 2015/16 are not statistically significant either before or after housing costs. Longer term trends offer a better indication of changes in poverty levels.

Poverty rates have remained broadly stable over the last 10 years. Relative poverty Before Housing Costs remained unchanged at 17 per cent from 2005/06 to 2009/10 before falling to 13 per cent over the two years to 2011/12. It has fluctuated since but has risen in each of the last 2 years, returning to 17 per cent in 2015/16. Whilst the rise since 2011/12 suggests that poverty is increasing the volatility in the data in recent years means that readers should be cautious in using this finding. Data for future years will be required to determine the longer term trend.

After Housing Costs have been taken into account, 20 per cent of people in Scotland were in relative poverty. Relative poverty AHC has followed a similar trend to relative poverty BHC, remaining unchanged at 19 per cent between 2005/06 and 2009/10 before falling to 16 per cent in 2011/12. As for BHC poverty it has fluctuated since but is higher than previously with 20 per cent of people in relative poverty AHC in 2015/16. Again, more data will be required to judge whether these changes are indicative of a longer term trend.

The gap between relative poverty before and after housing costs appears to have widened slightly since 2010/11

Chart 1B - Absolute Poverty - All Individuals

Source: HBAI dataset, DWP. See Annex 1 (Tables A1 and A2) for the figures behind these charts.
Confidence intervals for absolute poverty can be found in Confidence Intervals Surrounding Key Poverty Estimates.

Absolute poverty is a measure of whether the incomes of the poorest households are keeping pace with inflation, and is based on the poverty threshold in 2010/11.

It is estimated that 15 per cent of individuals were in absolute poverty BHC in 2015/16. This represents around 780 thousand people living in absolute poverty BHC. This compares to 14 per cent in 2014/15 although, as with other single year changes throughout this report, this change is not statistically significant.

It is estimated that 18 per cent of individuals are in absolute poverty after housing costs in 2015/16, similar to the level seen in recent years. In 2015/16, there were 960 thousand people living in absolute poverty AHC in Scotland.

The gap between absolute poverty before and after housing costs had widened in recent years, and remained steady in 2015/16.

Commentary:

Although single year changes should be treated with caution ^[1] the data suggests there have been small increases in both relative and absolute poverty, before and after housing costs. This appears broadly consistent with what we know from other sources.

The figures show that median income in Scotland has decreased whilst across the UK it has risen. Relative poverty rises where the income of low income households in Scotland does not keep up with middle income households across the UK.

Looking at the labour market the Annual Population Survey for Scotland for April 2015 - March 2016 shows a small increase in employment level and no change in the employment rate over the year compared with the UK which showed small increases in the employment level and rate in the same period. The annual growth in gross weekly full-time earnings was also more subdued in Scotland compared with the UK ^[2] .

Whilst the increase in employment in low income households seen in recent years has continued much of this has been into part-time work. As households' earnings increase their entitlement to benefits reduces. In this circumstance it is likely that any increased earnings for lower income households from work will have been partially offset by the withdrawal of benefits.

There was an increase in the personal tax allowance in 2015/16 whilst the benefit system remained largely unchanged with uprating limited to 1%. Those in the middle of the income distribution will have benefited fully from the increased allowance. Those further down will have benefited less, either because their earnings were too low to pay tax or because the increased earnings were offset by a withdrawal of their benefit income.

Employment rates and earnings growth in Scotland compared to the UK along with changes in the personal tax allowance suggest that low income households will be falling further behind those on middle incomes which we would expect to lead to increases in relative poverty.

In terms of housing costs, social rents have increased slightly ^[3] for many whilst private rents ^[4] have generally increased by less but with variation across the country. Although this represents only a modest increase in housing costs it could still be greater than increases in income for some households. Recent years appear to have seen a widening of the gap between poverty measures before and after housing costs which may reflect the cumulative impact of increases in housing costs, changes to housing benefit eligibility and wider welfare reform.

Absolute poverty also increased slightly both BHC and AHC. Although inflation has been very low in recent years there has been little increase in income since 2010/11. This helps explain why absolute poverty has remained at around the same level in recent years.

The Scottish Government currently uses two main indicators of low-income poverty, both of which reveal different information about changes in poverty over time. These indicators are relative and absolute poverty.

Relative poverty:

Relative poverty is a measure of whether the incomes of the poorest are increasing in line with middle income households. In this report, individuals are said to be in relative poverty if they are living in households whose equivalised income is below 60 per cent of UK median income in that year. Relative low income rates fall if household income for the poorest households increases faster than median income. In 2015/16, the relative poverty threshold for a couple with no children was an income of £288 per week BHC from all sources (see Annex 2 for further information on income definitions). For a couple with children the threshold would be higher and for a single person (without children) the threshold would be lower. After housing costs, the relative poverty threshold in 2015/16 for a couple with no children was £248 per week.

