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Publication - Statistics Publication

Poverty and income inequality in Scotland: 2015-2016

Published: 16 Mar 2017
Part of:
Communities and third sector, Equality and rights
ISBN:
9781786528117

Estimate of the number and proportion of people living in poverty in Scotland in the period 2015 to 2016.

70 page PDF

1.6MB

70 page PDF

1.6MB

Contents
Poverty and income inequality in Scotland: 2015-2016
Chapter 2: Income Inequality and the distribution of income

70 page PDF

1.6MB

Chapter 2: Income Inequality and the distribution of income

Income inequality Measures

Just as there are a number of different measures of poverty, so there are multiple measures of income inequality. The Scottish Government focuses on two - the Palma Ratio, which is the measure underpinning the Solidarity Purpose Target; and the Gini Coefficient. These measure income inequality in slightly different ways.

2.1 Income inequality - the Palma ratio

Key points:

  • The top 10 per cent of the population had 38 per cent more income in 2015/16 than the bottom 40 per cent combined. This compares to 15 per cent more income in 2014/15 indicating an increase in inequality.
  • Income inequality increased quickly up to 2008/09 before decreasing again. Between 2010/11 and 2014/15 it remained largely unchanged but has increased sharply in 2015/16.

Caution should be used when comparing poverty rates between years.

This section provides information that relates to the Scottish Government's Solidarity Purpose Target which is "To increase overall income and reduce income inequality by 2017"

More information can be found at the following link:

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

Chart 6 shows the ratio of total income received by the top ten per cent of the population divided by the total income of the bottom forty per cent of the population (expressed as a percentage) from 1998/99 to 2015/16. This measure of how equally income is distributed across the population is known as the "Palma ratio" or "S90/S40 ratio". Palma is used internationally to estimate the extent of inequality between those at the top of the income distribution and those at the bottom and is used in Scotland to monitor progress towards the Scottish Government's Solidarity Purpose Target.

Chart 6 - Palma measure of inequality

Chart 6 – Palma measure of inequality

Source: HBAI dataset, DWP. These figures are also presented in Annex 1 (Table A15).

Commentary:

Income inequality in Scotland increased gradually up to 2008/09, before falling following the onset of the recession. In 2010/11, income for the top 10 per cent fell, resulting in a reduction in income inequality. It remained largely flat until 2014/15, but increased sharply in 2015/16. Once again further years' data will be required to determine whether this is the beginning of a longer term increase or due to annual variation. The increase was mainly due to large increases in incomes at the top of the distribution although incomes at the bottom also fell. It is now at its highest level since reporting began in 1998/99. The increases in income at the top of the distribution were driven by increases in employment earnings income.

2.2 Income inequality - the Gini coefficient

Key points:

  • The Gini coefficient, which measures the degree of inequality in household income, was 34 in 2015/16. This is an increase from 31 in 2014/15, due to increases in incomes at the top of the distribution and decreases at the bottom.

Caution should be used when comparing poverty rates between 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 2015/16, the Gini coefficient for Scotland was 34, a three percentage point increase compared with 2014/15.

Chart 7 - Inequality of household income as measured by the Gini coefficient

Chart 7 – Inequality of household income as measured by the Gini coefficient

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

The Gini coefficient shows a similar trend to the Palma ratio, with income inequality rising until the recession and then falling in 2010/11. This was largely driven by a fall in income to the top 10 per cent. Income inequality remained relatively stable until 2014/15. The increase in the latest year was largely driven by increases in the top ten per cent, due to earnings income increasing for this group.

2.3 Income thresholds

Key points:

  • Median income in Scotland in 2015/16 was £24,400, equivalent to £468 per week. Median income in Scotland has decreased in 2015/16 by £600, equivalent to £11 per week.
  • The poverty threshold BHC in 2015/16 was £15,000, equivalent to £288 per week. The poverty threshold BHC increased in 2015/16 by £200, equivalent to £4 per week.
  • After housing costs, the poverty threshold in 2015/16 was £12,900, equivalent to £248 per week. The poverty threshold AHC also increased in 2015/16 by £300, equivalent to £5 per week.
  • A couple with no children with a combined income of over £39,000 (after tax and benefits) would be in the highest income 20 per cent of the population. With an income over £47,500 they would be in the top 10 per cent.

Caution should be used when comparing poverty rates between years.

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) - 2015/16

  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) 322 16,800 481 25,100 577 30,100 735 38,300
Scottish median income (before housing costs) 313 16,300 468 24,400 561 29,300 716 37,300
60% of UK median income (before housing costs) - relative poverty threshold 193 10,100 288 15,000 346 18,000 441 23,000
60% of inflation adjusted 2010/11 UK median income (before housing costs) - absolute poverty threshold 186 9,700 278 14,500 333 17,400 425 22,100
Scottish 1st income decile 161 8,400 240 12,500 288 15,000 367 19,100
Scottish 2nd income decile 207 10,800 309 16,100 371 19,300 473 24,700
Scottish 3rd income decile 241 12,600 359 18,700 431 22,500 550 28,700
Scottish 4th income decile 275 14,400 411 21,400 493 25,700 628 32,800
Scottish 5th income decile 313 16,300 468 24,400 561 29,300 716 37,300
Scottish 6th income decile 365 19,000 545 28,400 654 34,100 833 43,500
Scottish 7th income decile 425 22,200 635 33,100 762 39,700 971 50,600
Scottish 8th income decile 501 26,100 748 39,000 897 46,800 1,144 59,600
Scottish 9th income decile 611 31,800 912 47,500 1,094 57,000 1,395 72,700

