Chapter 3: Equivalised Income

Coverage: UK

Date: 11 December 2013

Geographical Area: Region

Theme: Economy

Key Points

* This chapter examines how expenditure varies with equivalised income, which refers to household income that has been re-calculated to take into account the different financial resource requirements of different household types.

* Equivalisation takes into account the fact that larger households usually need a higher income than smaller households in order to achieve a comparable standard of living.

* Equivalisation also factors in the different living costs requirements of adults, and children of different age groups.

* Once incomes have been equivalised it is possible to identify more clearly how income relates to expenditure, and a number of interesting expenditure patterns emerge.

* Spending on discretionary items such as clothing and footwear, and recreation and culture increases sharply as household income rises.

* Lower income households spent a higher proportion of their total expenditure on food and drink than higher income households, reflecting differences in how financial resources are allocated to basic living costs.

* The reverse trend is seen for transport; higher income households allocated more of their total expenditure to vehicle purchases and running and maintaining vehicles, which reflects the higher levels of car ownership and number of car journeys made by top income households.

Introduction

Background

Equivalisation is a standard methodology that adjusts household income to account for the different financial resource requirements of different household types. Household size is an important factor to consider because larger households usually need a higher income than smaller households in order to achieve a comparable standard of living. The composition of a household also affects resource needs, for example living costs for adults are normally higher than those for children. After equivalisation has been applied, households with the same equivalised income can be said to have a comparable standard of living.

This year there has been a change in focus from gross income to disposable income. However both gross and disposable income tables are available on request. Disposable income is defined as gross weekly cash income less the statutory deductions and payments of income tax and National Insurance contributions1. Most analysis looking at income and expenditure together looks at disposable rather than gross income because disposable income is the amount...