Poverty and Income Inequality in Scotland 2022-25

7   Income

7.1 Income inequality

Summary measures of income inequality are useful for tracking change over time. In this section, we use a range of summary measures to describe different features of the income distribution.

There are two types of summary measures that we describe here. The Gini coefficient of inequality is widely used, and is based on the whole distribution. But it is sometimes considered overly sensitive to changes in the middle, and not sensitive enough to changes at the top and the bottom. The Palma ratio focuses on the top and the bottom of the distribution only. In practice, both Gini and Palma measures show very similar trends. Decile shares give a more nuanced picture of the different parts of the distribution, but they cannot be summarised with a single estimate.

7.2     Palma

The Palma ratio of income inequality is the total income of the top ten percent of the population divided by the total income of the bottom forty percent of the population (written as a percentage). It is commonly used to estimate how much more income top-income households have compared to those at the bottom.

The Palma ratio is usually calculated from income before housing costs, but we have included it for after housing costs income as well. After housing costs incomes are distributed more unequally.

Income inequality has been fluctuating since this data collection started in the mid-nineties. In 2022-25, the top ten percent of the population had 11% more income (before housing costs) than the bottom forty percent combined.

7.3     Gini

The Gini coefficient measures income inequality on a scale from 0% to 100%. A coefficient of 100% means that only one person has an income, and everyone else has none. A value of 0% means that everyone has the same income.

Income inequality has been fluctuating since the beginning of this data collection in the mid-nineties. In 2022-25, the Gini coefficient (before housing costs) was 30%. The Gini coefficient is usually calculated from income before housing costs, but we have included it for after housing costs income as well. After housing costs incomes are distributed more unequally.

7.4     Income trends

In 2022-25, median household income before housing costs was £707 per week. Median income has increased slowly but steadily since the recession in 2008/09. Following the same trend, median income after housing costs was £636 per week in 2022-25.

Median incomes for children, working-age adults and pensioners can be found in the associated tables.

Decile points are the income values which divide the Scottish population, when ranked by income, into ten equal-sized groups. These ten groups are called decile groups; for example ‘the bottom decile’ is used to describe the bottom ten percent of the population.

Figure 16 shows inflation-adjusted weekly equivalised incomes before housing costs across the different income deciles for the last five years, using individual years of data. For most deciles there have been increases in the weekly income since 2021/22 but not in the 9th decile.

From year to year, the decile points fluctuate slightly, partly because of actual fluctuations in the income distribution, and partly due to the particular survey samples in each year.

7.5     Income distribution

Figure 17 shows the distribution of weekly income before housing costs across Scotland in 2022-25 with relative poverty threshold, UK median income, and Scottish income decile groups.

Many people have household incomes near the poverty threshold. This means that small movements in the overall distribution can sometimes lead to sizeable movements in poverty rates.

Decile groups are groups of the population defined by the decile points. The first decile group is the ten percent 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.

7.6     Poverty thresholds

Most of the income estimates in this publication are based on equivalised income. This means that household income is adjusted to reflect different household sizes and compositions. When income is not equivalised, households of different sizes have different poverty thresholds. The table below shows the relative and absolute poverty 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; incomes of all other household types are adjusted (equivalised) to reflect their different household composition. The table below provides some examples and full details of how incomes are equivalised are in the background notes.

Table A: Weekly income and poverty thresholds for different household types after housing costs, Scotland 2022-25

7.7     Income sources

Figure 18 shows the different sources of gross income by decile group, ranking the population by income and dividing it into ten equal-sized groups. Income components are considered before tax; this is therefore a different definition of household income from that used elsewhere in this report.

Higher income households receive a large proportion of their income from earnings, and lower income households receive more of their income from social security payments. Social security payments include the state pension.

Earnings account for less than half of gross income for those in the first three decile groups compared to over 80% for those in the top three decile groups.