Measuring Real Household Disposable Income: 1997 to 2013

This article shows the impact of excluding Non-Profit Institutions Serving Households (NPISH) from Gross Disposable Income (GDI) and Real Household Disposable Income (RHDI). Both are useful in the assessment of the economic position of Households.

In the UK’s sector accounts, Households and NPISH are combined to create a single Households and NPISH sector. This is because NPISH are financed by households and their sole purpose is to serve households.

Alongside this combined Household and NPISH sector, the Office for National Statistics (ONS) aims to produce separate accounts for these two sectors to satisfy user need by the autumn of 2017. Ahead of this date, the ONS is publishing how the two key household measures, GDI and RHDI would be presented if NPISH were removed from their calculation.

Users should note that the data presented here are based on current compilation methods and are subject to change during the full separation of the two sectors.

GDI represents the amount of money Households and the NPISH sectors have to spend on consumption, or to save and invest, after taxes, National Insurance, pension contributions and interest have been paid. A full description of the calculation of GDI is presented in Annex A.

The related National Accounts transactions for both sectors are listed in Annex B.

Between 1997 and 2013, Households contributed, on average, 96.9% of the total combined Household and NPISH GDI by value. Hence NPISH contributed a relatively small average of 3.1% to GDI.

Figure 1 presents GDI growth between 1998 and 2013 with and without NPISH. The average growth for both GDI inclusive and exclusive of NPISH is 4.2% over this period.

Figure 2 illustrates the differences in growth of GDI inclusive and exclusive of NPISH between 1998 and 2013. Although the average difference over the period is zero, the pattern changes over time. It is at or below zero from 1999 to 2005, but mainly positive from 2006.

In 2002, GDI is 0.5% lower if NPISH is removed. This is because in that year they contributed proportionally more to the combined GDI annual growth. NPISH contributes 3.2% of GDI in 2002, up from 2.8% in 2001; a positive level shift not experienced in other years.

In both 2011 and 2013, GDI is 0.3% higher if NPISH are removed. In 2011, NPISH contributes 3.1% of GDI, down from 3.4% in 2010. A similar level shift is seen in 2013, where the contribution falls to 2.7% from 3.0% in 2012. Here NPISH are having a negative influence on the currently published income growth.

GDI is a key measure of how much Households have to spend or save, yet it does not allow for the impact price changes have on this amount over time. To measure the disposable income available to Households on a comparable basis, the impact of inflation on Households’ spending power must be removed.

Real Household and NPISH Disposable Income is calculated as GDI divided by the implied price growth (or deflator) of a combined Household and NPISH Final Consumption Expenditure. See Annex C for a full description of how the combined Household and NPISH Final Consumption deflator is calculated.

The implied price growth for Households and NPISH combined is higher than that of Households in all years from 1999 to 2009, meaning that the NPISH experience of price growth is greater than that of Households. However, between 2010 and 2012, this situation is reversed and NPISH reduced price growth in these three years by 0.1%. These data are available to users on request.

Figure 3 illustrates the impact of excluding NPISH on the growth of RHDI between 1998 and 2013. The average growth for both RHDI inclusive and exclusive of NPISH is 2.1% over this period.

The average difference in growth rates between 1998 and 2013 is 0.1%. This suggests that RHDI is one percentage point higher when NPISH are excluded. It is important to note that although Figure 3 suggests there is no difference between RHDI inclusive and exclusive of NPISH, this is due to rounding.

In 1999 and 2002, there are differences in RHDI growth of -0.1% and -0.2% respectively when NPISH are removed. The impact of the weaker GDI growth Households experienced in 2002 is shown in the comparable RHDI growth difference for that period.

In 2007, stronger Household GDI and a lower price growth experience give Households 0.3% greater RHDI growth.

In 2011 and 2013, a 0.3% difference to GDI contributes to a greater Households RHDI growth of 0.2% and 0.3% respectively.

In conclusion, Households are currently combined with NPISH in the UK’s Sector Accounts. GDI growth between 1998 and 2013 averages 4.2% for Households and NPISH, and for Households only. There is no difference, on average, between these two series throughout this period.

RHDI growth between 1998 and 2013 averages 2.1% for Households and NPISH, and for Households only. There is an average difference of 0.1% between the two series purely due to rounding. This means RHDI would be one percentage point higher if NPISH were excluded.