IFS: government underestimating number of households in poverty

5 Nov 14

The number of people in absolute poverty in the UK could be as much as 300,000 more than government estimates due to the higher rates of inflation experienced by poor households, the Institute for Fiscal Studies has said.

Overall, households with incomes in the bottom fifth of the population faced inflation of 50% from 2002/03 to 2013/14, compared to an increase of 43% for households with incomes in the top fifth.

For example, the Measuring poverty when inflation varies across households report found that the poorest 20% of households spend 8% of their total income on energy, compared to 4% for the richest 20%. This means they felt the impact of the 173% rise in energy bills between March 2002 and March 2014 harder, the report stated.

Likewise, the 49% price increase in food over the same period also affected the bottom 20% more, as they spend nearly double on this area as a percentage of their income – 20% versus 11%.

However, the report, which was complied for the Joseph Rowntree Foundation, noted that the government’s measures of poverty assumed all households experience a common inflation rate, based on the Retail Prices Index.

In 2012/13, 16.8% of individuals were in absolute poverty and 15.4% were in relative poverty, according to the ‘before housing costs’ definitions.

Adjusting these calculations to take account of the different rates of inflation, the IFS found that absolute poverty would be 0.5 percentage points higher in 2013/14, equivalent of 300,000 more people.

However, the think-tank also noted that poverty on this new definition had been both higher and lower than the standard measure, so there was no consistent overall trend.

Publishing the report, Peter Levell, a research economist at IFS, said: ‘In recent years, lower-income households have tended to see bigger increases in their cost of living than have better off households. 

‘Official poverty measures do not take this into account and hence have arguably understated recent increases in absolute poverty by a small but not insignificant margin.’

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