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SUMMARY
Equivalence scales make adjustments to the incomes of households so that households with different compositions can be analysed. The effects of taxes and benefits on household income (ETB) analysis uses the McClements equivalence scale to examine how taxes and benefits redistribute income between households in the UK. However, many other household income statistics, including indicators published by the Department for Work and Pensions and the European Union (EU), use the Organisation for Economic Cooperation and Development (OECD) equivalence scale. Thus, estimates produced in the ETB analysis cannot be easily compared with other key income statistics. This article seeks to outline the effects of switching to the OECD equivalence scale on the effects of taxes and benefits on household income analysis.
Introduction
The McClements equivalence scale has been used by researchers and government departments in the UK to take account of the differing needs and economies of scale of households. This makes larger households better offthan single adult households. However, many organisations have shift ed toward using the OECD (Organisation for Economic Cooperation and Development) equivalence scale in their analysis. For example, the Statistical Office of the European Union (EUROSTAT) opted for the OECD equivalence scale in their analysis of income using EU Survey of Incomes and Living Conditions data. Furthermore, the Department for Work and Pensions (DWP) began to use the OECD equivalence scale from 2005/06 in their Households Below Average Income (HBAI) publication1.
The ETB is a long-standing analysis published every year in Economic & Labour Market Review (see Barnard 2009). It is based on income and expenditure data from the Living Costs and Food Survey2 (LCF), which was previously known as the Expenditure and Food Survey.
The analysis has used the McClements equivalence scales since 1977 giving a long, consistent series but with a lack of comparability between the estimates produced in ETB and other household income statistics. This article seeks to outline the effects of moving the ETB analysis from the McClements scale to the OECD scale and also present the timetable for the move to the OECD scale.
The article shows that:
* Using the OECD equivalence scale, compared with the McClements scale, gives more weight to the first adult in any household than second and subsequent adults....