Spending by rich and poor

The very rich, said F. Scott Fitzgerald, "are different from you and me*." Today's ONS report on family spending helps us see how different.Table A6 shows spending by income decile. From this, I've measured the ratio of the highest decile's spending to the lowest decile's for various items; the highest decile has weekly income of over £1405, the lowest has an income under £173.

For all significant items bar two (rent and tobacco), the rich spend more than the poor. At this level of aggregation, there are few inferior goods. Adding up all spending, the richest decile spend 5.7 times as much as the poor. Among the highest ratios are:

Computer software & games = 48.0   
Sports equipment & admissions = 32.7
Cinema = 30.0
Rail & tube fares = 20.8
Vehicle purchase = 17.9
Package holidays = 14.2
Wine = 10.2
Men's underwear = 10.0
Petrol 9.9

Among the lowest ratios are:

Electricity & gas = 2.3
Newspapers = 1.6
Gambling = 1.5
Bus fares = 1.3
Sugar & jams = 1.3

Now, these figures are skewed by the fact that richer households are larger than poorer ones, with an average of 3.1 members rather than 1.3, which means the rich are more likely to have kids. And the poorest decile are more likely to be women - which goes some way to explaining the weird fact that the rich spend a lot more on men's grundies than the poor.

One thing that stands out here is the high ratios for rail fares and petrol, which suggests that these travel expenses are luxury goods. By contrast, the low ratios for electricity and gas and for bus fares suggest that price rises for these have regressive effects.

One other thing. The above numbers miss out some other expenses. The richest decile pay 176.6 times more in income tax than the poorest, 466 times more in National Insurance, and save 110 times as much.

* Hemingway's famous retort - "yes, they've got more money" - is apocryphal.

Comments

[Shrugged...]

Don't agree that the travel is a luxury. It could just be commuting, which may be up to £5K pa net.

[Tom]

Shrugged: That may be the point, only the rich can afford to commute such distances by rail or car. The benefit of the luxury is living so far away from where you work (which typically means larger houses, more open spaces, less crime, etc).

The corollary of this is that many poor households are within walking/cycling/bus distance of their jobs.

[chris]

@ Tom, Shrugged - this is a can of worms. Ordinarily, I'd agree with Tom; the choice to live a long way from where you work is one the rich can make more easily than the poor.
However, the evidence suggests that commuters suffer lower well-being:
http://ideas.repec.org/p/iza/izadps/dp1278.html
This suggests the decision to commute is a bad one.
I suspect this goes to show that our housing market and planning laws are dysfunctional. In a rational world, surely people would live near where they work - and the irrationality isn't only workers'.

[Philip Walker]

"In a rational world, surely people would live near where they work."

In a rational world, people might try to find ways to keep both the job they want and the family they love...

[FromArseToElbow]

A world in which people live where they work tends to be one where they scratch a living from the land. Given the choice, they head for the fringes of town. Commuting is the price we pay for civilisation (the society of the city).

Commuting in the UK, both in terms of volume of trips and distances travelled (and thus expense), is heavily weighted towards London. We have long since passed the point when the Great Wen could be adequately served by a humane commute from the suburbs, which is why City bankers now live in Notting Hill rather than Norwood, and why office clerks schlep in from Crawley to Victoria.

[Anton]

That the rich spend more than the poor on an individual basis is kind of obvious (thus Hemingway, yes), but yet there are way too few of them - on aggregate level the poor (and middle class) must spend much more than the rich - thus the problem with the lack of demand in the developed world.

[Jim]

Hmm. The richest 10% have less than 10 times the income of the poorest 10%, but pay hundreds of times more in taxes.

Whats all that about 'the rich not paying their fair share' again?

[paulc]

"Whats all that about 'the rich not paying their fair share' again?"

Add in VAT,duties and remember there are nearly three times as many rich in each household.
Now if you look at the ONS annual report on the effects of taxes and benefits on household income: http://www.ons.gov.uk/ons/rel/household-income/the-effects-of-taxes-and-benefits-on-household-income/2010-11/etb-stats-bulletin-1011.html

Looking at Table 14, we can see that the top 10% have gross income averaging £107,500, of which they pay £35,000 - just under a third - in all taxes, direct and indirect. Meanwhile, the average household has income of £37,700, of which they pay £12,700, or just over a third, in taxes. There are lots of other tables and other ways of presenting the information (table 9 has a simplified version of the same table, by income quintiles for non-retired households, which again shows the top 20% paying very slightly less than the average as a proportion of their income). As presented by Jonathan Portes @ http://notthetreasuryview.blogspot.co.uk/2012/10/taxing-rich-and-fairness-its-not-just.html#more

[Luke]

Jim, it's hardly surprising that the lowest income households pay little income tax and NI, as lots will be pensioners who spent a lifetime paying their taxes and NI. And seeing as the top 10% save 177X as much, they seem to have some cash left over after their taxes

[The Thought Gang]

@ Tom/chris

There must be an element of specialism in the commuting calculations. Someone who has special (rare) skills will likely command higher wages. That person is also more likely to be willing to commute greater distances if asked (for example, to take up employment further from home without uprooting the family). They are more likely, indeed, to be required (through choice or otherwise) to work further away from any given place because the jobs they do are relatively scarce.

So, someone who works as a cleaner will earn low wages, and can expect to find work available close to where they live. Every office needs a cleaner. But the professor of economics who lives next door needs to go further, because (apparently) not every office needs a professor of economics.

A long commute can be the free choice of a wealthy person (to enjoy that country life whilst working in the city) or it can be forced. The higher income brackets include many who are not able to be too picky about where they take employment, and not able to easily move home to somewhere closer if/when they have to take work some distance from where they live. A higher income, there, is something to compensate for the commute.. rather than enable it.

[BenSix]

I am disappointed to hear that these statistics did not extend to drugs.

[james higham]

Probably not such a useful occupation comparing spending of rich and poor but rather affordability.

[Julie Jones]

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[joe]

I wouldn't have guessed buses to be more popular for rich people. Guess it's because different people get buses in London to Norfolk.