Relative income poverty: methodology

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.

In the Households Below Average Income (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 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.

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.

The ethnicity questions used in the Family Resources Survey are in line with National Statistics’ harmonisation guidance, which is available via the Office for National Statistics harmonisation website. 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.

Changes affecting publication of relative income poverty data for FYE 2020

For the financial year ending (FYE) 2020 publication, a minor methodological revision was made to the HBAI data series by the Department for Work and Pensions (DWP) to capture all income from child maintenance. This resulted in more income from child maintenance being included, in turn slightly increasing some household incomes and so tending to slightly reduce low income rates for families with children. The full back series (back to 1994/95) was revised so that comparisons over time are on a consistent basis across the full time series. In terms of the impact of these revisions, in most cases the percentages of people in low income were unchanged rounded to the nearest percentage point.

Changes affecting publication of relative income poverty data for FYE 2021

On 31 March 2022, the DWP released new FRS and HBAI statistics including the first official poverty statistics for the period after the beginning of the coronavirus (COVID-19) pandemic, financial year ending (FYE) 2021. Fieldwork operations for the FYE 2021 FRS were rapidly changed in response to COVID-19 and the introduction of public health measures. These changes decreased the overall response rate and unevenly impacted the response rate from people with certain characteristics. Due to these changes analysis based on data collected during this time is limited.

Analysis of the HBAI data below UK level is not recommended using the FYE 2021 data as the combination of smaller sample sizes and additional bias means it is not possible to make meaningful statistical assessments of trends and changes in FYE 2021 compared to the pre-coronavirus level. As a result, the DWP did not include any Welsh poverty statistics in the FYE 2021 HBAI release.

Due to the issues described above, the usual range of additional Welsh Government analysis on the poverty was not published for FYE 2021. Instead, we published an article describing the data quality issues. This article presented Welsh poverty-related figures using the FYE 2021 HBAI data to ensure full transparency but advised against use of the FYE 2021 dataset for Wales.

Changes affecting publication of relative income poverty data for FYE 2022 and FYE 2023

As with FYE 2021, collection of the FYE 2022 FRS data was affected by the coronavirus (COVID-19) pandemic. Although government restrictions introduced in response to the pandemic were eased over the course of the survey year, the change in survey mode, from face-to-face interviews to telephone interviews, was kept throughout 2021 to 2022.

DWP analysis shows that there is a lower level of bias in the FYE 2022 data (resulting from the change in survey mode) compared with the FYE 2021 data. This improvement in the data quality means that the usual range of additional analysis was published for FYE 2022.

While FRS fieldwork operations were not identical to pre-pandemic in FYE 2023, they gradually returned throughout the year to something much closer to that than the period spanning the coronavirus (COVID-19) pandemic, when telephone interviewing only was used. The mode of interview for the FRS during FYE 2023 returned to face-to-face by default, with telephone used as an alternative by 28% of sampled households (across the UK).

DWP have enhanced confidence in data quality of the FYE 2023 sample, which was more representative than during the pandemic, with the profile of respondents closer to those who responded to the survey prior to FYE 2021. More information on the FRS fieldwork can be found in the FRS Background Information and Methodology report, and Annex 5 of the HBAI Quality and Methodology Information document provides further details on the composition of the FRS sample for FYE 2023.

The relative income poverty results are typically reported by averaging data from multiple years. Data points that span the FYE 2021 period do not include the FYE 2021 survey data in calculations, as it is judged to be of low quality. Estimates formerly calculated as 3 to 5 year rolling averages are based on 2 to 4 year rolling averages that omit the FYE 2021 survey data. This means that some real changes that happened to incomes, such as the furlough scheme or the temporary increase of Universal Credit are only partially captured in the time series.

Due to the issues described above there remain areas where caution is advised when making comparisons with previous years and interpreting larger changes.