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) - 2015/16

  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) 239 12,500 413 21,500 495 25,800 669 34,900
Scottish median income (after housing costs) 244 12,700 420 21,900 504 26,300 681 35,500
60% of UK median income (after housing costs) - relative poverty threshold 144 7,500 248 12,900 297 15,500 401 20,900
60% of inflation adjusted 2010/11 UK median income (after housing costs) - absolute poverty threshold 138 7,200 237 12,400 285 14,800 384 20,000
Scottish 1st income decile 101 5,300 174 9,100 209 10,900 282 14,700
Scottish 2nd income decile 144 7,500 249 13,000 298 15,500 403 21,000
Scottish 3rd income decile 178 9,300 308 16,000 369 19,300 499 26,000
Scottish 4th income decile 208 10,800 359 18,700 430 22,400 581 30,300
Scottish 5th income decile 244 12,700 420 21,900 504 26,300 681 35,500
Scottish 6th income decile 284 14,800 489 25,500 587 30,600 793 41,300
Scottish 7th income decile 334 17,400 575 30,000 690 36,000 932 48,600
Scottish 8th income decile 401 20,900 691 36,000 829 43,200 1,119 58,400
Scottish 9th income decile 495 25,800 853 44,500 1,023 53,400 1,381 72,000

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

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.

2.4 Trends in income distributions

Key points:

  • Scottish median household income decreased in 2015/16 both before and after housing costs.
  • Median household income for households with children in Scotland decreased in 2015/16, after an increase the year before and remains below the level seen in 2009/10.
  • Median income for working age adults in Scotland remained steady (a £1 increase) in 2015/16.
  • Median income for pensioners in Scotland decreased having reached its highest level since reporting began the previous year.
  • In 2015/16, the bottom five deciles all saw decreases in income compared to the previous year. The largest decrease was in decile 5 where income fell by £11 per week (£574 per year).
  • The largest increase was in decile 8 where weekly incomes increased by £26 per week (£1,341 per year).

Caution should be used when comparing poverty rates between years.

Chart 8A - Median weekly household income in Scotland (in 2015/16 prices)

Chart 8A – Median weekly household income in Scotland (in 2015/16 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 2015/16 prices)

Chart 8B – Median weekly household income BHC in Scotland for children, working age adults and pensioners (in 2015/16 prices)

Chart 8C - Median weekly household income AHC in Scotland for children, working age adults and pensioners (in 2015/16 prices)

Chart 8C – Median weekly household income AHC in Scotland for children, working age adults and pensioners (in 2015/16 prices)

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

As for poverty rates reported in this publication, single year changes in household incomes may not be statistically significant.

In 2015/16, median household income was £468 per week (£24,400 per year), a decrease of £11 (£574 per year) compared with 2014/15. This decrease in median income follows two years of increases which had seen it return to the peak of 2009/10. Median income had been increasing for the 10 years to 2009/10, then decreased to 2012/13. All incomes are quoted in 2015/16 prices.

Median income after housing costs followed a similar trend to median income before housing costs and fell slightly in the latest year. It remains below the peak in 2009/10.

Commentary:

Chart 9 shows how the weekly equivalised incomes have changed from 2011/12 to 2015/16 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. Charts 10 and 11 show the change in each decile point in the latest year, in percentage terms (Chart 10) and in pounds per week (Chart 11).

Chart 9 - Weekly household incomes for each decile point from 2011/12 to 2015/16

Chart 9 – Weekly household incomes for each decile point from 2011/12 to 2015/16

Chart 10 - Percentage change in each decile point between 2014/15 and 2015/16 (in real prices)

Chart 10 – Percentage change in each decile point between 2014/15 and 2015/16 (in real prices)

Chart 11 - Change in weekly income (£) by decile point between 2014/15 and 2015/16 (in real prices)

Chart 11 – Change in weekly income (£) by decile point between 2014/15 and 2015/16 (in real prices)

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

In 2015/16, the bottom 5 deciles saw decreases compared to the previous year. This was mainly due to income from earnings decreasing for this group. Incomes increased for deciles 6, 7 and 8 but decreased slightly for decile 9. The largest decrease was for the 5 th decile which fell by £11 per week whilst the largest increase was in the 8 th decile which rose by £26 per week.

Chart 12 below shows the distribution of weekly income across Scotland in 2015/16. The shaded area shows the shape of the 2015/16 income distribution and the black dashed lines show the Scottish median income (£468), UK median income (£481) and the relative poverty threshold BHC (£288). The dark blue line superimposed shows the 2014/15 income distribution for comparison.

Chart 12 - Distribution of Scottish weekly household income with Scottish and UK median and relative poverty threshold BHC - 2015/16

Chart 12 – Distribution of Scottish weekly household income with Scottish and UK median and relative poverty threshold BHC – 2015/16

Source: HBAI dataset, DWP.

Chart 13 shows the same distribution with income deciles for Scotland marked with black lines.

Chart 13 - Distribution of Scottish weekly household income with income decile points

Chart 13 – Distribution of Scottish 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. Unlike in Scotland, UK median income increased in 2015/16 and so the poverty threshold also increased, by £4. This means that those on low incomes need a higher income in 2015/16 to be above the poverty threshold, reflecting the greater increases in income for middle income households across the UK compared with low income households.


Contact

Email: Andrew White