Alternative Measures of Real Households’ Disposable Income Tom Evans Household Accounts Development tom.evans@ons.gsi.gov.uk.

Alternative Measures of Real Households’ Disposable Income

Tom EvansHousehold Accounts Developmenttom.evans@ons.gsi.gov.uk

Overview

• What is Disposable Income?

• Why are we looking at alternative measures?

• What adjustments have been made?

• Results!

2

What is Disposable Income?

4

Wages and Salaries

Interest Payments

Interest Payments

Direct Taxes

ResourcesUses

Conceptual Transactions

Imputed Rental

What is Disposable Income?

Transactions

What is RHDI?

• Take Gross Disposable Income for the Household Sector

• Apply an expenditure deflator

• Divide by the population

5

Why are we looking at Alternative Measures?

• Key area of policy interest – living standards debate• Social surveys tend to be the leading sources of data

on disposable income• These sources collect a lot of detailed information but

are not especially timely

• Real Households’ Disposable Income (RHDI) is calculated within the system of National Accounts on a quarterly basis.

• It’s more timely but does have some conceptual differences to social survey sources

6

Resources Uses Transaction Code Transaction CodeGross Operating Surplus B.2g Interest before FISIM allocation D.41g

Gross Mixed Income B.3g (less) FISIM P.119

Wages and Salaries D.11 Rent D.45

Employers’ Social Contributions D.12

Interest before FISIM allocation D.41g

(plus) FISIM P.119

Dividends D.421

Withdrawals of Income from quasi-corporations D.422

Income attributable to insurance policy holders D.441

Income payable on pension entitlements D.442

Collective Investment Fund shareholders – Dividends D.4431

Collective Investment Fund shareholders – Retained earnings D.4432

Rent D.45

Is carried over to the next account → Balance of gross Primary Income B.5g

Resources Uses Transaction Code Transaction CodeGross Operating Surplus B.2g Interest before FISIM allocation D.41g

Gross Mixed Income B.3g (less) FISIM P.119

Wages and Salaries D.11 Rent D.45

Employers’ Social Contributions D.12

Interest before FISIM allocation D.41g

(plus) FISIM P.119

Dividends D.421

Withdrawals of Income from quasi-corporations D.422

Income attributable to insurance policy holders D.441

Income payable on pension entitlements D.442

Collective Investment Fund shareholders – Dividends D.4431

Collective Investment Fund shareholders – Retained earnings D.4432

Rent D.45

Is carried over to the next account → Balance of gross Primary Income B.5g

Balance of Primary Incomes Account

“Cash” RHDI

7

Resources UsesTransaction Code Transaction Code

Balance of Gross Primary Income B.5g Taxes on Income D.51

Social Benefits other than Transfers in kind D.62 Other current taxes D.59

Non-life insurance claims D.72 Employers’ actual social contributions D.611

Miscellaneous current transfers D.75 Employers’ imputed social contributions D.612

Households’ actual social contributions D.613

Households’ social contribution supplements D.614

Social insurance scheme service charge D.61SC

Social benefits other than transfers in kind D.62

Net non-life insurance premiums D.71

Miscellaneous current transfers D.75

Gross Disposable Income B.6g

“Cash” RHDI

Distribution of Secondary Incomes AccountResources Uses

Transaction Code Transaction Code

Balance of Gross Primary Income B.5g Taxes on Income D.51

Social Benefits other than Transfers in kind D.62 Other current taxes D.59

Non-life insurance claims D.72 Employers’ actual social contributions D.611

Miscellaneous current transfers D.75 Employers’ imputed social contributions D.612

Households’ actual social contributions D.613

Households’ social contribution supplements D.614

Social insurance scheme service charge D.61SC

Social benefits other than transfers in kind D.62

Net non-life insurance premiums D.71

Miscellaneous current transfers D.75

Gross Disposable Income B.6g

8

Interest Payments

• Typically quite straightforward to decide if a transaction is observed by households or not

• The decision to include Gross Interest (D.41g) on the uses side is finely balanced

• Definitely something households observe

• Not typically captured by social surveys

9

Interest Payments

• RHDI estimates presented on two bases:

Net Interest basis: Includes interest received and interest paid. “Netted off”

Gross Interest basis: Considers only interest received and disregards interest paid.

10

Non-Profit Institutions Serving Households (NPISH)

• Comprised mainly of charities and universities

• Also includes entities like trade unions and political parties

• Combined with the household sector in the national accounts

11

Measures of RHDI considered

United Kingdom Economic Accounts

Adjustments

Interest Basis

Net Interest Gross Interest

HH and NPISH Cash RHDI HH Only Cash RHDI

12

Net Interest BasisMeasure 2007 2014United Kingdom Economic Accounts £17,306 £16,954HH and NPISH – Cash Basis £14,386 £13,907HH Only - Cash Basis £13,939 £13,610

13

Gross Interest Basis

Measure 2007 2014United Kingdom Economic Accounts £17,306 £16,954HH and NPISH – Cash Basis £16,143 £14,780HH Only - Cash Basis £15,694 £14,506

14

Potential Reasons for the Divergence

15

Potential Reasons for the Divergence

Levels of per capita interest paid by (use) and received by (resource) the household and NPISH sector, seasonally adjusted

16

Potential Reasons for the Divergence

17

Contributions – Net Interest

18

Contributions – Gross Interest

19

Social Survey Comparisons

20

Any questions?

tom.evans@ons.gsi.gov.uk

21