ons public policy forum 20 april 2016

Understanding Household Inequalities:ONS Public Policy Forum Church House, London20th April 2016

#ONSPublicPolicy

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Slides via http://www.slideshare.net/statisticsONS

http://www.slideshare.net/statisticsONS

Outline

• How are households faring? The latest position

• Exploring the household position: A ‘deep dive’

• Including a policy user perspective (presentation by DWP)

How are households faring? The latest positionDominic Webber, Head of economic well-being, ONS

Contents

• Inequalities of income

• Expenditure and the savings ratio

• Household wealth and debt

• Home production.

Real household disposable income much stronger than GDP per head since economic downturn.

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

2014

2014

2015

2015

86

88

90

92

94

96

98

100

102

104

106

GDP per head

Real household disposable income per head

Median equivalised dis-posable income

2008

=100

Source: Office for National Statistics

Median equivalised disposable income back to pre-recession levels…

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

2014

2014

2015

2015

86

88

90

92

94

96

98

100

102

104

106

GDP per head

Real household disposable income per head

Median equivalised dis-posable income

2008

=100


…driven by increase in real earnings.

2005200520062006200720072008200920092010201020112012201220132013201420142015-6%

-4%

-2%

0%

2%

4%

6%Growth in nominal and real earnings, 3 months on same 3 months a year

earlier. Impact of inflation on real earnings.

Nominal Earnings Impact of CPI

Real Earnings


Household perception in line with economic conditions.

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

2014

2014

2015

2015

-90.0

-80.0

-70.0

-60.0

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

Financial situation over last 12 months

General economic situation over last 12 months

Source: GfK

The poorest fifth of households were the only group whose average income did not fall between 2007/08 and 2012/13…

Bottom 2nd 3rd 4th Top-8

-6

-4

-2

0

2

4

6

8

Between 07/08 and 12/13 Since 12/13

Net change (07/08-14/15)

% change

Source: The effects of taxes and benefits on income inequality: 2016, Office for National Statistics

…while income inequality has fallen slightly since 2007/08, although remains above early 1980s levels…

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

/96

1997

/98

1999

/00

2001

/02

2003

/04

2005

/06

2007

/08

2009

/10

2011

/12

2013

/1480

90

100

110

120

130

140

150

160

170

180Gini Coefficient S80/S20 ratio P90/P10 ratio Palma ratio

Source: The effects of taxes and benefits on income inequality: 2016, Office for National Statistics

… and income share of richest 1% grown since 1990, but fell sharply after downturn.

1990

1991

1992

1993

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/150

2

4

6

8

10

12

14

16

18

Top 1% Top 0.1%

%

Source: The World Top Income Database.

Growth in household expenditure robust since recovery…

2005

2005

2006

2006

2007

2007

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

2014

2014

2015

2015

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Resources

Expenditure

Saving ratio

Source: Alternative measures of Real Household Disposable Income and the Saving Ratio, Office for National Statistics

% change quarter on same quarter a year ago

....even during periods where income has declined…

2005

2005

2006

2006

2007

2007

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

2014

2014

2015

2015

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Resources

Expenditure

Saving ratio



....resulting in declining saving ratio.

2005

2005

2006

2006

2007

2007

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

2014

2014

2015

2015

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Resources

Expenditure

Saving ratio



Total wealth has increased by 32% between Wave 1 and Wave 4.

July 2006 to June 2008




0

2,000

4,000

6,000

8,000

10,000

12,000Aggregate physical wealth Aggregate net financial wealth

Aggregate net property wealth Aggregate pension wealth

£ Billion

Source: Wealth and Assets Survey, Office for National Statistics

Average property wealth is the largest component of wealth.





0

20

40

60

80

100

120

140

160

180

Median net property wealth Mean physical wealth Median pension wealth

Median net financial wealth£’000s


There are inequalities in total wealth, and in some components.

Top 10% Bottom 50% Top 10% Bottom 50%Total Shares

-

1,000

2,000

3,000

4,000

5,000

6,000 Aggregate phys-ical wealth

Aggregate fi-nancial wealth

Aggregate property wealth

Aggregate private pen-sion wealth

Aggregate total wealth

£’s billions


Total aggregate wealth – July 2012 – June 2014

There are inequalities in total wealth, and in some components.

