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Technical Note: Solidarity (2007-2016)

Reduce Income Inequality

DESCRIPTION:

The Government Economic Strategy identifies the Government's desired characteristics of growth, which are set out as a set of golden rules - one of which is Solidarity (social equity). The Solidarity golden rule is to ensure that opportunities - and incentives - are provided for all to contribute to Scotland's sustainable economic growth. Over the time period there will be a reduction in income inequality.

There are two parts to the Solidarity target:

  • To increase the total income (adjusted for inflation) of all households in Scotland;
  • and to reduce income inequality by increasing the proportion of that income received by the lowest earning 30 per cent of the population.

SOURCE:

Two data sources are used to measure the Solidarity target.

For the income inequality part of the target the data source is the Family Resources Survey (Households Below Average Income dataset). The unit of measurement is the individual.

Households Below Average Income is a National Statistics dataset owned by Department for Work and Pensions.

For the "increasing total income" part of the target the data source is the Gross Disposable Household Income series, published by the Office for National Statistics.

The Gross Disposable Household Income (GDHI) series published, and owned, by the Office for National Statistics

Data for 2013/14 and previous years are available on the Income and Poverty Statistics website (http://www.gov.scot/Topics/Statistics/Browse/Social-Welfare/IncomePoverty/CoreAnalysis) and on Scotland Performs (http://www.gov.scot/About/scotPerforms/purposes/solidarity).

Future figures will be published annually in June in "Poverty and Income Inequality in Scotland", on the Income and Poverty Statistics website and on Scotland Performs.

New Methodology in 2010

In 2010 a change was made to the way that the Solidarity purpose target was monitored. The Office for National Statistics Gross Disposable Household Income series was introduced as the data source used to monitor the "increase total income" part of the Solidarity target. Prior to this change the Family Resources Survey (FRS) had been used to measure both the income inequality and the "increase total income" parts of the target. The FRS estimates of total household income however, were not in line with GDHI estimates and other sources, mainly because of the equivalisation process applied to the data. The GDHI series was therefore introduced to monitor this part of the target. The FRS continues to be used to monitor the income inequality part of the target.

The Family Resources Survey is a sample survey including approximately 4,500 households in Scotland. The responses of these households are weighted and grossed up to be representative of all private households in Scotland.

Incomes are equivalised (to take into account household composition) using the modified OECD equivalence scale: http://research.dwp.gov.uk/asd/hbai/hbai2010/index.php?page=appendices  (Appendix 2 gives more detail)

Once equivalised, weighted and grossed, the total income of every individual is summed to arrive at the total equivalised income figure.

The equivalised, weighted and grossed data are ranked and split into ten evenly sized groups (deciles). The total equivalised income of the lowest three are summed and divided by the Total equivalised income of all deciles, to arrive at the proportion of income received by the lowest 3 deciles.

As the data are from a sample survey all estimates are subject to sampling error. Due to the complex sampling framework the confidence intervals are difficult to calculate and are not currently available.

The Office for National Statistics Gross Disposable Household Income data is the source used to monitor the "increase total income" part of the Solidarity target and is calculated from National Accounts data. GDHI is calculated by adding the balance of "primary income" - essentially income from working or from the ownership of property, minus housing costs; to the balance of secondary income - essentially social benefits received in cash, less taxation.

DEFINITIONS:

The income measure used to measure the income inequality part of the target is equivalised net disposable income before housing costs. This measure estimates income from all sources (including earnings, benefits, tax credits, pensions, and investments) after deductions for income tax, national insurance contributions, council tax, pension contributions and maintenance payments but before deductions for housing costs such as rent and/or mortgage payments. The data will be adjusted for inflation and presented in the most recent year's prices.

Equivalisation sums the income of all householders, adjusts it to reflect the composition of the household, and applies the resulting income to all householders. This is an adjustment made to household incomes that attempts to adjust for the fact that larger families require larger, but less than proportionally larger, incomes to achieve similar standards of living. For example a couple would need a larger income than a single person to achieve a comparable standard of living, but they would not need double the income of the single person. The aim of equivalising household incomes is be able to make meaningful comparisons of household incomes for households of different sizes and compositions.

Deciles are created by ranking all individuals in private households by their equivalised incomes, then splitting them into 10 evenly sized groups. The lowest three deciles are the 30 percent of the population with the lowest income. The total income of that group is divided by the total income of all deciles to arrive at the proportion of income earned by the lowest three deciles.

The income measure used to measure the "increasing total income" part of the target is Gross Disposable Household Income (GDHI) which is published by the UK Office for National Statistics. This is deflated by the Consumer Prices Index to produce a series which reflects "real" (i.e. taking inflation into account) increases in total households income.

BASELINE AND PAST TRENDS:

The baseline is the 2006/07 figure for the proportion of income bit of the target and the 2006 data point for total income. These are the last data points before the start of the first term of the current administration. This is in line with what has been applied to the vast majority of the indicators in the framework. The baseline figure is 13.9% for proportion of income and 70.1 billion pounds for total income.

Gross Domestic Household Income:

Year Billion pounds

2000

54.3

2001

57.5

2002

60.0

2003

62.0

2004

64.8

2005

67.6

2006

70.1

2007

74.8

2008

78.6

2009

80.4

2010

84.6

2011

86.2

2012

88.8

2013

90.8

Proportion of total equivalised income going to the bottom three income deciles:

Year

Percentage

99/00

13.4%

00/01

13.2%

01/02

14.1%

02/03

13.9%

03/04

14.1%

04/05

14.4%

05/06

14.0%

06/07

13.9%

07/08

13.5%

08/09

13.3%

09/10

13.4%

10/11

14.5%

11/12

14.4%

12/13

14.1%

13/14

14.4%

CRITERIA FOR RECENT CHANGE ARROW:

The evaluation is based on:

  • The position is improving if the share of income received by the lowest 3 deciles increases by 1 percentage point or more and total income does not fall
  • The position is worsening if the share of income received by the lowest 3 deciles falls by 1 percentage point or more, or if total income falls

For more information on the general methodology applied on Scotland Performs:

General methodological approach

FUTURE ISSUES OR REVIEWS:

No issues.

ASSOCIATED TARGET:

Target: To increase overall income and the proportion of income earned by the three lowest income deciles as a group by 2017.

End point: 2016/17 data point for the proportion of income bit of the target and 2016 data point for total income.