Absolute poverty:

Absolute poverty is a measure of whether income for the lowest income households is keeping pace with inflation. Individuals are said to be living in absolute poverty if they are living in households whose equivalised income is below 60 per cent of the (inflation adjusted) median income in 2010/11. In 2015/16, the absolute poverty threshold for a couple with no children was an income of £278 per week BHC from all sources (see Annex 2 for further information on income definitions). After housing costs, the absolute poverty threshold in 2015/16 was £237 per week.

Scotland Performs:

The Scottish Government's National Indicator 35 is to "decrease the proportion of individuals living in poverty":

http://www.gov.scot/About/Performance/scotPerforms/indicator/poverty

This is measured using relative poverty before housing costs.

1.2 Child poverty

Key points:

Relative Poverty before housing costs:

• 19 per cent of children in Scotland were living in relative poverty BHC in 2015/16. This compares to 17 per cent in 2014/15.
• In 2015/16, there were 190 thousand children in Scotland living in relative poverty BHC.

Relative Poverty after housing costs are taken into account:

• After housing costs, 26 per cent of children in Scotland were living in relative poverty. This compares to 22 per cent in 2014/15.
• In 2015/16, there were 260 thousand children living in relative poverty AHC .

Low Income and Material Deprivation:

• In 2015/16, 10 per cent of children were living in combined low income BHC and material deprivation, the same as in the previous year. In 2015/16, 100 thousand children were living in low income BHC and material deprivation.
• After housing costs, 12 per cent of children in Scotland were living in combined low income AHC and material deprivation, again unchanged from the previous year. In 2015/16, 110 thousand children were living in low income AHC and material deprivation.

Caution should be used when comparing poverty rates between years.

Chart 2A - Relative Poverty - Children

Source: HBAI dataset, DWP. See Annex 1 (Table A1) for the figures behind these charts.
Notes:
1. A version of these charts showing the Child Poverty Act targets can be found in Annex 1, Chart A1.
2. Confidence intervals for relative poverty can be found in Confidence Intervals Surrounding Key Poverty Estimates.

It is estimated that 19 per cent of children were in relative child poverty BHCin 2015/16. Relative child poverty BHC saw a decreasing trend from 21 per cent in 2005/06 to 15 per cent in 2011/12. It has fluctuated in recent years, increasing in each of the last 2 years to 19 per cent in 2015/16. It is too early to determine whether this represents part of a rising trend in child poverty rates.

After Housing Costs have been taken into account, 26 per cent of children in Scotland were in relative poverty.

Relative child poverty AHC had followed a similar trend to relative child poverty BHC, showing a decreasing trend from 24 per cent in 2005/06 to 19 per cent in 2011/12. Following an increase to 22 per cent in 2012/13, relative child poverty AHC remained at that level before rising to 26 per cent in the most recent year. This single year change signals an increase in child poverty AHC, but as we have seen a lot of volatility in poverty data in recent years, we cannot yet assume that this confirms an upwards trend.

The gap between relative child poverty before and after housing costs increased in 2015/16 after narrowing slightly the previous year although as both measures are fluctuating it is difficult to draw any firm conclusions.

Chart 2B - Absolute Poverty - Children

Source: HBAI dataset, DWP. See Annex 1 (Table A2) for the figures behind these charts.
Confidence intervals for absolute poverty can be found in Confidence Intervals Surrounding Key Poverty Estimates.

Absolute child poverty BHC remained at 16 per cent in 2015/16. In 2015/16, there were 160 thousand children living in absolute poverty BHC.

Absolute child poverty AHCincreased to 24 per cent in 2015/16 returning to the same level as in 2012/13. This measure has been fluctuating in recent years with no year on year significant change. In 2015/16, there were 230 thousand children living in absolute poverty AHC in Scotland.

The gap between absolute poverty before and after housing costs has widened in the most recent year following a trend since the early 2000s. In 2015/16 the gap was 8 percentage points.

Chart 2C - Material deprivation and low income BHC combined - Children

Chart 2D - Material deprivation and low income AHC combined - Children

Source: HBAI dataset, DWP. See Annex 1 (Tables A1, A3 and A4) for the figures behind these charts.
Notes:
1. A version of these charts showing the Child Poverty Act targets can be found in Annex 1, Chart A1.
2. Changes in the material deprivation questions in 2010/11 created a break in the series. Data for 2010/11 onwards is not directly comparable with that prior to 2010/11. Further information is available in Annex 2.