Top 10% Bottom 50% Top 10% Bottom 50%Total Shares

-

1,000

2,000

3,000

4,000

5,000

6,000

0

10

20

30

40

50

60

70

80

90

100 Aggregate physical wealth

Aggregate fi-nancial wealth

Aggregate property wealth

Aggregate private pen-sion wealth

Aggregate total wealth

£’s billionsShare of aggregate wealth – July 2012 – June 2014

Total aggregate wealth – July 2012 – June 2014


Total and average gross financial wealth increased by 50% and 6% respectively.





-200

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

-5,000

0

5,000

10,000

15,000

20,000Aggregate gross financial wealth (LHS)Aggregate financial liabilities (LHS)Median gross financial wealth (RHS)

£ Billion


Home production is equivalent to 56% of GDP…….

UK GDP - £1,817bn in 2014.

Value of home production - £1,019bn in

2014.

Equivalent to 56.1% of GDP

Source: Household Satellite Account, Office for National Statistics

….largely driven by informal childcare and private transport.

Childcare Transport Household housing services

Nutrition Laundry Adult Care Voluntary activity

Clothing0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

£’s

mill

ion


Exploring the household position:A ‘deep dive’Richard TonkinHead of household income & expenditure, ONS

Overview

• How has the impact of taxes & benefits on inequality changed?

• How are older people faring? • How are families with children faring?

Return to real income growth in 2013/14 accompanied by slight fall in inequality of original income

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

/96

1997

/98

1999

/00

2001

/02

2003

/04

2005

/06

2007

/08

2009

/10

2011

/12

2013

/1420

25

30

35

40

45

50

55

60

Equivalised original income Equivalised gross income Equivalised disposable income

Equivalised Post Tax Income

Year

Gini coefficients (%)

Gini Coefficients for different income measures, 1977 to 2014/15

Source: Effects of Taxes & Benefits on Income Inequality 1977 – 2014/15, Office for National Statistics

Cash benefits lead to 14.2 pp. reduction in inequality as measured by Gini in 2014/15

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

/96

1997

/98

1999

/00

2001

/02

2003

/04

2005

/06

2007

/08

2009

/10

2011

/12

2013

/14-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

indirect taxes direct taxes cash benefits

Change in Gini Coefficients

Change in Gini coefficients because of cash benefits and taxes, 1977 to 2014/15


What affects the impact of taxes & benefits on income inequality?

• Redistributive impact of taxes and benefits dependent on two factors:

Relative sizeRelative size of the tax or benefit as a proportion of income = average tax/benefit rate

ProgressivityHow targeted the tax/benefit is towards reducing inequality

Since the late 1990s, the progressivity of cash benefits has decreased…

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

/96

1997

/98

1999

/00

2001

/02

2003

/04

2005

/06

2007

/08

2009

/10

2011

/12

2013

/14-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0 -110.0

-105.0

-100.0

-95.0

-90.0

-85.0

-80.0

-75.0

-70.0

Average rate (as % of original income) Redistributive impact (% reduction in Gini)Progressivity(RH axis)

Progressivity, average rate and overall redistributive impact of cash benefits, 1977 to 2014/15


Pension Credits, Housing Benefit & Income Support the most progressive cash benefits in 2014/15

Progressivity and average rates of different cash benefits, 2014/15


How do individual benefits contribute to overall progressivity?

1994/95

1995/96

1996/97

1997/98

1998/99

1999/2000

2000/01

2001/02

2002/03

2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

-110

-100

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

State Pension Housing BenefitTax credits / Family Credit Personal Independence Payment or DLAEmployment & Support Allowance / Incapacity Benefit Income Support or Pension CreditOther cash benefits Child BenefitCarers Allowance / Attendance Allowance Job Seekers Allowance / Unemployment Benefit

Contribution of key benefits to overall progressivity of cash benefits, 1994/95 to 2014/15


The % of income households paid in direct taxes fell from 21.4% in 2007/08 to 18.8% in 2014/15

Progressivity, average rate and overall redistributive impact of direct taxes, 1977 to 2014/15


Summary: The effects of taxes and benefits

• Cash benefits play a large role in reducing income inequality.

