Poverty 'before' and 'after housing costs'

What does this graph show?

The graph shows a long time trend of poverty in London for the whole population. It shows the rates both before housing costs have been deducted from household income and after deduction. For greater accuracy, we use a three-year rolling average.

The broad trends in poverty over time in London are quite flat. In the three years to 2010, the proportion of the population in poverty was almost identical to that ten years earlier: 17% Before Housing Costs (BHC) and 28% After Housing Costs (AHC). Over the last decade the AHC rate has slightly dipped and then risen, while the BHC rate has barely changed at all.

Using the BHC rate, poverty in London is no higher than the rest of England. But using the AHC rate, there is a gap of 6 percentage points. This gap grew during the last decade.

This is not just a statistical quirk. BHC income includes housing benefit, which for many low-income households in London is substantial. But it does not deduct the rent which that income pays for. A household in London is not materially better off for receiving more housing benefit than a household elsewhere. In both cases the benefit goes straight to the landlord. Most perversely, an increase in rent, if accompanied by a commensurate increase in housing benefit, could actually lead to a household being lifted out of poverty on this measure, despite their disposable income not rising at all.

High housing costs in London contribute to its high level of poverty. Rented accommodation in London is 50% more expensive than the national average, as are average mortgage payments. These high costs affect everyone in London, not just the wealthy. The first Poverty Profile showed that average housing costs for people on below average incomes were around £30 a week more than in the rest of England.

For all of these reasons, to get an accurate picture of poverty in London we have to look
at incomes after housing costs have been paid. The analysis that follows uses the AHC definition.

Data used

Households Below Average Income, Department for Work and Pensions, 1994-95 to 2009-10

Indicator last updated: 30 January 2012