Combined low income and child material deprivation is an additional way of measuring living standards and refers to the inability of households to afford basic goods and activities that are seen as necessities in society.

In 2015/16, 10 per cent of children in Scotland were living in combined low income BHC and material deprivation. This is the same as in 2014/15. In 2015/16, there were 100,000 children living in combined low income BHC and material deprivation, the same as in the previous year.

After housing costs, 12 per cent of children in Scotland were living in combined low income and material deprivation. In 2015/16, 110 thousand children were living in combined low income AHC and material deprivation, the same as in the previous year.

Commentary:

The latest figures suggest an increase in relative child poverty although more years of data will be required to be certain that this represents a sustained increase in child poverty levels. There is less of a clear trend in absolute poverty while low income and material deprivation has remained steady. This section also looks at other data sources to help us understand the reasons why relative poverty rates in particular may have changed.

Low income households with children are often more reliant on benefit income than other households. With benefit income withdrawn as earnings increase and benefit up-rating capped at one per cent, we would expect income for lower income households with children to fall further behind that for middle income households.

Middle income households are less reliant on benefits and so keep more of any increase in earnings. These findings would be indicative of a rise in relative poverty.

Child poverty rates after housing costs rose by more than for working age adults suggesting housing costs may have increased by more for this group. Other sources do not provide evidence of large increases in housing costs. However, although increases in housing costs were moderate, for some families in some parts of the country they rose faster than inflation and than benefits. This, combined with the fact that the incomes of low income households fell further behind those in the middle led to an increase in AHC poverty.

The combined low income and material deprivation rate has remained steady. Despite the indicative upward push on relative and absolute poverty rates there has been no overall change in the ability of low income households to afford necessities. This may relate to the longer term reduction in the number of workless households. Although many of these households have moved in to part time employment this still provides better protection from material deprivation than being out of work.

Material Deprivation and Low Income Combined Poverty Indicator:

Combined low income and child material deprivation is an additional way of measuring living standards and refers to the inability of households to afford basic goods and activities that are seen as necessities in society. It is a more direct measure of poverty than income alone, as it captures changes in standard of living.

Material deprivation is calculated from a suite of questions in the Family Resources Survey about whether people can afford to buy certain items and participate in leisure or social activities. This measure is applied to households with incomes below 70 per cent of UK median income (£336 per week) to create the 'material deprivation and low income combined' indicator. This indicator aims to provide a measure of children's living standards which, unlike relative and absolute poverty, is not solely based on income.

For more detail about this indicator see Annex 2.

Scotland Performs:

The Scottish Government's National Indicator 36 is to "reduce children's deprivation":

http://www.gov.scot/About/Performance/scotPerforms/indicator/childdeprivation

This is measured using the material deprivation and low income BHC combined poverty indicator.

1.3 Working age adult poverty

Key points:

Relative Poverty before housing costs:

• Relative poverty before housing costs has fluctuated for many years. In 2015/16 16 per cent of working age adults in Scotland were living in relative poverty BHC.
• In 2015/16, there were 520 thousand working age adults in Scotland living in relative poverty BHC.

Relative poverty after housing costs are taken into account:

• Relative poverty after housing costs has also fluctuated for many years. In 2015/16 20 per cent of working age adults in Scotland were living in relative poverty.
• In 2015/16, there were 650 thousand working age adults living in relative poverty AHC.

Caution should be used when comparing poverty rates between years.

Chart 3A - Relative Poverty - Working Age Adults

Source: HBAI dataset, DWP. These figures are also presented in Annex 1 (Table A1).
Confidence intervals for relative poverty can be found in Confidence Intervals Surrounding Key Poverty Estimates.

The change in the number and percentage of working age adults in relative poverty BHC between 2014/15 and 2015/16 is not statistically significant. Relative poverty BHC for working age adults had been fluctuating in recent years. Figures for the last 2 years may suggest an increase in poverty levels for working age adults but more years of data are required in order to determine whether this represents a sustained increase in poverty.

After Housing Costs have been taken into account, 20 per cent of working age adults in Scotland were in relative poverty. Relative poverty AHC had followed a similar trend to relative poverty BHC, generally fluctuating around or just below 20 per cent.

Chart 3B - Absolute Poverty - Working Age Adults

Source: HBAI dataset, DWP. These figures are also presented in Annex 1 (Table A2).
Confidence intervals for absolute poverty can be found in Confidence Intervals Surrounding Key Poverty Estimates.

