Measuring inequalities in the UK for the Sustainable Development Goals
The United Nations (UN) Sustainable Development Goals (SDGs) began in 2016. They are a set of 17 Global Goals that aim to end all forms of poverty, fight inequalities and tackle climate change, by 2030.
As the UK’s national statistics institute, Office for National Statistics (ONS) is responsible for reporting on UK progress towards the global SDG indicators. Goal 10 of the SDGs is about reducing inequality within and among countries, and both target 10.1 and indicator 10.1.1 aim: “by 2030, progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average”.
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The UK is currently meeting the Sustainable Development Goals’ (SDGs) target 10.1 to sustain income growth of the poorest 40% of the population at a higher rate than the national average.
The poorest 40% spend more than they receive in income, although this gap has reduced between 2001 and 2017; in contrast, on average, all households spend less than their income and this gap is increasing over time, therefore, we have also looked at an expenditure-based inequality measure.
Expenditure growth rates of the poorest 40% of the population are much closer to the national average and in recent years have not sustained a higher rate of growth.
Internationally, the UK sits among 14 OECD countries meeting the SDG target 10.1 in the period around 2010 to 2015.
The bottom 40% of the income and expenditure distributions in the UK in 2016 was mostly made up of couples with children, and employed individuals; however, those most at risk of poverty in 2016 were single parent households with children and those who are seeking employment.
The United Nations stipulated method used in this analysis is not an official measure of inequality in the UK.
Definitions and calculations
United Nations (UN) metadata for this Sustainable Development Goal (SDG) indicator stipulates that both the national average growth rate and the growth rate of the bottom 40% is calculated as the annualised average growth rate in consumption or income of all households, compared with the bottom 40% of the consumption or income distribution, over a five-year period.
The bottom 40% has been chosen because of a “practical compromise” (see UN metadata). The World Bank also uses the bottom 40% in their shared prosperity goal and states that the decision to use this population relates to the practical implementation of the goal.
We tend to focus on the bottom 20% when we look at those with the lowest incomes, but this target is about equality and shared prosperity and so we want to consider a wider group than those seen to be living in relative poverty. However, if we select a higher threshold than 40%, we would be looking at people whose income is very close to the national mean income and this would not give us enough information about shared prosperity.
The UN and the World Bank both recognise that it is necessary to consider economic growth as well as equality when measuring progress in shared prosperity.
This method has been specified to allow for international comparison that is easy to measure and communicate. The UN acknowledges that many dimensions of well-being comprise shared prosperity and that in a national context, it is important to consider a wider range of indicators of welfare and economic well-being (for example, wealth and assets).
The expenditure measure includes spending on items that are usually purchased frequently (such as food, petrol), as well as less frequent expenditure (such as household appliances and furnishings). Housing costs such as rent, water rates, community water charges and council water charges, mortgage interest payments, structural insurance premiums, ground rent and service charges are excluded from the measure, meaning expenditure is counted on an “after housing costs” (AHC)1 basis.
The measure we use for income is household disposable income, AHC. Disposable income is the amount of money that households have available for spending and saving after direct taxes (such as Income Tax, National Insurance and Council Tax) and pension contributions have been accounted for. It includes earnings from employment, private pensions and investments as well as cash benefits provided by the state.
Reflecting household size
The expenditure and income measures used in this analysis are all equivalised. Equivalisation is the process of accounting for the fact that households with many members are likely to need a higher income to achieve the same standard of living as households with fewer members. Both income and expenditure are adjusted using the Organisation for Economic Co-operation and Development (OECD)-modified “companion” scales developed for AHC measures in the Department for Work and Pensions (DWP) Households below average income (HBAI) series2 .
Throughout this analysis, the primary data source used to derive measures of both income and expenditure in the UK is the Living Costs and Food Survey (LCF). The LCF is an annual survey of the expenditure and income of private households; people living in hotels, lodging houses and institutions such as old people’s homes are excluded. It is the only data source used to collect detailed data on both income and expenditure, thereby allowing analysis of the two measures.
As with all surveys, there are some limitations to be aware of. The LCF is known to not fully capture those at the poorest and richest ends of income distribution and suffers from non-response error3. When analysing inequalities, this can impact on the representation of the target population (in this case, the bottom 40%) and the overall appearance of income distribution.
In international comparisons, data have been sourced from the World Bank and data for the UK come from Eurostat’s European Union Statistics on Income and Living Conditions (EU-SILC). Organisation for Economic Co-Operation and Development (OECD) countries have been selected from the World Bank data and used in our comparisons (see Figures 4 and 5).
The EU-SILC collects data on poverty, income, social exclusion and living conditions. In the international analysis, the total population and the target population (bottom 40%) are defined on a household level, before housing costs (BHC). Eurostat sets the reference year at T-1 from the survey year, therefore, 2009 reference year will refer to 2010 survey data.
In addition, data from the World Bank are from 91 countries. Not all these countries will have annual surveys, therefore, the reference years for the annualised growth rates are labelled at approximately 2010 to 2015. The annualised growth rate is calculated as:
(mean in year 2/mean in year 1)^(1/(reference year 2 – reference year 1))
Data used in this analysis are for financial years: April to March.
