Severe Poverty in Scotland

ANNEX 2: THE FAMILY RESOURCES SURVEY

The Family Resources Survey (FRS) is a continuous cross-sectional survey, sponsored by the Department for Work and Pensions (DWP). It provides facts and figures about the living conditions of people in private households in the UK and the resources available to them. It is an annual survey, and includes around 4,000 households in Scotland.

The FRS is wide ranging and asks households about the following issues that may affect everybody at some time in their lives: income and benefits; tenure and housing costs; assets and savings; occupation and employment; health and disability; pensions; family structure; and carers and those needing care.

This information is used to derive household disposable income, after adjusting for the household size and composition, as a proxy for material living standards. More precisely, it is a proxy for the level of consumption of goods and services that people could attain given the disposable income of the household in which they live.

In order to allow comparisons of the living standards of different types of households, income is adjusted to take into account variations in the size and composition of the households in a process known as equivalisation. A key assumption made is that all individuals in the household benefit equally from the combined income of the household. This enables the total equivalised income of the household to be used as a proxy for the standard of living of each household member.

There is some uncertainty around estimates derived from it because not every household in the country is interviewed as part of the survey, and there is a possibility that those households that are interviewed contain a greater fraction of (for example) households below the poverty line than the general population.

Relative to administrative records, the FRS is known to under-report benefit receipt. However, the FRS is considered to be the best source for looking at benefit and tax credit receipt by characteristics not captured on administrative sources, and for looking at total benefits receipt on a benefit unit or household basis. It is often inappropriate to look at benefit receipt on an individual basis because means-tested benefits are paid on behalf of the benefit unit^[47].

The income recorded in the FRS series is simply a 'snap-shot' measure - reflecting actual, or in some cases 'usual', income around the time of the survey. Over an individual's lifetime, income (correctly measured) and spending (correctly measured) must equal each other, but the fact that individuals can shift their resources over time mean that this need not be the case at any one part of an individual's life-time.

Comparisons of household income and expenditure suggest that those households reporting the lowest incomes may not have the lowest living standards. Results for the bottom 10 per cent are also particularly vulnerable to sampling errors and income measurement problems. This will have a relatively greater effect on results where incomes are compared against low thresholds of median income. For this reason, the thresholds used in the extreme poverty analysis are subject to greater uncertainty.

Previous research has indicated income and expenditure are not closely correlated for households with very low income (defined as 10% of median income), due to under-recording of income, difficulties in income recording for those with fluctuating incomes, and consumption smoothing (where low income is a transition rather than a persistent state, for example for households temporarily out of employment)^[48]. While expenditure exceeding cash income for those with very low income is particularly evident for self-employed, it is also apparent for employed households and households not in employment. Similarly, previous analysis suggests that some children in households with low income do not have commensurately low living standards (based on hardship measures). Evidence from the FRS indicated that, without taking account of any other factors, children from households with the lowest incomes do not have the lowest average living standards (as measured by material deprivation). Instead, in general, average living standards first fall as income rises, and then rise creating a 'U-shaped' profile between income and other measures of living standards. Equally, levels of deprivation rise then fall as income rises, creating a 'hump-shaped' profile. The lowest living standards were found to correspond to households with children with income at 30%-50% of median income. The problems of low income and living standards as measured by material deprivation were apparent in the FRS data.

Because of this, while this analysis uses income only, there remains greater uncertainty around the extreme poverty threshold applied in this analysis^[49]. Applying an extreme poverty threshold remains relevant, given the link between lack of financial resources and the lack of ability to take up opportunities, and the link with outcomes. For example, low income impacts on the ability of children to be able to participate in activities such as school trips, after school study classes etc. which their peers participate in^[50].

It is important to note that this is not a longitudinal study - this means that the same households are not tracked through time. The survey provides an estimate of the percentage of individuals in poverty in any one year. These then show the changes in the rate of poverty through time.

All analyses in this publication include the self-employed. A proportion of this group are believed to report incomes that do not reflect their living standards and there are also recognised difficulties in obtaining timely and accurate income information from this group. This may lead to an understatement of total income for some groups for whom this is a major income component. In general, self-employed families with children have higher living standards than employed families with children with similar incomes, who in turn have higher living standards than workless families with children with similar incomes. However, the difference in the living standards between self-employed and employed families is greatest at the bottom of the income distribution.

Analysis for Scotland shows the majority of self-employed households in poverty are not in households with the lowest incomes (defined in this analysis as severe and extreme poverty). There are few differences in the overall picture of proportions in low-income households when analysis is performed either including or excluding the self-employed. This analysis includes self-employed households, as their inclusion does not significantly change the results.

This analysis provides an indication of the depth of poverty and how this has changed over time, rather than exact numbers of people in severe and extreme poverty.

Further detail on the FRS is available in the Households Below Average Income Quality and Methodology Information Report 2012/13 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/325492/households-below-average-income-quality-methodology-2012-2013.pdf