• Since the late 1990s, the progressivity of cash benefits has decreased, meaning that they have become less targeted towards reducing inequality.

• However, the average amount households receive in cash benefits as a proportion of their income increased for much of that time. Therefore, until relatively recently, their overall effect on reducing inequality was increasing slightly.

• Direct taxes also reduce income inequality. Indirect taxes such as VAT, however, are regressive, leading to increasing inequality. These effects largely cancel each other out, meaning taxes (direct & indirect) have little effect on inequality overall.

Median income of retired households rose by 7.7% (£1,500) between 2007/08 and 2014/15

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

/96

1997

/98

1999

/2000

2001

/02

2003

/04

2005

/06

2007

/08

2009

/10

2011

/12

2013

/14 0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

Non Retired Households

All Households

Retired Households

(£ per year)

Median equivalised disposable household income by household type (2014/15 prices)

Source: Household Disposable Income & Inequalities, 2014/15, Office for National Statistics

The relative position of retired households in the overall income distribution has improved in recent years

60

40

20

0

0

20

40

60

Category 1 Category 2Category 1 Category 22004/05 2014/15

%

Distribution of retired households in all-household population, 2004/05 and 2014/15


Private pensions now account for 43% of gross income of retired households

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/200

020

00/0

120

01/0

220

02/0

320

03/0

420

04/0

520

05/0

620

06/0

720

07/0

820

08/0

920

09/1

020

10/1

120

11/1

220

12/1

320

13/1

420

14/1

5

0

5 000

10 000

15 000

20 000

25 000

Income from employment

Investment & other income

Private pensions, annuities

Cash benefits excluding state pension

State Pension

£ per year

Gross income of retired households by component, 1977 to 2014/15 (14/15 prices)


Proportion of employees with workplace pension had been declining prior to automatic enrolment

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

10

20

30

40

50

60

70 Occupational Defined BenefitOccupational Defined ContributionGroup Personal and Group StakeholderAny pension

Percentage of employees with workplace pensions, 1997-2015

Source: Annual Survey of Hours & Earnings Pension Tables, Office for National Statistics

Those in bottom income decile of retired households relatively likely to be owner occupiers

Bottom 2nd 3rd 4th 5th 6th 7th 8th 9th Top 0

10 000

20 000

30 000

40 000

50 000

60 000

0

10

20

30

40

50

60

70

80

90

100

Equivalised disposable income (£ year)

% of owner occupiers

Average disposable income (£/year) and percentage of owner occupiers by income decile of retired households, 2014/15


£ per year %

Median wealth of over 65s in bottom income decile £121,000 in 2012/14

1 2 3 4 5 6 7 8 9 100

100000

200000

300000

400000

500000

600000

700000

800000

900000

Median total household wealth (exc. pension wealth) by net equivalised income decile and age of HRP

HRP < 65HRP>=65All House-holds

Net equivalised household income decile

£

Source: Wealth in Great Britain, 2012 to 2014, Office for National Statistics

Summary – Retired households

• Income of retired households rose by 7.7% in real terms between 2007/08 and 2014/15.

• This is in part due to increasing income from private pensions. However, figures on current employees with workplace pensions suggests this trend could change in future.

• Low income retired households relatively likely to be owner occupiers, and more generally many older people with low incomes have relatively high levels of wealth.

