Who should we count as “well-off”?

Much of the material on this site compares the situation of “poorer students” or “students from low income backgrounds” to that of “students from better off homes”.

Discussing this on-line or face-to-face brings out how subjective people’s definitions are of what it means to be well-off. So, for example, I was asked recently what the typical debt was for a student whose family was “in the middle” of the income distribution, by the parent of a teenager.  I realised later that that must be where they felt their family to lie. Knowing their jobs, I can make a reasonable guess that they have a gross annual household income of at least £90,000. In a similar way, recent below the line comments on rising student debt brought out that some at least would regard “poorer” students as including those above the point where grant runs out, ie £34,000: a few such comments are included at the foot of this post.

This post considers what sort of income places a student’s family into, say,  poorest quarter to third and what into, say, the top quarter to third of the population.

Free school meals

Free school meals data is one way into this question. 18.8% of children in Scotland qualify for free school meals.  This in essence requires families to be on benefits.  This means roughly one-fifth of children come from households with incomes which are often likely to be well below  £20,000.

Educational Maintenance Allowance

EMA is payable to young people aged 16-19 in full-time education in school or college (excluding HE) who come from households with a gross income of around £20,000 or less (just over £22,000 for families with more than one child).  In 2012-13, 35,500 young people claimed EMA.  Of all the school pupils aged 16-19 years old in Scotland, 34% (23,335) received an EMA payment in 2012-13.  So, to be in the poorest third or so of those at school between 16 and 19 requires a household income below around £20,000 to £22,000.

Student grants

In 2012-13, over two-fifths of Scottish students supported by SAAS came from households which declared an income of less than £30,000.  Given that declaring an income was necessary to claim grant, and grant was available up to just below £33,000, the incentive to declare income below that level will have been high. Removing mature students from these figures, to concentrate on the group of students still dependent on their parents, makes a large difference. That suggests one-third of young students come from households below around £30,000.

It is difficult to differentiate the student population by income at higher levels, as the detailed income data becomes too incomplete, but in England and Northern Ireland, which both provide grant up to around £42,000, we know that some 40% of all potentially entitled students are means-tested out of grant, while in Wales, where grant is available up to just over £50,000, 31% are, implying that a household income of just over £50,000 would be enough to place a student into the top 30% of the distribution.   If figures for young students alone could be extracted, £50,000 would be more likely to be enough to be in the top 40 to 50%.

General data on income

Other useful information comes from  Poverty and Income Inequality in Scotland, the most recent version of which was published on 1 July, covering 2012-13. This document is also helpful in allowing an assessment not only of what it means to be a relatively low-income household, but also of how relatively well-off people are, further up the scale.

This useful source of evidence on income distribution shows that the median net household income in Scotland in 2012-13 (ie after deducting any tax and including benefits, and before deducting housing costs) was £23,000. [Note: All the references below use the “before housing cost” figures.]  The document adds: “A couple with no children with a combined income of over £35,200 (after tax and benefits) would be in the highest income 20 per cent of the population.”

These figures are based on income information gathered from whole households and show at what income thresholds the population divides into deciles (ie the poorest tenth, the next poorest, up to the richest tenth). To recognise that households vary in size, the analysis provides these figures scaled up or down for different household compositions – so someone living in a single person household, for example, is deemed to be at the median at a lower household income than someone living as part of a couple, or a family.

As a result, we can all get a reasonable estimate of where we sit on the income scale, after taking household size into account. See the full table here.  That’s an exercise anyone with an interest in understanding these issues might want to do, for a more metaphorical ice-bucket challenge – remember to use your net income after tax.  A bit more work is needed to read the figures for households with a number of children other than two but, briefly,  for an extra child under 14 add an additional 20% and an extra adult or child over 14 add an additional 33%. A full explanation of these weightings is given here.

The table below is an extract from the table linked above, for a couple with two children (one under 14, one 14 or over) and for a single parent with the same.  It shows  in each case what net household income it would take: to fall into the bottom three income deciles of the population; to be at the median; and to be in the top three deciles by income, ie the bottom 30%, the mid-point and the top 30% of of the population by income.  The analysis notes that the thirty per cent of the population with the highest incomes account for 51% of total income; the bottom 30% for 14%.

Source: Poverty and Income Inequality in Scotland

The next table shows what happens when these figures are grossed up for tax and national insurance (rough calculations, by this author), to get them onto the same terms as student support thresholds.

The grossing up assumes all income is taxable. For the top deciles, that should be a safe enough assumption.  At the median and below, untaxed income through benefit will be more relevant: so the figures are likely to over-estimate how much pre-tax income households typically have who fall into the lower deciles. Those figures are therefore shown below with a “<“.   A range is shown for couples. Dual earning couples, both using their full personal allowance, are at the lower end of the range and single earner couples at the higher one.

Source: figures in table above, grossed up for tax and NI by author, using 2012-13 rates

Although these are rough estimates, they are good enough to be able to suggest that a couple with two children with a pre-tax income of around £50,000 is in the middle of the income range, while a similar couple with a pre-tax income of £65,000 or more is in the top 30% of the population by income.

To be in the bottom 30% of the population by income requires a pre-tax household income below somewhere round £30,000.  There is a broad consistency here with the other data sets discussed above.