Absolute poverty for working age adults BHC was 15 per cent in 2015/16 with 470 thousand working age adults living in absolute poverty BHC.

Absolute poverty after housing costs for working age adults was 19 per cent in 2015/16 representing 610 thousand working age adults.

Commentary:

The percentage of working age adults in relative poverty both before and after housing costs has fluctuated over the last decade with no clear upward or downward trend. Recent rises in relative poverty BHC, which rose by one percentage point in 2015/16 following a two percentage point increase the previous year, indicate upward pressure although we will need further data to be certain of this trend.

Working age adults include those living in households with children whose household incomes were considered in the previous section. There was no change in relative poverty rates for working age adults without children, either before or after housing costs, in 2015/16.

Working age vs. State pension age:

Working age adults are defined as all adults up to the state pension age. Prior to April 2010, women reached the state pension age at 60. Between April 2010 and March 2016 the state pension age for women increased to 63 and it will subsequently increase to 65 by November 2018. At this point the state pension age for men and women will be the same. The changes do not affect the state pension age for men, which remains at 65. The impact is to retain more women in the working age adult group, who in previous years would have been classified as pensioners.

1.4 Pensioner poverty

Key points:

Relative Poverty before housing costs:

• 16 per cent of pensioners in Scotland were living in relative poverty BHC in 2015/16.
• In 2015/16, there were 170 thousand pensioners in Scotland living in relative poverty BHC.

Relative poverty after housing costs are taken into account:

• 13 per cent of pensioners in Scotland were living in relative poverty AHC.
• In 2015/16, 140 thousand pensioners were living in relative poverty AHC.

Material Deprivation:

• In 2015/16, six per cent of pensioners were living in material deprivation. In 2015/16, there were 60 thousand pensioners in Scotland living in material deprivation.

Caution should be used when comparing poverty rates between years.

The majority of pensioners own their own home. Examining pensioners' incomes after deducting housing costs allows for more meaningful comparisons of income between working age people and pensioners, and of the pensioner population over time.

Chart 4A - Relative Poverty - Pensioners

Source: HBAI dataset, DWP. These figures are also presented in Annex 1 (Tables A1 and A5).
Confidence intervals for relative poverty can be found in Confidence Intervals Surrounding Key Poverty Estimates.
Notes:
1. Pensioner material deprivation is not solely based on affordability and so should not be compared directly with measures of income-related poverty.
2. Pensioner material deprivation is included for those aged 65 and over only and therefore is not the same population as relative and absolute poverty measures.

Pensioner relative poverty BHC decreased from around the turn of the century reaching 16 per cent in 2008/09. Since then it remained fairly stable with 16 per cent of pensioners in relative poverty BHC in 2015/16.

After Housing Costs have been taken into account, 13 per cent of pensioners in Scotland were in relative poverty. Relative pensioner poverty AHC decreased from 16 per cent in 2005/06 to 11 per cent in 2008/09. It has fluctuated around this level since and was 13 per cent in the latest year. Relative pensioner poverty AHC, having been higher than relative poverty BHC in 2002/03, decreased faster than relative pensioner poverty BHC.

Chart 4B - Absolute Poverty - Pensioners

Source: HBAI dataset, DWP. These figures are also presented in Annex 1 (Table A2).
Confidence intervals for absolute poverty can be found in Confidence Intervals Surrounding Key Poverty Estimates.

Absolute pensioner poverty BHC has remained relatively stable since 2008/09 following a rapid reduction over the previous 10 years. In 2015/16, 15 per cent (150 thousand) of pensioners were living in absolute poverty BHC.

In 2015/16, 11 per cent of pensioners in Scotland were in absolute poverty AHC. Similar to BHC figures, pensioner poverty AHC has been broadly stable since 2008/09. In 2015/16, there were 120 thousand pensioners living in absolute poverty AHC in Scotland.

Chart 4C - Material Deprivation - Pensioners

Pensioner material deprivation is different to other measures of poverty, including the child material deprivation measure, in that it is not associated with an income threshold. It captures whether it is health or disability, or if nobody is available to help them, that prevents access to goods and services, rather than solely low income. More information can be found in the box below.

The figures show a fall in pensioner material deprivation over the last 2 years although more years of data will be required to determine whether this represents a sustained change in trend.

