Household income variables

This section summarises the household income derived variables. Household-level income measures are included in the household level data files, w_hhresp.

In order to compare incomes for households of different size and composition, each net household income value should be adjusted by an equivalence scale. The public release files contain values of the OECD-modified equivalence scale for each household (w_ ieqmoecd_dv). Equivalisation can be performed by dividing each household’s income value by the equivalisation value provided.

At the household level, w_fihhmnnet1_dv+ is the net household monthly income. It is the sum of net monthly incomes from all household members (including proxies and within household non-respondents, see w_fimnnet_dv+). It can be decomposed into the six subcomponents:  net labour income (w_fihhmnlabnet_dv+), miscellaneous income (w_fihhmnmisc_dv), private benefit income (w_fihhmnprben_dv), investment income (w_fihhmninv_dv), pension income (w_fihhmnpen_dv), and social benefit income (w_fihhmnsben_dv). The six subcomponents map to the six subcomponents of individual net income described in more detail in the previous subsection.

The variable w_fihhmngrs_dv+ is total household gross income.  It is the sum of gross monthly incomes from all household members (including proxies and within household non-respondents, see w_fimngrs_dv). The variable w_fihhmnlabgrs_dv+ is gross household labour income.

Income components are imputed for all proxy and within household non-respondents. Hence in Understanding Society household income estimates are available for all households – including where some household members non-respond. Users may decide to drop cases based on such imputed data but they would then need to adjust their results to take into account the consequent sample selection i.e. their results would no longer be representative of the UK population. Details of how to identify imputed cases are provided in the imputation flags section.

Housing costs (under review in 2023)

In the UK a distinction is sometimes made between incomes before and after housing costs, where housing costs usually include rent, mortgage payments, structural insurance premiums and local water charges. To allow for the computation of income after housing cost, the Understanding Society has a set of such variables that focus on rent and mortgage payments.

The final housing costs derived variables are as follows: For renters, w_rentgrs_dv is the computed monthly gross rent i.e., including any housing benefit received. w_rent_dv is the monthly rent net of housing benefit (equal to w_rentgrs_dv where no housing benefit is received). Missing values are imputed (see below), and, where the household reports 100% housing benefit (in which case no rent value is reported), the value is set equal to housing benefit reported in the individual questionnaire and a value imputed if not reported there. The variable w_rentg_if is an imputation flag for w_rentgrs_dv.

In some cases, a reporting inconsistency arises where housing benefit is implicitly reported in the household questionnaire (as the difference between gross and net rent), and it differs from what is reported in the individual questionnaires. The main income variables of the previous sections take the individual questionnaire reports to be correct and so they do not included implicitly reported housing benefit from the household questionnaire. When working with housing costs variables, as they imply an amount of housing benefit, it is necessary to adjust the household income totals to include it. So that data users can adjust the household income totals, an adjustment factor (w_hbadjust_dv) is included in the public release files. For a given household with implied housing benefit in the household questionnaire, this factor is equal to housing benefit reported in the household questionnaire minus the sum of housing benefit reported in the individual questionnaires. Household income totals can therefore be adjusted by adding the adjustment factor to the total household income. Gross household income has already been adjusted in the variable w_fihhmngrs1_dv (=w_fihhmngrs_dv + w_hbadjust_dv).

For those paying mortgages, w_xpmg_dv is monthly total mortgage payments including imputation. The variable w_xpmg_if is the imputation flag for this variable. Most definitions of housing costs for purposes of measuring income after housing costs seek to exclude repayments of capital included in mortgage payments and only include interest payments. w_xpmgint_dv is the estimated interest within w_xpmg_dv. For short period mortgages it is based on data on current interest rates times the outstanding principal and for mortgages with more than two years to run based on a standard repayment mortgage formula.

The above variables for rent and mortgages are combined in the following variables: w_houscost1_dv is total housing costs including capital repayments i.e., w_rentgrs_dv + w_xpmg_dv. w_houscost2_dv excludes capital repayments, i.e., w_rentgrs_dv + w_xpmgint_dv.

The imputation of rent and mortgage payment assumes that variations over time are small and where other reports at the same address are available in other waves, missing values are set equal to the median of these reports. Where no report at that address is available, a single value is imputed based on characteristics of the accommodation and household (including region, number of bedrooms, gross income, household composition and age, rural/urban indicator) and applied to all relevant waves.

Local taxes

Council tax is a UK local tax that is often deducted from gross household income in poverty analysis. In Understanding Society, council tax liability is currently estimated for Great Britain, though not for Northern Ireland. Council tax liability (net council tax) is included in the variable w_ficountax_dv. It is equal to gross council tax applying any single person discount and then subtracting any council tax reduction. The variable w_fihhmnnet3_dv (only available in Special Licence data) is equal to w_fihhmnnet1_dv less council tax liability and any council tax reduction (not released). w_fihhmnnet4_dv+ (only available in Special Licence data) is equal to w_fihhmnnet3_dv+ and adjusted for housing benefit reported in the household questionnaire.

Price indices

In order to compare household incomes in different months and years, each income value should also be adjusted by a price index to a common time period. In the publicly released files, none of the Understanding Society income variables have been adjusted to account for price changes over time.

Many price indices are publically available including the Consumer Price Index (CPI) and Retail Price Index (RPI) from the Office for National Statistics. The price index used in official income statistics – the Consumer Price Indices series excluding rents, maintenance repairs and water charges – is freely available for download[1].

The value of a price index can easily be merged to a household’s month of interview (w_intdatey, w_intdatem) in each survey year, so that necessary adjustments to incomes can be performed.