How this affects the debate about student support

An unpromoted classroom teacher earns between £25,000 and £34,000.  An unpromoted fireman is on £28,000 to £34,000.  Many junior civil servants will be on £25,000 plus.  The starting salary for a bus driver is around £25,000. Many households with two working parents who both feel themselves to be relatively far down the pay range are nevertheless likely to be well towards the middle of the income distribution, or a bit above it, even if one only works part-time.  A household with a single earner in any of these roles is more likely to be in the bottom third or so of the distribution. Meantime, many duel earner households in the top 30%, or even 10% by income,  may have little sense of how well-off they are, compared to other people.

So can a family with £50,000 of gross earnings, or around £3,000 net a month, and one or two children, reasonably  be described as being among the “not poor” and in that sense “better off”? Objectively, yes: they are in middle of the population by income and to a large minority of Scottish families would look comfortably off. But others relying on that amount to cover  the basics of what, to them, is just normal life may still feel their budget is under pressure,  particularly once they are paying towards one or more child’s rent and other bills at university. I have spoken to a number of people with a household income likely to be well (well) above this figure who have spontaneously expressed anxiety about money:  school fees were relevant in only one case.

Indeed, by raising the minimum loan to £4,750 this year, the Scottish Government has probably done as much to win favour with current students’ families as it has with free tuition, by reducing the immediate call on their household finances.  Some of the comments quoted below suggest as much.  The irony is that for students living away from home, where it matters most,  the systems in England and in Wales both still generally offer more upfront help for those with incomes below £54,000.  In Scotland, students’  families’ “ability to pay” upfront is in fact still tested more strongly than anywhere else on the UK mainland (Northern Ireland is not so generous), particularly at incomes between £33,000 and around £45,000.  More on that is included at page 12 onwards here.

Conclusion

Perhaps then it is not surprising that it is difficult to make people at middle to high incomes worry about the additional debt faced by poorer students  when some, perhaps many, feel relatively stretched themselves (again, as the comments below suggest).  The fear of tuition fees – particularly if these are wrongly thought likely to add to the immediate pressure on family budgets, as considered here – then plays into this sense of financial stress.

Indeed, reflecting on the gap between the reality and what appear to be common perceptions of income distribution might help explain why the changes brought in last year have been so uncontroversial.

Arguably, the Scottish Government has devised a system which has managed simultaneously to: use large amounts of student loan to relieve pressure on the public finances; win credit for softening  immediate financial pressures, not least at middle to high incomes; generate no substantial resentment at extra borrowing which is seen to be welcome but optional, again not least at middle to high incomes; fuel insecurity at the prospect of any future change; and  ensure that the effects of the most unavoidable heavy borrowing will only affect, and be felt only in the long-term by, the minority of students who started from the poorest homes. If the better-off bulk of the population is showing little interest in the situation of that last group,  might it be partly because their own financial preoccupations often  mean that they have difficulty perceiving themselves as being among the “well off”, in relative terms?

Clever politics in that case would have  taken precedence over progressive policy, where the approach taken in Scotland might be reasonably described as relatively poor.

Footnote:  Below the line comments about debt from this recent Guardian article, with notes by this author

There were many more comments under the article, but these ones directly considered the effects of the increase in student borrowing reported.

Scots students from poorer families used to take out credit card and bank loans in secret as their parents wouldn’t let them get student loans (debt averse and refused to provide their financial info to SAAS for their child) – the change in policy was designed, I am told, to break the link between parents and students and give all students access to a decent living cost loan.

[Note: withholding income details from SAAS would also prevent a student from receiving means-tested non-repayable grant, involving a counter-productive degree of debt aversion by low-income parents.  The “poorer families” the poster describes therefore seem more likely to have come from households with incomes of £33,000 plus, the point at which grant ceases to be relevant, and therefore not from the lowest third of the population by income.]

I think the best explanation for this may be that the loan available to students increased this year. For my first three years at uni I received approx £1000 per year in loan, as this was related to how much my parents earned. For my final year (2013/2014) the system changed and I was instead allowed to take out a maximum of £4500, which I (along with most of my other working class friends) did take out. While it’s meant I’m in more debt, the increased loan allowed me to quit my 20 hour a week job and focus on my studies.

[Note: to be restricted in the previous three years to a student loan of £1000 would have required a household income of at least £61,000, implying that a family towards the top third of the income distribution was not providing enough to prevent their child from having to work the hours quoted. The poster appears to be identifying as working class, suggesting a further complexity: that family occupations and cultural identity may sometimes obscure to people their relative affluence. Debt as a positive choice is also well-illustrated in this case.]

There’s a perfectly simple explanation for this. SAAS has changed its awarding system so that, rather than receiving a prejudged means tested loan, students can choose to receive up to the maximum available if they wish …

[Note: this will only appear true from the perspective of someone above £33,000 – below that figure additional means-tested loan is still  available].

 … I know several who have taken that option. I’d certainly have liked the option myself, as my paltry living costs loan was near pointless and expected a far larger burden of support than my parents could ever have afforded.

[Note: it’s impossible to know how large this person’s loan was or when they studied, but in 2012-13 living cost loans were still worth at least £3,000 a year at incomes below £47,000, and this pattern had been settled for some time,  so the poster seems likely to come from a household in the middle of the income distribution or above.]

My eldest had a reasonable amount of loan/grant given as family income was not great during his first two years. However it went down considerably during his last two years when parental income improved but we still struggled to help him out. My youngest applied to SAAS this year and I was happier that he could ask for a loan and retain some form of independence from his parents.

[Note: a good example of a  middle/higher income family comfortable with their children taking on debt, provided it relieves pressure on the family budget, and also of John Hills argument about the effect of withdrawing means-tested support.]

As with a previous article, there were no comments posted which could be identified as being from Scottish students (or their families) falling into the group affected by grant reductions.