Commentary:

Households containing pensioners at the lower end of the income distribution generally received a larger proportion of their income from benefits and a smaller proportion from other sources. The Basic State Pension (BSP) increased by 2.5 per cent and Pension Credit Guarantee Credit increased by 1.9 per cent, larger than increases in other benefits and tax credits and above CPI inflation in 2015/16. Despite this the data suggests that pensioner incomes unexpectedly fell in 2015/16 meaning that both relative and absolute poverty rates increased slightly.

State pension age:

Pensioners are defined as all those adults above State Pension age. Prior to April 2010, women reached the state pension age at 60. Between April 2010 and March 2016 the state pension age for women increased to 63 and it will subsequently increase to 65 by November 2018. At this point the state pension age for men and women will be the same. The changes do not affect the state pension age for men, which remains at 65. Therefore, as with the previous five reports, the age groups covered by the pensioner poverty analysis has changed for the 2015/16 report. The impact is that more women will remain in the working age adult group, who in previous years would have been classified as pensioners.

The pensioner material deprivation statistics continue to be based on pensioners aged 65 and over.

Pensioner Material Deprivation Indicator:

Pensioner material deprivation is an additional way of measuring living standards for pensioners. It focuses on access to specific goods, services and experiences. It is used to explore a broader definition of pensioner poverty and captures both financial and non-financial reasons for being in material deprivation. Pensioner material deprivation captures whether it is health or disability, or if nobody is available to help them, that prevents access to goods and services, rather than solely low income.

This measure is based on a set of goods, services and experiences, judged using academic research to be the best discriminators of deprivation. Pensioners are asked if they have an item (or access to a service) and to give a reason if they do not have it. Their responses are then used to judge whether or not they are materially deprived. It is similar to the child material deprivation and low income combined indicator (which is presented in Charts 2C and 2D) but has some important differences:

• Differences in the set of items asked about, e.g. pensioners are not asked if they can afford school trips.
• Pensioners are presented with a greater variety of reasons for not having a particular item, whereas households with children are simply asked whether they can afford an item they do not have. Pensioners are able to say if they are prevented from having it due to ill health, disability or lack of support from other people. These additions reflect that deprivation can occur because of ill health, disability or social isolation, and not just for financial reasons.
• The pensioner "material deprivation" indicator is not combined with household income information to produce a combined indicator, as is done with the child deprivation indicator. This is because for pensioners, the concept of material deprivation is broad and very different from low income, so it is appropriate to present it as a separate measure.

For these reasons, pensioner material deprivation cannot be directly compared to the child material deprivation and low income measure.

More background on pensioner material deprivation is given in Annex 2, and the following technical note on the DWP website gives further information, including the list of questions which are asked to pensioners:

https://www.gov.uk/government/publications/households-below-average-income-hbai-technical-note-on-pensioner-material-deprivation.

1.5 In-work relative poverty

Key points:

• In 2015/16, 62 per cent of working age adults in poverty BHC were living in working households, as were 66 per cent of children in poverty.
• In 2015/16, 64 per cent of working age adults in poverty AHC were living in working households, as were 70 per cent of children in poverty AHC.

Chart 5A - Percentage of children and working age adults in poverty BHC, living in a household with at least one adult in employment

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

Chart 5B - Percentage of children and working age adults in poverty AHC, living in a household with at least one adult in employment

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

Commentary:

In-work poverty BHC in Scotland has continued on its upward trend in 2015/16, with 62 per cent of working age adults in poverty BHC living in working households. In 2015/16, 320 thousand working age adults were in in-work poverty BHC.

In 2015/16, two thirds (66 per cent) of children living in poverty BHC were in working households.

In-work poverty AHC increased for working age adults and children. In 2015/16, child in-work poverty AHC increased to 70 per cent (from 66 per cent in 2014/15). Working age adult in-work poverty AHC increased to 64 per cent in 2015/16 (from 58 per cent in 2014/15).

Although the year-on-year changes may not be statistically significant, there does appear to have been a general upwards trend in in-work poverty over a number of years. In-work poverty has been increasing both before and after housing costs. With the exception of children in poverty BHC the rates have increased more quickly in the last 2 years and are at their highest levels since reporting began in 1994/95.

The increase in in-work poverty over the last few years reflects increases in the number of working households, and the decrease in the number of workless households in Scotland. However, increases in part-time employment, especially for women, combined with withdrawal of benefit income as earnings increase, mean that the majority of working age adults and children in poverty were in working households in 2015/16.

In-work poverty:

'In-work poverty' refers to those individuals living in households where at least one member of the household is working (either full or part-time) but where the household income is below the relative poverty threshold. This measure is calculated on income before housing costs and after housing costs. This group contains non-working household members such as children and non-working partners.