Regional Household Income

Introduction

Gross Domestic Product (GDP) or Gross Value Added (GVA) estimates are the conventional measures used to measure economic well-being. These generally measure the value of goods and services produced within an area. An alternative and arguably more meaningful measure of local prosperity is that compiled by the Office of National Statistics (ONS) on household income or, more especially, on Gross Disposable Household Income (GDHI).

Estimates of GDHI are presented on a residence basis and represents the amount of money that households have available for spending or savings, hence 'disposable income'. This is money left after expenditure associated with income, e.g. taxes and social contributions, property ownership (mortgage interest) and provision for future pension income and non-life insurance premiums. The social benefits included in household income comprise a number of components. As well as private and state pensions they include child benefit, disability living allowance, unemployment and jobseeker benefits, and incapacity benefits. Thus, unlike the GDP measure, household income takes account of both the impact of commuters' incomes and pensioners' and other inactive persons' incomes. The 'household sector' itself covers people living in traditional households as well as those living in institutions. The latter includes people living in retirement homes and prisons. The sector also includes sole trader enterprises and non-profit institutions serving households such as charities and most universities.

The most recent official local estimates for disposable household income are for 2006 and are geographically based on European-defined statistical units – the so-called "Nomenclature of Units for Territorial Statistics" (NUTS). These areas provide a single uniform breakdown for the production of regional and sub-regional statistics for the European Union. In the case of Lancashire, for example, the County together with the two unitary authorities of Blackburn with Darwen and Blackpool comprise a sub-regional NUTS-2 area. Each of the three areas are also separately NUTS-3 or "local areas". GDHI estimates at the level of NUTS-4 areas, i.e. local County Districts, are not available.

Total Gross Disposable Household Income

In absolute terms the Lancashire NUTS-2 region enjoyed total GDHI in 2006 amounting to £17.5bn. This sum represented 2.1% of the national total or just over a fifth of that for the whole of the North West (Table 1). Within the region Lancashire's total GDHI was higher than that of Cheshire, Cumbria or Merseyside but only about 56% that of Greater Manchester. Within the three northern regions the Lancashire sub-region's GDHI was exceeded by only Greater Manchester and West Yorkshire.

Comparatively, the Lancashire sub-region's GDHI in 2005 was the 22nd highest out of the 37 UK NUTS-2 regions in a range that extended from Outer London (£71.3bn) to the Highlands & Islands (£4.6bn). More than 82% of the Lancashire NUTS-2 GDHI was contributed by Lancashire County with the remainder divided between the two unitary authorities of Blackburn with Darwen (8.5% share) and Blackpool (9.1%).

Disposable Household Income per Head

A more meaningful comparator of disposable household incomes is to express them in per capita terms (i.e. in terms of "GDHI per head of population"). For the UK as a whole, excluding Extra-Regio, average GDHI per head of population in 2006 was £13,800 but across the UK it exhibits wide disparities. At the NUTS-1 level London's disposable household income per head was 23% above the UK average ion 2006 while the North East was 14% below. Amongst the NUTS-2 sub-regions Inner London not unexpectedly had the highest level of GDHI per head in 2006, at 37% greater than the UK average. Thirteen of the 37 NUTS-2 areas were above the UK average in 2006 including all those within London and the South East. At the other extreme, the West Midlands had a per capita GDHI 16% less than the UK average. Aside from these two extremes, other areas of high and low ranking NUTS-2 areas are shown in Table 2.

Disposable household income per capita in the Lancashire NUTS-2 sub-region in 2006 was estimated at £12,100. This level was the lowest of the five North West NUTS-2 areas and was more than 4% lower than that of the North West Region and only 88% of the United Kingdom average. In these terms, Lancashire was placed as a lower ranking 31st out of the 37 NUTS-2 areas used by the Office for National Statistics, or the 5th lowest in England (Table 3). At the smaller NUTS-3 level Lancashire County itself had a marginally more favourable and apparently stable position with GDHI per head at 90% of the UK average. However, the position of the two unitary authorities' position relative to the UK appeared to be falling. In 2006 Blackburn with Darwen was in the unenviable position of having the third lowest GDHI per head (after Nottingham and Hull) out of all the 133 NUTS-3 areas in the UK, which at £10,500 was only 76% of the national average. Blackpool with £11,200 stood at 81% of the UK average.

Elsewhere within the North West Region, Cheshire is the most prosperous sub-region with GDHI per head in 2006 of £14,000 which was 5% above the national average, followed some way behind by Cumbria at 96% of the UK average (Figure 1). Both of these sub-regions sustained growth in disposable household income per head 1995-2006 above the national average rate with that of Cheshire being the second highest in the UK behind Inner London. GDHI per head growth rates in Greater Manchester, Lancashire and Merseyside were very similar and slightly below the national average rate. Per head growth in Lancashire itself was the 7th slowest of all NUTS-2 regions over the period or the 6th slowest in England. Nominal growth rates (i.e. unadjusted for inflation) for the North West NUTS-2 and NUTS-3 areas for both the latest year (2005-06) and for the longer period 1995-2006 are shown in Table 4/Figure 2.

Figure 1 GDHI per Head, North West Sub-Regions, 1995-2006

Source ONS - Regional Household Incomes, May 2008

Figure 2 Headline Gross Disposable Household Income, 2006

Source ONS - Regional Household Incomes, March 2007

It is of some interest to compare these sub-regional GDHI rates with those calculated for gross value added, the more conventional measure of economic well-being (see the research monitor on Local Gross Value Added). In terms of gross value added, Cumbria, for example, has had one of the lowest rates of economic growth of any UK sub-region over the past decade. However, measured in terms of disposable household income, Cumbria's growth has matched that of the UK. A similar if rather less pronounced out-turn has been evident in Lancashire. One obvious explanation is that taxes and benefits and other transfers have an equalising or levelling-out effect which results in a generally smaller range in the distribution of disposable incomes compared with total income. Some parts of the region, notably Merseyside but to a lesser extent also Blackpool and Blackburn with Darwen gain a net positive balance through such "secondary incomes". Unlike GVA estimates, GDHI also includes pensioners' incomes and this too, in popular retirement areas as found in parts of Lancashire and Cumbria will boost disposable income levels.

A further key factor is the consideration of incomes earned by commuters who travel for often higher paid jobs to, for example, work-centres in Greater Manchester or Merseyside. In the estimation of GVA the output of such commuters is allocated to the area in which they work. For the purpose of calculating household incomes, these are allocated by place of residence. The increasing attractions of many parts of Lancashire for such commuters has undoubtedly played a considerable role in the growth of local disposable household incomes

It is of note that at the NUTS-3 level both Lancashire County and Blackpool Unitary have household disposable income per head ratios well above those suggested under the GVA per head measure. This undoubtedly reflects to a degree the importance to these areas of pensioners' and commuters' incomes. By contrast, Blackburn with Darwen's position on the GDHI measure was slightly lower than in the case of GVA, reflecting the town's role as a daily "job surplus" centre, attracting commuters who live in other districts.