Confusing stats ‘making it hard to identify those struggling most with rising cost of living’

The government’s inconsistent use of data is making it hard to identify which people in which parts of the country are in most need of help as a result of the cost-of-living crisis, according to a new report.

Research from the Institute for Fiscal Studies (IFS) found that some poverty statistics take account of housing costs, while others disregard them.

It explained that ignoring housing costs when measuring poverty leads to “perverse conclusions”.

Muddying the waters

The poorest quarter of population spent an average of 21% of their household income on paying their mortgage or rent in 2021. This compares with 6% for the richest quarter. In other words, the poorest 25% spent 3.5 times more on housing as a percentage of their income than the richest 25%.

The IFS says this means it’s vital to take housing costs into account when measuring poverty. When housing costs are included, 45% of the poorest tenth of the population are classed as materially deprived, compared with 39% when housing costs are ignored.

People on housing benefit

When looking at the living standards of housing benefit claimants, if you fail to take into account housing costs, households seem better off than they are as benefit payments have increased as a result of rising rents.

Increases in rents in private and social accommodation between 1997 and 2010 and the corresponding rise in housing benefit to partially cover those costs suggest an 11% fall in the number of households in poverty, even though incomes after adjusting for housing costs are unchanged or even reduced.

Underestimating child poverty

If you don’t take account of housing costs, you understate the proportion of families with children who are poor and overstate the proportion of pensioners – most of whom are outright owners with very low housing costs - who are poor.

Not accounting for housing costs, 23% of children in 2019 were classed as living in poverty. For people aged 65+ it was 20%. Once you take into account housing costs the figure for children rises to 31% and for pensioners it falls to 18%.

Regional differences

Failing to take into account housing costs when measuring poverty also disguises the full effects of the cost-of-living crisis on people living in London.

The relative poverty rate in the capital when you don’t take housing costs into account is 16%. This rises to 27% if you include housing costs.

Consistency is vital

Tom Wernham, who co-wrote the report, said:

“[T]he government produces a range of headline poverty statistics, including ones that account for, and ones that disregard, housing costs…

“Now more than ever, with rising mortgage interest rates and rising private rents for new lets, we need to take account of these housing costs and how they affect people’s disposable incomes.

“Otherwise, we will fail to identify which people in which parts of the country are facing the greatest difficulty regarding their incomes and material living standards.”