Increases in the cost of living are set to squeeze incomes this winter but households will feel this differently depending on their social and economic position.

This Insight explores which groups have the most and least household income based on their ethnic group, region, if they are a home-owner and their disability status.

What do we mean by income?

Income here refers to disposable household income: the amount of money a household has coming in, from earnings, benefits, income from investments, pensions and so on, minus direct taxes and National Insurance.

Here we compare median weekly household incomes between groups of people. A group’s median income is the point where half the group have a higher income and half have a lower income. Most of this Insight uses data from the three-year period 2017/18 to 2019/20, so does not take account for the impact of the coronavirus pandemic.

The Library briefing Income inequality in the UK provides more statistics on income inequality.

London has the highest income but also has high housing costs

The region with the highest median income depends on whether we measure income before or after housing costs are considered. London has the highest median income before housing costs at £615 a week. However, this falls to £474 a week after housing costs are deducted, because housing costs in London are particularly high.

Both before and after housing costs, the North East had the lowest median income in the period 2017/18 to 2019/20.

A chart shows the South East region had the highest median income after housing costs
Source: DWP, Households Below Average Income, via Stat-Xplore

Households from Indian, Chinese and White ethnic groups have the highest income

There is significant income inequality between ethnic groups in the UK. This data measures incomes based on the ethnic group of the ‘household reference person’; the person in the household with the highest income.

Households with a reference person from an Indian, Chinese or White ethnic group had the highest median income, while households with a reference person from Bangladeshi and Pakistani ethnic groups had the lowest.

A chart shows Indian, Chinese and White ethnic groups had the highest median income
Source: DWP, Households Below Average Income, via Stat-Xplore

Significant income gap for families with a disabled member

Families (defined as a a single adult or a married/cohabiting couple and any dependent children) with a disabled member have a median income that’s £110 lower than families with no disabled members, before housing costs are considered. After housing costs, it is £94 lower.

The extra costs that disabled people face like insurance, therapies, and essential services and equipment further widens this income gap.

A chart shows families with no disabled member had significantly higher median income than families with a disabled member
Source: DWP, Households Below Average Income, via Stat-Xplore

Households who own their home with a mortgage have the highest income

The households with the highest median income were those who owned their homes with a mortgage. One reason this group had a higher median income than those who owned outright is because pensioners make up a large portion of the group who own their houses outright, and pensioners tend to have lower incomes.

Social renters had the lowest median income both before and after housing costs. Private renters saw the largest gap between income before housing costs and after they were deducted, which means private renters spend the largest proportion of their income on housing.

A chart shows the gap between median income before and after housing costs was biggest for private renters
Source: DWP, Households Below Average Income, via Stat-Xplore

Because of small sample sizes, it is not possible to reliably analyse the intersections between different groups (such as families with a disabled member who own their home outright, or families from a Chinese ethnic group who live in the West Midlands, etc) but households in multiple categories with relatively low income are likely to have even lower income.

The cost of living squeeze will affect low income households more

Much of the withdrawal of the Government’s coronavirus support has disproportionately affected low-income households.

The withdrawal of the £20 per week Universal Credit uplift only affects households with incomes low enough to qualify for Universal Credit. Low earners were more likely to be furloughed at the start of the pandemic and were more likely to stay on furlough longer, so were most affected by the end of the scheme.

Price increases, including in energy prices will also disproportionately affect low income households.

Low-income households spend a larger proportion on ‘essentials’, so increases of the price of fuel will disproportionately affect these households. The Resolution Foundation estimates that increased energy prices will mean the tenth of households with the lowest income will spend more than 10% of their expenditure on energy.

The Institute for Fiscal Studies points out that higher income households tend to save more, so are more able to cover temporary increases to bills without going into debt.

The Library’s Background to the Autumn Budget and Spending Review 2021 provides more detail about how the withdrawal of Government coronavirus support, tax rises and rising prices affects household incomes in section 5.

Further reading

About the author: Brigid Francis-Devine is the House of Commons Library specialist on incomes and poverty.

Photo by Super Straho on Unsplash

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