Median income of non-retired households in 2014/15 remained 3.1% (£900) below pre-downturn level

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

/96

1997

/98

1999

/2000

2001

/02

2003

/04

2005

/06

2007

/08

2009

/10

2011

/12

2013

/14 0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

Non Retired Households

All Households

Retired Households

(£ per year)

Median equivalised disposable household income by household type (2014/15 prices)


Higher proportion of households with children in bottom two income quintiles

Bottom 2nd 3rd 4th Top0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

% of households containing children% of adults which are economically active

Percentage of households with children and percentage of adults within household that are economically active, by quintile of non-retired households, 2014/15


Households with children more likely to have financial liabilities

No chil

dren a

ged 0

-18

1 chil

d age

d 0-18

2 chil

dren a

ged 0

-18

3 chil

dren a

ged 0

-18

4 or m

ore ch

ildren

aged

0-18

All Hou

seho

lds

-

20

40

60

80

Percentage with financial liabilities (%)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500 Median value of financial liabilities (£)

- 0.02 0.04 0.06 0.08 0.10 0.12

0.14 0.16 0.18

Median household debt to income ratio

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Median value of gross fi-nancial wealth (All hhlds) (£)Median value of gross financial wealth (Hhlds with debt) (£)

Median gross financial wealth (£)

Source: Household Debt Inequalities, Office for National Statistics

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 201440.0

50.0

60.0

70.0

80.0

90.0

100.0

79.0

80.0

81.0

82.0

83.0

84.0

85.0

86.0

87.0

88.0

89.0

Percentage of working familes (RHS) Lone parent with dependent children Lone parent without dependent childrenCouple with dependent children Couple without dependent children

% of families

88% of families contained at least one person in employment in 2014 – highest since records began

Percentage of working families, by household type, 1996 - 2014

Source: Families in the Labour Market, Office for National Statistics

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Percentage of children in workless families

Percentage of children

The percentage of children in workless families has been falling…


…though % of children in households with low work intensity remains high compared with other EU countries

IrelandBulgariaHungary

United KingdomSpain

BelgiumCroatia

MaltaGreece

PortugalLatvia

Czech RepublicItaly

AustriaFrance

SlovakiaDenmark

CyprusNetherlands

GermanyLithuania

FinlandEstonia

RomaniaSwedenPoland

SloveniaLuxembourg

0.0 5.0 10.0 15.0 20.0 25.0

% of under 18s living in households with very low work intensity

Source: EU Statistics on Income & Living Conditions, Eurostat

Lone Parent Couple Total0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Workless families with dependent children reasons for not working by family type, percent, 2014 UK

Unemployed Looking after Family/Home Sickness Student Other Reason5

Looking after family or home most common given by family members for not being in employment


0 to 4 5 to 10 11 to 15 16 to 180.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Percentage of lone parents and parents in a couple in em-ployment by age of youngest dependent child, 2014, UK

Lone parents Parents in couples

Percentage of lone parents in employment depended on the age of youngest child more than for couples


Ratio of informal to formal childcare hours for under 5s declined by 8.8% between 2005 & 2014

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

5 to 7 8 to 10 11 to 15 Under 5

Ratio of informal to formal childcare hours, 2005 to 2014


GVA of informal childcare and GVA relative to GDP

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

50

100

150

200

250

300

350

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

GVA relative to GDP (%)

GVA (£ billion)


Summary - Families with children

• Median income of non-retired households in 2014/15 not back to pre-downturn levels.

• Families with children more likely to be toward bottom of income distribution and also have higher levels of debt relative to their income.

• Percentage of families with at least one person working steadily rising, but percentage of children in households with low work intensity remains high compared with other countries.

• Looking after family or home most common reason given by family members for not being in employment.

• Use of informal childcare relative to formal childcare for under 5’s has been falling over last 10 years.

Public Policy Forum'Understanding Household Inequalities'

Peter Matejic, Head of Poverty Analysis and Horizon Scanning20 April 2016

51Department for Work & Pensions

The role of my team

My team:• leads analysis of low income and living

standards across DWP.• works with statistics producers to QA a range

of national and EU statistics.• prepares regular and ad hoc briefing on

poverty and inequality.• produces horizon scanning analysis around

particular cross cutting issues to look at future challenges that policymakers may not be aware of.


DWP data sources we use

Many of the key inequalities data sources we use are produced by DWP:• FRS-based publications

– HBAI for income distribution, inequality and low income statistics

– Pensioner Income Series– Take up of Income Related benefits

• Currently Quality Assuring publications covering 2014/15 for publication in May / June 2016

• Will be bringing forward publication to February / March 2017 for 2015/16 data, and introducing a new publication analysing persistence of low income.


