How do we measure poverty?

This briefing paper focuses on poverty defined in terms of disposable household income, although poverty may be defined in different ways and there is no single, universally accepted definition. 

Various poverty measures based on disposable household income are in common use and the trend can look quite different depending on the measure used. Two commonly used measures are:

  • people in relative low income – living in households with income below 60% of the median in that year;
  • people in absolute low income – living in households with income below 60% of (inflation-adjusted) median income in some base year, usually 2010/11.

Income can be measured before or after housing costs are deducted (BHC or AHC). 

The latest data for 2020/21 is less reliable than usual due to difficulties collecting survey data during coronavirus lockdowns, so should be treated with caution. Breakdowns by work status, housing tenure, disability status, ethnic group and region in this paper are for 2019/20.

How has coronavirus and the rising cost of living impacted poverty?

Overall, poverty seems to have fallen at the beginning of the pandemic, due to a combination of falling median incomes and increased benefits. This decrease was likely reversed in 2021/22 as the £20 per week Universal Credit uplift was withdrawn and the cost of living increased.

Rising prices could mean an increase in absolute poverty and material deprivation. The Resolution Foundation estimate that absolute poverty will rise in 2022/23 by 1.3 million including 500,000 children.

How many people are in poverty?

Around one in six people in the UK are in relative low income before housing costs (BHC), rising to around one in five once we account for housing costs (AHC).

Overall, levels of relative low income have been fairly steady over the past few years, but this varies between population groups: the proportion of children and pensioners in relative low income is higher than it was five years ago. The share of people in absolute low income has also remained reasonably stable over the last five years. This indicates that both living standards for the poorest households and the gap between them, and middle-income households has remained about the same. The charts show a fall in poverty in 2020/21 but this change is not statistically significant.

 

Over the longer-term, there has been a reduction in poverty rates 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. The latest reliable data available for these groups is for 2019/20.

In 2019/20, 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 40% of working-age adults in workless families were in relative poverty before housing costs in 2019/20, compared to 11% in families where at least one adult was in work. 

46% of social renters and 33% of private renters were in relative poverty in 2019/20, compared to 15% of people who owned their home outright and 11% of those who have a mortgage.

The proportion of people in relative low income before housing costs (BHC) was 27% for families where someone is disabled, compared to 15% for people living in families where no one is disabled.

Other ways of thinking about poverty

This briefing discusses income-based measures of poverty, but there is debate about whether this serves as a relevant measure of poverty. The Social Metrics Commission (SMC) proposed a measure based on the extent to which someone’s resources meet their needs. This accounts for differences among households such as costs of childcare and disability, savings, and access to assets.

The SMC also provides detailed analysis of the nature of poverty including characteristics that impact the experience of poverty, using SMC poverty numbers, such as experiences of community, family finances, health, and labour market opportunity.


Related posts