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Households below average income

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Methodology

Full details on methodology can be found in the Department for Work and Pensions’ HBAI quality and methodology information report (PDF 1.02MB).

What is weekly disposable equivalised household income?

The income measure used in the Households Below Average Income (HBAI) report is weekly disposable equivalised household income.

Household income means it includes all sources of income from all household members, including dependents.

Disposable income means that it is income after the following deductions have been paid:

  • income tax 
  • National Insurance contributions
  • domestic rates/council tax
  • contributions to occupational pension schemes
  • all maintenance payments
  • student loan repayments
  • parental contributions to students living away from home.

Equivalised household income means the income has been adjusted for household size and composition, taking an adult couple with no children as the reference point.

For example, imagine there was a single person, a couple and a family of four all living on the same income. The person living alone would be able to afford a better standard of living than the couple, whereas the family of four would struggle to maintain the same standard of living as the couple.

Therefore in order to reflect living standards, the process of equivalisation adjusts the income for the single person upwards, leaves the couple’s income as it is and adjusts the income for the family of four downwards.

What is included in housing costs?

In the HBAI report, housing costs are defined as: rent or mortgage interest payments, water rates, structural insurance payments and ground rent and service charges.

However, in the Income Dynamics report (published this year for the first time), housing costs have been defined simply as weekly gross housing costs.

In the case of renters, these housing costs will include service and water charges because this is how the information is requested on the questionnaire. For mortgage payers, these amounts will not be included. There is also no information collected on cost of structural insurance payments.

Another difference is that, for the HBAI methodology, only the interest element from a repayment mortgage is deducted as housing costs, whereas in the Income Dynamics report both the repayment and interest elements are included as part of ‘gross housing costs’. Compared with standard HBAI methodology, the after housing costs income of such households will be understated.

How is disability defined?

From 2012/13 the Family Resources Survey disability questions were revised to reflect new harmonised standards. Disabled people are identified as those who report any physical or mental health condition(s) or illness(es) that last or are expected to last 12 months or more, and which limit their ability to carry out day-to-day activities a little, or a lot. This is in line with the Equality Act definition.

How is ethnicity defined?

The ethnicity questions used in the Family Resources Survey adopt the UK harmonised standards for use in major Government social surveys, last published in August 2011. That is, they adopt the standard way of collecting information on the ways in which people describe their ethnic identity. Individuals have been classified according to the ethnic group of the household reference person (the highest income householder) which means that information about households of multiple ethnicities is lost. Sampled numbers within smaller ethnic minority groups in Wales are small, and for this reason it is necessary to group some minority ethnic groups into an overarching "Non-white ethnic group" category, and to present analysis as five-year averages.

How is material deprivation measured?

For children, material deprivation is measured by asking respondents to the survey if they have access to 21 goods and services. If they cannot afford a given item this gives them a score, with items more commonly owned given a higher weighted score.

A child is considered to be in material deprivation and low income if they live in a family that has a total score of 25 or more out of 100 and an equivalised household income below 70 per cent of the UK average (median) before housing costs were paid.

Respondents who are pensioners  aged 65 or over are asked whether they have access to a list of 15 goods and services. If they don’t have a given item (because of cost, health or availability) they are given a score, with items more commonly owned given a higher weighted score. A pensioner is considered to be in material deprivation if they live in a family that has a final score of 20 or more out of 100. 

Methodological change

When publishing the HBAI report, DWP adjusts the income figures for inflation. To do this they need to use a measure of inflation. Historically they have always used the Retail Prices Index (RPI) but following an announcement from the National Statistician that the RPI formula did not meet international standards they switched from the RPI to the Consumer Prices Index (CPI) in the 2016 publication.

Therefore the 2016 publication release led to some small revisions. They have continued to use CPI in this year’s release but no revisions have been needed this year.

Further justification for the switch from RPI to CPI can be found in the statistical note published by DWP.

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