Notes for: Things you need to know about this release
For more details on how the AHC measures of income and expenditure are derived, please see An expenditure-based approach to poverty in the UK.
Information on the OECD-modified “companion” scaled is provided in An expenditure-based approach to poverty in the UK.
For further details of the sources of error, see The effects of taxes and benefits upon household income Quality and Methodology Information report.
In the UK, much of the policy focus has been on inequality measures based on income. According to Living Costs and Food (LCF) survey data, we have seen a downward trend in income inequality in recent years (from 2007 to 2017)1 . However, if looking from a longer-term point of view, levels of income inequality remain above those seen in the late 1970s and early 1980s.
This UN Sustainable Development Goal (SDG) measurement of inequality focuses on income and expenditure. Income data are more readily available, but often less stable in developing countries, therefore, expenditure is sometimes considered a better measure of living standards. The SDGs measure progress in 193 countries, including developing countries, so it is necessary to use a measure that works in multiple contexts.
Promoting shared prosperity is defined by the UN as “fostering income growth of the bottom 40% of the welfare distribution”. To what extent the shared prosperity should be boosted is for countries to decide, according to their national circumstances, so there is no global numerical target. In the case of this SDG indicator, progress is measured by how economic gains are shared with society’s poorest members and the target aims to ensure that economic growth also increases prosperity among the poor over time.
The background, and progress to date, in reducing inequality within and among countries has been mixed:
a World Bank study of global trends of income inequality found that, between 1998 and 2008, there had been increases all along the total global income distribution, with two notable exceptions; the top 1% of the global income distribution report a much higher (60%) rise in real income in this time period, whereas the bottom 5% had not seen any change (Milanovic, 2012)2.
from 2008 to 2013, the per capita income or consumption of the poorest 40% of the population improved more rapidly than the national average in 49 of 83 countries (accounting for three-quarters of the world’s population).
SDG target 10.1 seeks to ensure that income growth among the poorest 40% of the population in every country is more rapid than its national average; this was true in 56 of 91 countries with data available from approximately 2010 to 2015
Notes for: Background information
DWP’s Households below average income (HBAI) statistics have an alternative Gini series, which shows a stable picture in recent years. HBAI includes an adjustment for high-income individuals based on tax records, whose incomes tend to be under-reported on voluntary surveys. Changes in the incomes of the very richest may have contributed to the differences in trends between these two sources.
Note that the top 1% of the global population will be different to the top 1% of each country’s population.
Economic inequalities can have impacts across many aspects of life. The Organisation for Economic Co-Operation and Development (OECD, 2015) argues that they can reduce social mobility and can impact on people’s health and well-being. Goal 10 of the Sustainable Development Goals (SDGs) calls for reducing economic inequalities as well as those based on age, sex, disability, race, ethnicity, religion or other status within a country. The Goal also addresses inequalities among countries, including those related to representation, migration and development assistance.
Goal 10 will be reviewed in depth at the United Nation’s High Level Political Forum (HLPF) in 2019. The HLPF is the UN’s main platform for monitoring progress and reviewing the SDGs at a global level and at the same time, the UK will be presenting its Voluntary National Review on progress made towards achieving the SDGs.
In this article, we have shown UK progress against SDG target 10.1, nationally and internationally. In the UK, we are meeting the target for 10.1, of goal 10, and sustaining a higher than average income growth rate for the bottom 40%, but it is unclear whether this will continue.
Internationally, the UK was among 14 OECD countries achieving the target. However, the UK is also among other richer countries that have seen a widening in income inequality between the richest and poorest households. Whilst from an economic perspective it could be seen to be sensible to improve at least some incomes, wider economic inequality does not make economic sense if it means that the capacity of the bottom 40%, to improve their and their children’s position in the future, is reduced (OECD, 2015).
The SDGs not only have an overarching focus on inequalities, but also have a unifying aim to “leave no one behind”. Therefore, it is crucial to understand who may be left out in policy, data and development. By exploring the growth in income or expenditure in the bottom 40% of the income or expenditure distribution compared with the national average, we can draw some conclusions about the extent to which those with the lowest incomes or expenditure are catching up or being left behind.Nôl i'r tabl cynnwys
Brewer M and O’Dea C (2017), 'Why are Households That Report The Lowest Incomes so Well-Off?', Economic Journal
Carrera S (2010), 'An expenditure-based analysis of the redistribution of household income', Office for National Statistics publication
Kabeer, N (2015), 'Gender, poverty, and inequality: a brief history of feminist contributions in the field of international development', Gender and Development
Keeley BO (2015), 'Income Inequality: The Gap between Rich and Poor', Organisation for Economic Co-operation and Development
Milanovic B (2012), 'Global Income Inequality by the Numbers: In History and Now - An Overview', Washington DC: World Bank Development Research Group
Organisation for Economic Co-operation and Development (2015), 'In It Together: Why Less Inequality Benefits All', Paris: OECDNôl i'r tabl cynnwys
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