How is poverty measured?

The focus in this briefing is on poverty defined in terms of disposable household income (income after adding on benefits and deducting direct taxes). However poverty may be defined in different ways and there is no single, universally accepted definition.

Two commonly used measures of poverty based on disposable income are:

  • Relative low income: This refers to people living in households with income below 60% of the median in that year.
  • Absolute low income: This refers to people living in households with income below 60% of median income in a base year, usually 2010/11. This measurement is adjusted for inflation

Median income is the point at which half of households have lower income and half have higher income.

Income can be measured before or after housing costs are deducted.

How will the rising cost of living affect poverty?

In November 2023 the Office for Budget Responsibility forecasted that real household disposable incomes per head will increase by 0.3% in 2023, fall by 1.5% in 2024, and then increase by an average of 1.5% between 2025 and 2028. Based on these forecasts, real (inflation-adjusted) post-tax income per head will not return to its pre-pandemic level of Q4 2019 until Q3 2027. The OBR is an independent fiscal watchdog that analyses public finances and fiscal policy.

Absolute low income is likely to rise in the short run: the Resolution Foundation forecasted in September 2023 that absolute poverty will increase by 300,000, from 11.7 million in 2023/24 to 12.0 million in 2024/25. This will bring the rate to 18.0% in 2024/25, the same rate as 2019/20.

This is because real incomes are set to fall, and income is adjusted for inflation when measuring absolute low income.

Since relative low income compares low-income households to median income, the fact that income is set to fall for everyone means that relative low income is likely to fall between 2022/23 and 2023/24.

However, the Resolution Foundation expects relative child poverty to return to its upward trend at the end of the cost of living crisis and reach its highest levels since 1998/88 in 2027/28.

How many people are in poverty?

Department for Work and Pensions (DWP) data shows that around one in six people in the UK were in relative low income (relative poverty) before housing costs in 2021/22. This rises to just over one in five people once housing costs are accounted for.

Around 13% of people in the UK were in absolute low income before housing costs in 2021/22, and 17% were in absolute low income (absolute poverty) after housing costs.

Over the longer-term, poverty rates have reduced since the late 1990s for children, pensioners, and working-age parents. However, for working-age adults without dependent children the likelihood of being in relative low income has increased.

Who is in poverty?

Some groups are more likely than others to be in poverty.

In 2021/22, poverty rates were highest for people in households where the head of the household is from the Pakistani or Bangladeshi ethnic groups and lowest for those from White ethnic groups.

Around 38% of working-age adults in workless families were in relative poverty before housing costs in 2021/22, compared to 10% in families where at least one adult was in work. 

43% of social renters and 35% of private renters were in relative low income after housing costs in 2021/22, compared to 15% of people who owned their home outright and 9% of those who have a mortgage.

The proportion of people in relative low income before housing costs (BHC) was 24% for families where someone is disabled, compared to 14% for people living in families where no one is disabled.

Other ways of thinking about poverty

There is debate about whether income is the best way to measure poverty. The Social Metrics Commission (SMC), which looks at poverty measurements, proposed  basing the measure on the extent that someone’s resources meet their needs. This accounts for differences among households such as costs of childcare and disability, savings, and access to assets.

A research project funded by the Joseph Rowntree Foundation, a poverty charity, estimates a Minimum Income Standard: the level of income needed to meet a minimum acceptable standard of living each year.

Measures like material deprivation and destitution provide an insight on how many people are unable to afford essentials.

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