The value of ONS data – household incomes and inequalityONS cross-cutting commentaries and publications add

hugely to understanding in the area. Key questions ONS have considered here include:

• What is the relationship between income and wealth inequality and how do policies affect this

• How do survey-based data marry up with National Accounts and other sources

• How does tax (direct and indirect) and benefits (cash and in-kind) affect inequality?

• How has this varied over time and for different groups?• What happened before the FRS started?


Using ONS analysis – characteristics of over-indebted households.

It is hard for these families to regain financial stability….

… and the resulting stress is bad for parents’ and children’s outcomes

Making excessive debt repayments

OR

Currently in arrears

They report debt to be a heavy burden

Analysis using WAS data suggests that the number of households behind on bills or making excessive debt repayments has fallen.

However, the number of households that consider their debt to be a heavy burden has remained constant.

We in DWP have used the Wealth and Assets Survey (WAS) to explore the characteristics of over-indebted households. We have considered the objective and subjective aspects of over-indebtedness


Using ONS analysis – understanding automatic enrolment• Automatic enrolment is the largest change to workplace pensions for

a generation. There is a public commitment to fully evaluate the effects of the reforms.

• WAS is a vital data source for assessing the awareness, understanding and effectiveness of the policy aim of increasing workplace pension saving by £15 billion (2015/16 earnings terms).


Using ONS analysis – understanding automatic enrolment• WAS’ longitudinal design can uniquely monitor changes in asset

accumulation / decumulation / savings types / problem debt in the GB population over the lifecourse. This will crucially help policymakers understand the impacts of automatic enrolment and individual saving patterns.

• WAS’ wider attitudinal information will help policymakers understand the characteristics of individuals where the policy has worked to incentivise saving, and those groups where it has not.

• WAS analysis will continue to feed into the annual evaluation reports and internal monitoring of the programme. It will be a key tool for informing the review of this policy planned for the end of implementation in 2017.


Using ONS analysis – understanding Pensions Flexibilities• Since April 2015, the 320,000 people who retire each year with

defined contribution pensions have had complete choice over how they access their pension.

• WAS is the only source available for assessing individuals’ pension wealth, and is split by pot size and pot value.

• Our team have worked extensively with ONS to improve future waves of the questionnaire, to capture detailed information from individuals to inform on the policy, and ensuring future waves are fit for purpose.

• Future analysis on the wealth individuals hold at retirement, split by many personal factors, will be very useful to give a greater understanding of the decumulation landscape post-flexibilities.

• The choices which individuals make with their individual pots (split by pot size) with regards to decumulation options is a key evaluation area of the policy – to understand the effectiveness and uptake. WAS is an invaluable source here.


Using ONS analysis – understanding Pensions Flexibilities• Preliminary estimates

from WAS using attitudinal data are also available, at timely intervals.

• Indicators on the safest way to save for retirement, pensions understanding, reasons for not saving into a pension, expected age of retirement, awareness of automatic enrolment and confidence in retirement incomes have all been measured.


Working together

• DWP supports the key developments described here• In particular, we think it is important to:

– Ensure information is accessible to the widest possible audience using innovative presentations and visualisations

– Make sure we are as coherent as possible in messaging.Can’t have every piece of information from a single sourceHence for different questions, different sources are best.But comparing results across different sources important

– We agreed that timeliness of results importantBut need to ensure quality and effective communications are

also prioritised

Contact details• Glenn Everett

Deputy Director, Well-being, Inequalities, Sustainability and EnvironmentEmail: [email protected]

• Dominic WebberHead of Economic Well-beingEmail: [email protected]

• Richard TonkinHead of Household Income and Expenditure analysisEmail: [email protected]

• Elaine ChamberlainHead of Household Assets - Wealth and Assets SurveyEmail: [email protected]

• Peter Matejic (DWP)Head of Poverty Analysis and Horizon ScanningEmail: [email protected]

ons public policy forum 20 april 2016

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