The Treatment of Housing in Official Low Income Statistics

Abstract

SUMMARY Official low income statistics contain analyses based on income 'before' and 'after' housing costs. We argue that in measuring changes in the real level of income before housing costs over time an inappropriate price index is used. In particular the price index accords insufficient weight to the relatively rapid rise in housing costs which form a dispro- portionately large part of the expenditures of the poor. We propose an alternative income measure which largely overcomes the sources of bias and appears to us to be a more reasonable definition of income before housing costs. In the final section we evaluate the usefulness of before and after housing costs measures. For several years the government's low income statistics have been at the centre of controversy. In 1988, the long-standing 'low income families' series, which measured numbers of families with incomes below or up to 1400/o of the supplementary benefit line, was ended with the publication of figures relating to 1985. In its place came 'households below average income' (HBAI), an analysis of household incomes relative to the national average in each year and also relative to incomes in a base year. Controversy surrounded both the presentation of the new figures and the way in which income was defined. In an earlier report (Johnson and Webb, 1989) we showed that by measuring incomes over a household rather than over the narrowly defined family unit the new figures removed well over 1 million people from the poorest group in 1983. The government has, however, defended the change on methodological grounds, arguing that considerable sharing of incomes occurs between families in multiple-family households-a view with which we have some sympathy. Since then, the debate has moved on, though with no satisfactory resolution of the households versus families argument. The government has now produced a second set of HBAI tables with data up to 1987. The new series appears to be here to stay, but a new source of controversy has arisen, again relating to the way in which income is defined. The HBAI analyses show how the real level of household income has changed over the period 1981-87, with figures being presented on two bases-income 'before housing costs' and income 'after housing costs' (the precise meaning of these terms will be explained later). The two approaches produce rather different results for those on low incomes.