Following on from this morning\’s wonders about houshold income, I\’ve had a response. For those who didn\’t see it, I was wondering about this:
While the average household gross income has climbed over the past decade from £34,796 to £53,835, people have far less of that money to spend each month after they have paid essential bills.
That gross income looks very high indeed for the average household.
I\’ve had a response from the people who did the original report:
Average household income in 2005 was £49,335. This was calculated using ONS figures for the total gross income for the UK as a whole in 2005 and dividing this by the number of households in the UK in 2005. The ONS data for 1997 to 2005 was used to calculate a compound annual growth rate of 4.461%. This was used to calculate the 2007 estimation.
The estimation part looks fine. But running these numbers backwards (24 million households times £50 k a year gives £1.2 trillion, roughly GDP) makes me think that they\’ve used GDP for "total gross income". Now technically you can do that to give an approximation. I\’ve forgotten the technical descriptions of GDP and trying to look them up doesn\’t give me what I want: the adjustments needed to give a more accurate figure. Aren\’t total household incomes equal to consumption equal to value added? Or do we need to adjust for retained profits, savings, etc? The perils of only knowing a little perhaps.
Anyway, that\’s how we get that very high figure, GDP divided by the number of households. It\’s high because it\’s the mean, not the median, and because, well, we don\’t normally define household income that way anyway.