|Date:||14 July 2011|
|Authors:||Luke Sibieta and Alastair Muriel|
How rich do you think you are, compared to everyone else in the UK? Do you feel pretty well-off, rather poor, or just 'in the middle'? It's a simple enough question, but you may be surprised by the answer. Today, the IFS launches its first ever iPhone app, which estimates where in the income distribution you and your household fit in.
Of course income isn't everything, and there are lots of ways of measuring income. We use the same measure as the government in its official poverty statistics - that is household income, after direct taxes (including council tax) and benefits, and adjusted for family size. This means that we don't count a millionaire's spouse as being 'poor' simply because they have no personal income. It also means that larger families need a higher income than smaller ones in order to attain the same standard of living.
Imagine we were to line up everyone in the UK according to this measure of household income, forming a 60 million-strong conga line. Ignoring the fact that such a conga line would stretch more than half way around the world, lets further imagine that it passes you by at supersonic speed over a single day starting at 00.00 am. Over the first minute, you might catch a glimpse of the very small number of mega rich individuals. For example you might see CEOs and premier league footballers dancing past accompanied by their partners, such individuals could be earning over £2.5 million a year and have a weekly net income of around £23,000, over fifty times greater than the person in the middle of the conga line (the median, who you will see in 12 hours time). By 0.15 am you would have seen the richest 1% of individuals, such as bankers, surgeons or top-flight lawyers accompanied by their partners. Assuming they had no children, they would need a weekly net income of at least £2,400 to be in this top 1% (requiring income of well over £225,000 per year before tax for a single-earner). That's an income six times greater than median income. By 2.24 am, you would have seen the richest 10% of individuals, and would now be seeing some surprisingly "ordinary" families. A couple with no children where each earns £30,000 a year before tax, giving them a weekly net income of £840, would just make it in to the top 10% of the distribution.
Fast forwarding to midday, we are now exactly half way through the conga and you would now be seeing the median individual. Many different families could occupy this position. A couple with no children would need a weekly net income of £420 (e.g. a single-earner couple with an annual salary of just over £30,000 before tax). A couple with two children would, however, need a weekly net income of about £640 (e.g. a single earner with an annual salary of £45,000 before tax). By 7.55 pm you would be getting to the 17% of individuals with household incomes below the poverty line (60% of the median income). These would include couples with two children with net incomes of less than £380 per week, and lone parents with two children whose net incomes are less than £300 per week. It would also include pensioner couples with weekly net incomes of less than about £250 per week.
At the very end of the line at 11.45 pm, we might expect to see the poorest of the poor. We would almost certainly see some people struggling to make ends meet, but this is not going to be true for everyone with a low income. We would also see a number of people with temporarily low incomes - students and some self-employed who have made losses in the most recent period.
Now let's ask again: whereabouts do you think you'd fit into this richest-to-poorest conga line? Odds are that you think you'd be somewhere near the middle - not at the front, naturally (unless your surname is Abramovich), not even particularly near the front, but somewhere towards the centre of the line. Odds are, however, that you're wrong. Research conducted for the Joseph Rowntree Foundation has shown that the majority of people in the UK appear to believe that they are 'in the middle' of the income distribution. Yet in reality (or at least in our imaginary conga line) many of these people are miles away from the middle. From poorer people in the bottom third of the income distribution, up to people in the top five or ten per cent, many will happily report that they think they're 'in the middle.'
If you're intrigued to know exactly where you fit in to our imaginary conga line - you're in luck. The IFS website has long offered a calculator called (imaginatively enough) 'Where Do You Fit In?' Punch in the number of people in your household, their income (after tax) and the amount of council tax you pay, and it'll tell you exactly where you fit in to the UK income distribution. Better still, today we've launched IFS's first iPhone app, which does the same - just follow this link or search for 'IFS' in the App Store. (Of course, if you own an iPhone, odds are you're already some way up the income distribution.) If you don't, you can carry out the same exercise on our website